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Template-Type: ReDIF-Paper 1.0
Title: A Multi-Country Comparison of Term Structure Forecasts at Long Horizons
Author-Name: Philippe Jorion
Author-Name: Frederic Mishkin
Author-Person: pmi37
Note: ME
Number: 3574
Creation-Date: 1991-01
Order-URL: http://www.nber.org/papers/w3574
File-URL: http://www.nber.org/papers/w3574.pdf
File-Format: application/pdf
Publication-Status: published as "A Multicountry Comparison of Term-Structure Forecasts at Long Horizons." From Journal of Financial Economics, Vol. 29, pp. 59-80, (March 1991).
Abstract: This paper extends previous work on the information in the term structure at longer maturities to other countries besides the United states, using a newly constructed data set for 1 to 5 year interest rates from Britain, West Germany and Switzerland. Even with wide differences in inflation processes across these countries, there is we find strong evidence that the term structure does have significant forecasting ability for future changes in inflation, particularly so at long maturities. On the other hand, the ability of the term structure to forecast future changes in 1-year interest rates is somewhat weaker; only at the very longest horizon (5 years) is there significant forecasting ability for interest rate changes.
Handle: RePEc:nbr:nberwo:3574
Template-Type: ReDIF-Paper 1.0
Title: National Origin and the Skills of Immigrants in the Postwar Period
Author-Name: George J. Borjas
Author-Person: pbo44
Note: LS
Number: 3575
Creation-Date: 1991-01
Order-URL: http://www.nber.org/papers/w3575
File-URL: http://www.nber.org/papers/w3575.pdf
File-Format: application/pdf
Publication-Status: published as George J. Borjas and Richard B. Freeman, editors. Immigration and the Work Force: Economics Consequences for the United States and Source Areas. Chicago: The University of Chicago Press, September 1992.
Publication-Status: published as National Origin and the Skills of Immigrants in the Postwar Period, George J. Borjas. in Immigration and the Work Force: Economic Consequences for the United States and Source Areas, Borjas and Freeman. 1992
Abstract: The postwar period witnessed major changes in U.S. immigration policy and in economic and political conditions in many of the source countries. As a result, the size, origin, and skill composition of immigrant flows changed substantially. This paper uses the Public Use Samples of the five decennial Census between 1940 and 1980 to document the extent of these changes. The empirical analysis yields two substantive results. First, almost all of the measures of skills or labor market success available in the data document a steady deterioration in the skills and labor market performance of successive immigrants waves over the postwar period, with this trend accelerating since 1960. Second, the study suggests that a single factor, the changing national origin mix of the immigrant flow, is almost entirely responsible for this trend.
Handle: RePEc:nbr:nberwo:3575
Template-Type: ReDIF-Paper 1.0
Title: Stochastic Devaluation Risk and the Empirical Fit of Target Zone Models
Author-Name: Giuseppe Bertola
Author-Person: pbe54
Author-Name: Lars E.O. Svensson
Author-Person: psv2
Note: ITI IFM
Number: 3576
Creation-Date: 1991-01
Order-URL: http://www.nber.org/papers/w3576
File-URL: http://www.nber.org/papers/w3576.pdf
File-Format: application/pdf
Publication-Status: published as Review of Economic Studies, vol. 60, no. 3, July 1993 pp. 689-712,
Abstract: This paper proposes a tractable and realistic nonlinear model of exchange rate dynamics, and argues that its predictions are consistent with available empirical evidence on exchange rate and interest differential behavior in real-life target zones. In our model, the exchange rate fluctuates between given boundaries for random lengths of time and jumps discretely when devaluations occur. We allow for stochastic variability in the likelihood and size of devaluations, and we provide explicit solutions for the stochastic processes followed by the exchange rate and by the expected rate of depreciation. The model produces realistic patterns of covariation between exchange rates and interest rate differentials, and provides interesting interpretations of available empirical evidence. We also specify how to infer devaluation risk from target zone data.
Handle: RePEc:nbr:nberwo:3576
Template-Type: ReDIF-Paper 1.0
Title: Learning by Doing and the Dynamic Effects of International Trade
Author-Name: Alwyn Young
Note: EFG
Number: 3577
Creation-Date: 1991-01
Order-URL: http://www.nber.org/papers/w3577
File-URL: http://www.nber.org/papers/w3577.pdf
File-Format: application/pdf
Publication-Status: published as Quarterly Journal of Economics 106 (May 1991): 369-405.
Abstract: Using an endogenous growth model in which learning by doing, although bounded in each good, exhibits spillovers across goods, this paper investigates the dynamic effects of international trade. Examining an LDC and a DC, the latter distinguished by a higher initial level of knowledge, under autarky and free trade, I find that under free trade the LDC (DC) experiences rates of technical progress and GOP growth less than or equal (greater than or equal) to those enjoyed under autarky. Unless the LDC's population is several orders of magnitude greater than that of the DC and the initial technical gap between the two economies is not large, the LDC will be unable to catch up with its trading partner. Hence, in terms of technical progress and growth, the LDC experiences dynamic losses from trade, whilst the DC experiences dynamic gains. However, since technical progress abroad can improve welfare at home, LDC consumers may enjoy - higher intertemporal utility along the free trade path. In the case of DC consumers, as long as their economy is not overtaken by the LDC they will enjoy both more rapid technical progress and the traditional static gains from trade, and hence experience an unambiguous improvement in intertemporal welfare.
Handle: RePEc:nbr:nberwo:3577
Template-Type: ReDIF-Paper 1.0
Title: Is the Gasoline Tax Regressive?
Author-Name: James M. Poterba
Author-Person: ppo19
Note: PE
Number: 3578
Creation-Date: 1991-01
Order-URL: http://www.nber.org/papers/w3578
File-URL: http://www.nber.org/papers/w3578.pdf
File-Format: application/pdf
Publication-Status: published as Is the Gasoline Tax Regressive?, James M. Poterba. in Tax Policy and the Economy, Volume 5, Bradford. 1991
Abstract: Claims of the regressivity of gasoline taxes typically rely on annual surveys of consumer income and expenditures which show that gasoline expenditures are a larger fraction of income for very low income households than for middle or high-income households. This paper argues that annual expenditure provides a more reliable indicator of household well-being than annual income. It uses data from the Consumer Expenditure Survey to reassess the claim that gasoline taxes are regressive by computing the share of total expenditures which high-spending and low-spending households devote to retail gasoline purchases. This alternative approach shows that low?expenditure households devote a smaller share of their budget to gasoline than do their counterparts in the middle of the expenditure distribution. Although households in the top five percent of the total spending distribution spend less on gasoline than those who are less well-off, the share of expenditure devoted to gasoline is much more stable across the population than the ratio of gasoline outlays to current income. The gasoline tax thus appears far less regressive than conventional analyses suggest.
Handle: RePEc:nbr:nberwo:3578
Template-Type: ReDIF-Paper 1.0
Title: Is Europe an Optimum Currency Area?
Author-Name: Barry Eichengreen
Author-Person: pei2
Note: ITI IFM
Number: 3579
Creation-Date: 1991-01
Order-URL: http://www.nber.org/papers/w3579
File-URL: http://www.nber.org/papers/w3579.pdf
File-Format: application/pdf
Publication-Status: published as Silvo Borger and Berber Grubel eds, The European Community after 1992, Perspectives from the Outside, London: Macmillan, 1992.
Abstract: An optimum currency area is an economic unit composed of regions affected symmetrically by disturbances and between which labor and other factors of production flow freely. The symmetrical nature of disturbances and the high degree of factor mobility make it optimal to forsake nominal exchange rate changes as an instrument of adjustment and to reap the reduction in transactions costs associated with a common currency. This paper assesses labor mobility and the incidence of shocks in Europe by comparing them with comparable measures for Canada and the United States. Real exchange rates, a standard measure of the extent of assymetrical disturbances, remain considerably more variable in Europe than within the united states. Real securities prices, a measure of the incentive to reallocate productive capital across regions, appear considerably more variable between Paris and Dusseldorf than between Toronto and Montreal. A variety of measures suggests that labor mobility and the speed of labor market adjustment remain lower in Europe than in the United states. Thus, Europe remains further than the currency unions of North America from the ideal of an optimum currency area.
Handle: RePEc:nbr:nberwo:3579
Template-Type: ReDIF-Paper 1.0
Title: Methodological Issues and the New Keynesian Economics
Author-Name: Joseph E. Stiglitz
Note: EFG
Number: 3580
Creation-Date: 1991-01
Order-URL: http://www.nber.org/papers/w3580
File-URL: http://www.nber.org/papers/w3580.pdf
File-Format: application/pdf
Publication-Status: published as Macroeconomics - A Survey of Research Strategies, edited by Alessandro Vercelli and Nicola Dimitri, pp. 38-86. New York: Oxford University Press, 1992 .
Abstract: While recent alternative approaches to macroeconomics have all begun with the presumption that macro-economic behavior ought to be derived from micro-economic foundations, they have differed in their views concerning the appropriate micro-foundations. This paper explores some of the key methodological issues, including those concerning the use of representative agent models, choices in parameterization, problems in aggregation and modeling adjustment processes and speeds, the imposition of ad hoc assumptions, such as that of instantaneous market clearing, and alternative approaches to validation of proposed theories. The paper summarizes the basic questions with which macro-economic theory should be concerned. Focusing on the labor market, it explains why New Keynesian Theories provide a better explanation of the observed phenomena than do alternatives.
Handle: RePEc:nbr:nberwo:3580
Template-Type: ReDIF-Paper 1.0
Title: Human Capital, Technology, and the Wage Structure: What Do Time Series Show?
Author-Name: Jacob Mincer
Note: LS
Number: 3581
Creation-Date: 1991-01
Order-URL: http://www.nber.org/papers/w3581
File-URL: http://www.nber.org/papers/w3581.pdf
File-Format: application/pdf
Publication-Status: published as Studies in Human Capital, Elgar Publishers, 1993
Abstract: The major purpose of this study was to detect effects of technologically based changes in demand for human capital on the educational and experience wage structure in annual CPS data, 1963 to 1987. Major findings are: 1. Year-to-year educational wage differentials are quite closely tracked by relative supplies of young graduates, and by indexes of relative demand, such as research and development (R & D) expenditures per worker, and ratios of service to goods employment. Of these, R and D indexes account for most of the explanatory power. Indexes of (Jorgenson type) productivity growth and of international competition are significant as alternatives, but show weaker explanatory power. 2. The observed steepening of experience profiles of wages is explained, in part, by changes in relative demographic supplies (cohort effects), and in part by the growing profitability of human capital which extends to that acquired on the job. Evidence appears in the significance of profitability variables or in demand factors underlying them, given the relative demographic supplies in the wage profile equations.
Handle: RePEc:nbr:nberwo:3581
Template-Type: ReDIF-Paper 1.0
Title: Assessing the Productivity of Information Technology Equipment in U.S. Manufacturing Industries
Author-Name: Catherine J. Morrison
Author-Name: Ernst R. Berndt
Note: PR
Number: 3582
Creation-Date: 1991-01
Order-URL: http://www.nber.org/papers/w3582
File-URL: http://www.nber.org/papers/w3582.pdf
File-Format: application/pdf
Publication-Status: Published as "Productive and Financial Performance in U.S. Manufacturing Industries: An Integrated Structural Approach", SEJ, Vol. 60, no. 2(1993): 376-392.
Publication-Status: Published as "High-Tech Capital Formation and Economic Performance in U.S. Manufacturing Industries: An Exploratory Analysis", JE. Published as "Assessing Productivity of Information Technology Equipment in U.S. Manufacturing Industries", Review of Economics and Statistics, Vol. 79, no. 3 (1997): 471-481.
Abstract: In this paper we report results of an empirical assessment of the cost reducing impacts of recent dramatic increases in stocks of "high-tech" office and information technology equipment (0) using annual data from various two digit US manufacturing industries over the 1952-1986 time period. While there are exceptions, on balance we find that in 1986, estimated marginal benefits of investments in this 0 equipment are less than marginal costs, implying over investment in 0 capital in 1986. The sign of the estimated elasticity of demand for labor with respect to changes in the stock of 0 capital is evenly divided in the fourteen industries, but whether positive or negative, in all industries this elasticity increases in absolute magnitude over time, indicating ever greater impacts of 0 capital on the demand for aggregate labor. Finally, our estimates of the elasticity of technical progress with respect to 0-capital are very small in magnitude implying that increases in o capital have only a small impact on technical progress.
Handle: RePEc:nbr:nberwo:3582
Template-Type: ReDIF-Paper 1.0
Title: Should the Holding Period Matter for the Intertemporal Consumption-BasedCAPM?
Author-Name: Karen K. Lewis
Author-Person: ple1119
Note: ME
Number: 3583
Creation-Date: 1991-01
Order-URL: http://www.nber.org/papers/w3583
File-URL: http://www.nber.org/papers/w3583.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Monetary Economics Volume 28, pp. 365-389 December 1991
Abstract: Empirical studies of the restrictions implied by the intertemporal capital asset pricing model across different asset markets have found conflicting evidence. In general, restrictions from this model have been rejected over short holding periods, but not over longer holding periods such as a quarter. This paper asks whether an auxiliary assumption implicit in these tests could be responsible for the observed pattern of rejections. The auxiliary assumption requires that covariances of returns with consumption move in constant proportion over time. The paper first describes how this condition may break down within the context of a general equilibrium pricing relationship. Then, the condition is tested empirically using data on foreign exchange, bonds, and equity returns. Interestingly, the pattern of consumption covariances in foreign exchange and bonds indeed match the pattern of rejection in the intertemporal asset pricing relationship.
Handle: RePEc:nbr:nberwo:3583
Template-Type: ReDIF-Paper 1.0
Title: Price-Cost Margins, Exports and Productivity Growth: With an Application to Canadian Industries
Author-Name: Jeffrey I. Bernstein
Author-Person: pbe327
Author-Name: Pierre A. Mohnen
Author-Person: pmo6
Note: PR
Number: 3584
Creation-Date: 1991-01
Order-URL: http://www.nber.org/papers/w3584
File-URL: http://www.nber.org/papers/w3584.pdf
File-Format: application/pdf
Publication-Status: published as The Canadian Journal of Economics, Vol. 24 No. 3, pp. 638-659, (August 1991).
Abstract: A model is estimated for oligopolistic industries producing multiple outputs in short-run equilibrium. Outputs are sold domestically and exported, while capital is treated as a quasi-fixed factor. The model is applied to the Canadian nonelectrical machinery, electrical products and chemical products industries. The results show that there is significant oligopoly power in each of the industries, and that the degree of this power differs between the domestic and export markets. Total factor productivity is decomposed. Price-cost margins exert little influence but the rate of technological change, returns to scale and the rate of capital adjustment determine productivity growth.
Handle: RePEc:nbr:nberwo:3584
Template-Type: ReDIF-Paper 1.0
Title: From Inertia to Megainflation: Brazil in the 1980s
Author-Name: Eliana Cardoso
Note: ITI IFM
Number: 3585
Creation-Date: 1991-01
Order-URL: http://www.nber.org/papers/w3585
File-URL: http://www.nber.org/papers/w3585.pdf
File-Format: application/pdf
Publication-Status: published as Bruno, Michael, et al. (eds.) Lessons of economic stabilization and its aftermath. Cambridge, MA and London: MIT Press, 1991.
Abstract: This paper discusses the acceleration of inflation in Brazil. In the early 1980s, the Brazilian inflation rate increased in good measure because of the balance of payments crisis and because of large depreciations of the cruzeiro. The Cruzado Plan failed to stop inflation because of an extremely loose monetary policy coupled with a lack of fiscal austerity. Repeated price controls have increased the variability of inflation. More recently, the decline in tax collections and the growth of interest payments on a ballooning domestic debt have built up a massive fiscal problem. Flight from money has further aggravated Brazilian inflation. Two steps are used in explaining the Brazilian inflationary process: the analysis of price freezes in the context of sustained fiscal imbalance and the research on the consequences of different fiscal deficit financing forms. The paths of inflation and real cash balances in response to different shocks are simulated. The focus is on the effects of controls that impose a temporary reduction of the inflation rate under different choices for monetary and fiscal policies. A model of an open economy where agents can hold money, domestic bonds and inventories of goods clarifies the linkage between Brazil's growing inability to finance the public sector deficit externally after 1982 and the acceleration of inflation.
Handle: RePEc:nbr:nberwo:3585
Template-Type: ReDIF-Paper 1.0
Title: Precautionary Motives for Holding Assets
Author-Name: Miles S. Kimball
Author-Person: pki97
Note: ME
Number: 3586
Creation-Date: 1991-01
Order-URL: http://www.nber.org/papers/w3586
File-URL: http://www.nber.org/papers/w3586.pdf
File-Format: application/pdf
Publication-Status: published as New Palgrave Dictionary of Money and Finance, (London: MacMillan Press: 199 2) and (New York: Stockton Publishers: 1992);, Volume 3, pp. 158-161
Abstract: At least three types of precautionary motives are directly relevant to an agent's demand for assets. (I.) The precautionary saving motive, or prudence, can cause an agent to respond to a risk by accumulating more wealth. (II.) The desire to moderate total exposure to risk, or temperance, can cause an agent to respond to an unavoidable risk by reducing exposure to other risks even when the other risks are statistically independent of the first. (III.) The precautionary demand for liquidity can cause an agent to respond to a risk by holding more money.
Handle: RePEc:nbr:nberwo:3586
Template-Type: ReDIF-Paper 1.0
Title: Employer Size and Dual Labor Markets
Author-Name: James B. Rebitzer
Author-Person: pre77
Author-Name: Michael D. Robinson
Author-Person: pro261
Note: LS
Number: 3587
Creation-Date: 1991-01
Order-URL: http://www.nber.org/papers/w3587
File-URL: http://www.nber.org/papers/w3587.pdf
File-Format: application/pdf
Publication-Status: published as Review of Economics and Statistics, Vol. 73, No. 4, (November 1991), p. 710-715.
Abstract: Recently developed effort regulation models argue that labor markets are segmented because of differences in the technology of supervision across firms. primary jobs pay above market clearing wages because these jobs are difficult to monitor. Secondary jobs, in contrast, pose no monitoring difficulties and therefore pay a market clearing wage. If, as the literature suggests, increases in employer size make supervision more difficult, we should observe that wages increase with employer size in primary jobs but not in secondary jobs. We test this hypothesis using a switching regression model. We find evidence of an employer size wage effect in both primary and secondary labor markets. However, consistent with the prediction of effort control models, the size effect on wages is considerably larger in primary than secondary jobs.
Handle: RePEc:nbr:nberwo:3587
Template-Type: ReDIF-Paper 1.0
Title: Equilibrium in Competitive Insurance Markets with Moral Hazard
Author-Name: Richard Arnott
Author-Person: par13
Author-Name: Joseph Stiglitz
Note: ME
Number: 3588
Creation-Date: 1991-01
Order-URL: http://www.nber.org/papers/w3588
File-URL: http://www.nber.org/papers/w3588.pdf
File-Format: application/pdf
Abstract: This paper examines the existence and nature of competitive equilibrium with moral hazard. The more insurance an individual has, the less care will he take. Consequently, insurance firms attempt to restrict their clients' aggregate insurance purchases. If individuals' aggregate insurance purchases are observable, each firm will ration the amount of insurance its clients can purchase and insist that they purchase no insurance from other firms. This paper focuses on the alternative situation where firms cannot observe their clients' aggregate insurance purchases. We show that firms will still attempt to restrict their clients' aggregate purchases, but now they must do so indirectly. One possibility is that all firms sell only policies with a sufficiently large amount of coverage that individuals choose to purchase insurance from only one firm. Another possibility is that each firm offers a latent policy in addition to its regular policy. Latent policies are not purchased in equilibrium, but serve to restrict entry. If an entering firm offers a supplementary policy, an individual will purchase not only this policy plus his previous policy but also the latent policy. The latent policy is designed so that the individual reduces effort by enough to render any entering policy unprofitable.
Handle: RePEc:nbr:nberwo:3588
Template-Type: ReDIF-Paper 1.0
Title: Generational Accounts - A Meaningful Alternative to Deficit Accounting
Author-Name: Alan J. Auerbach
Author-Person: pau33
Author-Name: Jagadeesh Gokhale
Author-Name: Laurence J. Kotlikoff
Author-Person: pko44
Note: EFG PE EFG AG
Number: 3589
Creation-Date: 1991-01
Order-URL: http://www.nber.org/papers/w3589
File-URL: http://www.nber.org/papers/w3589.pdf
File-Format: application/pdf
Publication-Status: published as Auerbach, Alan J., Jagadeesh Gokhale and Laurence J. Kotlikoff. "Generational Accounting: A Meaningful Way To Evaluate Fiscal Policy," Journal of Economic Perspectives, 1994, v8(1), 73-94.
Publication-Status: published as Generational Accounts: A Meaningful Alternative to Deficit Accounting, Alan J. Auerbach, Jagadeesh Gokhale, Laurence J. Kotlikoff. in Tax Policy and the Economy, Volume 5, Bradford. 1991
Abstract: This paper presents a set of generational accounts (GAS) that can be used to assess the fiscal burden current generations are placing on future generations. The GAS indicate the net present value amount that current and future generations are projected to pay to the government now and in the future. The generational accounting system represents an alternative to using the federal budget deficit to gauge intergenerational policy. From a theoretical perspective, the measured deficit need bear no relationship to the underlying intergenerational stance of fiscal policy. Within the range of reasonable growth and interest rate assumptions the difference between age zero and future generations in GAS ranges from 17 to 24 percent. This means that if the fiscal burden on current generations is not increased relative to that projected from current policy (ignoring the just enacted federal budget deal) and if future generations are treated equally (except for an adjustment for growth) the fiscal burden facing all future generations over their lifetimes will be 17 to 24 percent larger than that facing newborns in 1989. The just enacted budget will, if it sticks, significantly reduce the fiscal burden on future generations.
Handle: RePEc:nbr:nberwo:3589
Template-Type: ReDIF-Paper 1.0
Title: International Accounting Diversity: Does it Impact Market Participants?
Author-Name: Frederick D.S. Choi
Author-Name: Richard M. Levich
Note: ITI IFM
Number: 3590
Creation-Date: 1991-01
Order-URL: http://www.nber.org/papers/w3590
File-URL: http://www.nber.org/papers/w3590.pdf
File-Format: application/pdf
Publication-Status: published as "International Accounting Diversity: Does it Affect Market Participants?" From Financial Analysts Journal, Vol. 47, No. 4, pp. 73-82, (July/August 1991).
Abstract: While many indicators point to the globalization of capital markets, one barrier may persist -- International Accounting Diversity. Even though coordination of many national policies is gaining favor, the measurement and disclosure principles that underlie financial statements remain largely a nationalistic affair. In this paper, we analyze the channels through which accounting diversity affects financial statements. Accounting differences may affect cash flows and lead to a direct affect on valuation. Accounting differences may also affect balance sheet items and measures of capital adequacy or credit worthiness that indirectly affect managerial decisions and firm valuation. In a survey of participants in the international capital market, we find that accounting diversity is a problem that affects the capital market decisions of roughly one-half of the participants in our study. Thus, we cannot rule out the possibility that international accounting diversity is a barrier whose presence may affect the pricing of securities and the composition of international portfolios. On the other hand, roughly one-half of the participants in this study found what they described as effective ways of coping with diversity. These coping mechanisms may be useful for other investors and issuers in making their capital market decisions.
Handle: RePEc:nbr:nberwo:3590
Template-Type: ReDIF-Paper 1.0
Title: Volatility Tests and Efficient Markets: A Review Essay
Author-Name: John H. Cochrane
Author-Person: pco57
Note: EFG ME
Number: 3591
Creation-Date: 1991-01
Order-URL: http://www.nber.org/papers/w3591
File-URL: http://www.nber.org/papers/w3591.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Monetary Economics, Vol. 27, pp.463-485, (1991).
Abstract: This essay examines what volatility tests tell us about the data and what implications we should derive from them. It argues that volatility tests do not tell us that "prices are too volatile", implying that "markets are inefficient", but rather that "(discounted) returns are forecastable", implying that "current discount rate models leave a residual". It also argues that the discount rate residuals documented by volatility tests (and equivalent return forecasting regressions or Euler equation tests) are suggestive of rational, business cycle-induced discount rate movements, rather than "fads" or other inefficiencies.
Handle: RePEc:nbr:nberwo:3591
Template-Type: ReDIF-Paper 1.0
Title: The Changing Fortunes of FHA's Mutual Mortgage Insurance Fund and the Legislative Response
Author-Name: Patric H. Hendershott
Author-Name: James A. Waddell
Note: ME
Number: 3592
Creation-Date: 1991-01
Order-URL: http://www.nber.org/papers/w3592
File-URL: http://www.nber.org/papers/w3592.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Real Estate Finance and Economics, June 1992, pp. 119-132
Abstract: The 1980s was a bad decade for FHA's Mutual Mortgage Insurance (MMI) program, the mainstay of FHA's single family mortgage insurance. While the MMI Fund is required by statute to be actuarially sound, the Fund lost close to $6 billion dollars, and its economic value declined from 5.3 percent of insurance-in-force to under one percent. This study documents the decline in the soundness of the MMI Fund in the 1980s and describes the legislation enacted in October 1990 to shore up the Fund.
Handle: RePEc:nbr:nberwo:3592
Template-Type: ReDIF-Paper 1.0
Title: The Effects of Pensions and Retirement Policies on Retirement in Higher Education
Author-Name: Alan L. Gustman
Author-Person: pgu327
Author-Name: Thomas L. Steinmeier
Note: AG LS
Number: 3593
Creation-Date: 1991-01
Order-URL: http://www.nber.org/papers/w3593
File-URL: http://www.nber.org/papers/w3593.pdf
File-Format: application/pdf
Publication-Status: published as The American Economic Review, Vol. 81, No. 2, pp. 111-115, (May 1991).
Abstract: A structural retirement model is estimated using data for tenured, male faculty employed in the 1970's at 26 high quality private colleges and universities. Simulations of raising and then abolishing the mandatory retirement age suggest very large increases in full time work by faculty members in their late 60's and early 70's. Simulations also suggest that early retirement incentive programs would offset only a small fraction of the increase in work due to changes in mandatory retirement, and that rents created by these programs exceed savings from induced early retirements, with salaries of replacements further adding to costs.
Handle: RePEc:nbr:nberwo:3593
Template-Type: ReDIF-Paper 1.0
Title: International Trade with Endogenous Technological Change
Author-Name: Luis A. Rivera-Batiz
Author-Name: Paul M. Romer
Author-Person: pro45
Note: EFG ITI EFG IFM
Number: 3594
Creation-Date: 1991-01
Order-URL: http://www.nber.org/papers/w3594
File-URL: http://www.nber.org/papers/w3594.pdf
File-Format: application/pdf
Publication-Status: published as European Economic Review, Vol. 35, No. 4, pp. 971-1004, (May 1991).
Abstract: To explain why trade restrictions sometimes speed up worldwide growth and sometimes slow it down, we exploit an analogy with the theory of consumer behavior. substitution effects make demand curves slope down, but income effects can increase or decrease the slope, and can sometimes overwhelm the substitution effect. We decompose changes in the worldwide growth rate into two effects (integration and redundancy) that unambiguously slow down growth, and a third effect (allocation) that can either speed it up or slow it down. We study two types of trade restrictions to illustrate the use of this decomposition. The first is across the board restrictions on traded goods in an otherwise perfect market. The second is selective protection of knowledge-intensive goods in a world with imperfect intellectual property rights. In both examples, we show that for trade between similar regions such as Europe and North America, the first two effects dominate; starting from free trade, restrictions unambiguously reduce worldwide growth.
Handle: RePEc:nbr:nberwo:3594
Template-Type: ReDIF-Paper 1.0
Title: Money, Interest and Prices
Author-Name: Stanley Fischer
Note: EFG
Number: 3595
Creation-Date: 1991-01
Order-URL: http://www.nber.org/papers/w3595
File-URL: http://www.nber.org/papers/w3595.pdf
File-Format: application/pdf
Abstract: Twenty five years after the publication of the second edition, this paper describes and evaluates the Contributions to monetary and macroeconomics made in Don Patinkin's Money, Interest, and Prices (MIP). Its first accomplishment was to settle definitively many issues, such as the valid and invalid dichotomies between real and nominal magnitudes, Say's identity, the nature of the Keynesian system, and the requirements for the neutrality of money, which had been disputed for decades. It also opened the road to the future by developing macroeconomic models from a well specified microeconomic foundation. In so doing, it established the base on which subsequent equilibrium macroeconomics built. Beyond that, in Chapter XII, Patinkin pioneered the development of disequilibrium analysis by presenting a fully articulated model that makes the key distinction between notional and effective demands, and using it to explain price and quantity adjustments in conditions of unemployment.
Handle: RePEc:nbr:nberwo:3595
Template-Type: ReDIF-Paper 1.0
Title: Macroeconomic Aspects of German Unification
Author-Name: Hans-Werner Sinn
Author-Person: psi146
Number: 3596
Creation-Date: 1991-01
Order-URL: http://www.nber.org/papers/w3596
File-URL: http://www.nber.org/papers/w3596.pdf
File-Format: application/pdf
Publication-Status: published as Economic Aspects of German Unification, ed. P.J. Welfens. Springer, 1992, pp. 79-133
Abstract: The paper comments on the economic effects of the German unification. Apart from discussing the unification in an international perspective, analyzing the distributional consequences, and pointing to structural adjustment problems, it emphasizes the distinction between the frequently cited money overhang and the real asset overhang which characterizes communist countries. The paper argues that the unification paid too little attention to the latter, endowing East Germans with insufficient claims on state owned enterprises. The centralized privatization of state owned enterprises, which bypasses the East German population, is seen as a major obstacle to quick recovery, and an alternative privatization procedure is discussed.
Handle: RePEc:nbr:nberwo:3596
Template-Type: ReDIF-Paper 1.0
Title: Alexander Hamilton's Market Based Debt Reduction Plan
Author-Name: Peter M. Garber
Author-Person: pga124
Note: ME ITI IFM
Number: 3597
Creation-Date: 1991-01
Order-URL: http://www.nber.org/papers/w3597
File-URL: http://www.nber.org/papers/w3597.pdf
File-Format: application/pdf
Publication-Status: published as Garber, Peter M., 1991. "Alexander Hamilton's market-based debt reduction plan," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 35(1), pages 79-104, January.
Abstract: In 1790, Alexander Hamilton, the first Secretary of the Treasury of the United States, initiated a program to refund the U.S. debt. Debt that had sold at 75% discount two years earlier would be refunded at par into new funded debt of the new federal government. All foreign indebtedness would be repaid. I present evidence that Hamilton's actual refunding policy did not differ in nature from that envisioned under the recent Brady plan. I will show that the bond package for which the old debt exchanged had a market value well below par. Thus, a large part of the face value of the debt was effectively written off. I compare the Hamilton restructuring package to the recent Mexican restructuring package to find points of similarity to the Brady plan.
Handle: RePEc:nbr:nberwo:3597
Template-Type: ReDIF-Paper 1.0
Title: How Regional Differences in Taxes and Public Goods Distort Life Cycle Location Choices
Author-Name: Laurence Kotlikoff
Author-Person: pko44
Author-Name: Bernd Raffelhueschen
Note: PE
Number: 3598
Creation-Date: 1991-01
Order-URL: http://www.nber.org/papers/w3598
File-URL: http://www.nber.org/papers/w3598.pdf
File-Format: application/pdf
Publication-Status: published as Laurence J. Kotlikoff & Bernd Raffelhüeschen & Christian D. Hagist, 2009. "How regional differences in taxes and public goods distort life cycle location choices," Hacienda Pública Española, IEF, vol. 189(2), pages 47-79, June.
Abstract: Locational choice is one of the fundamental exercises of consumer sovereignty. When regions (or localities within regions) specify different tax rates or supply different amounts of public goods, they distort individuals' location choices. This paper models and measures for the U.S. and New England the location distortion arising from inter regional differences in taxation and supplies of public goods. In our overlapping generations model agents, at each point in their lifespan, choose where to locate taking into account their locational preferences, each region's wage, consumption, and personal capital income taxes, and each region's supply of public goods. The findings suggest that regional fiscal differences play an important role in the location choices of three to four percent of Americans. For these Americans the distortion of location choice is equivalent to roughly a half of a percent of their lifetime consumption. Across all Americans, however, the location distortion induced by U.S. regional fiscal differences is quite small, simply because the differences in tax rates and per capita levels of public goods expenditures across regions are not sufficiently large to induce most Americans to change location. Our analysis indicates, however, that location distortions are an increasing function of regional differences in tax rates and levels of public goods expenditure. Indeed, a doubling of the scale of public finances across all U.S. states would lead to roughly a quadrupling of the location distortion.
Handle: RePEc:nbr:nberwo:3598
Template-Type: ReDIF-Paper 1.0
Title: Is Inequality Harmful for Growth? Theory and Evidence
Author-Name: Torsten Persson
Author-Person: ppe28
Author-Name: Guido Tabellini
Author-Person: pta37
Note: ME EFG ITI IFM
Number: 3599
Creation-Date: 1991-01
Order-URL: http://www.nber.org/papers/w3599
File-URL: http://www.nber.org/papers/w3599.pdf
File-Format: application/pdf
Publication-Status: published as American Economic Review, Vol. 84 (1994): 600-621.
Abstract: Is inequality harmful for growth? We suggest that it is. To summarize our main argument: in a society where distributional conflict is more important, political decisions are more likely to produce economic policies that allow private individuals to appropriate less of the returns to growth promoting activities, such as accumulation of capital and productive knowledge. In the paper we first formulate a theoretical model that formally captures this idea. The model has a politico-economic equilibrium, which determines a sequence of growth rates depending on structural parameters, political institutions, and initial conditions. We then confront the testable empirical implications with two sets of data. A first data set pools historical evidence-which goes back to the mid 19th century-from the US and eight European countries. A second data set contains post-war evidence from a broad cross-section of developed and less developed countries. In both samples we find a statistically significant and quantitatively important negative relation between inequality and growth. After a comprehensive sensitivity analysis, we conclude that our findings are not distorted by measurement error, reverse causation, hetroskedasticity, or other econometric problems.
Handle: RePEc:nbr:nberwo:3599
Template-Type: ReDIF-Paper 1.0
Title: Trade Reforms, Credibility, and Development
Author-Name: Joshua Aizenman
Author-Person: pai8
Note: ITI IFM
Number: 3600
Creation-Date: 1991-01
Order-URL: http://www.nber.org/papers/w3600
File-URL: http://www.nber.org/papers/w3600.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Development Economics Volume 39, pp. 163-187, 1992
Abstract: This paper analyzes the role of investment policies in regimes undergoing trade liberalization with policy makers of uncertain credibility. We consider an economy producing exportable and importable goods. The economy is liberalized, and tariffs are eliminated. The public views the reform credibility as questionable, and expects the possibility of future policy reversal. The policy maker sets policies and public investment as to maximize the expected utility of a risk averse representative agent. We identify the need to tax private investment in the importable sector, and to subsidize private investment in the outward-oriented sector. We show that the signaling effect of public investment nay generate a positive externality for public investment in the outward sector, and a negative externality for public investment in the inward-oriented activity. We demonstrate that the elimination of sectorial private investment policies call for a rise in the public/private capital ratio in the outward-oriented activities, and a drop in that ratio in the inward-oriented activities. In the presence of an external credit ceiling, a higher degree of risk aversion increases the magnitude (without changing the nature) of the policies.
Handle: RePEc:nbr:nberwo:3600
Template-Type: ReDIF-Paper 1.0
Title: Target Zones Big and Small
Author-Name: Francisco Delgado
Author-Name: Bernard Dumas
Author-Person: pdu519
Note: ITI IFM
Number: 3601
Creation-Date: 1991-01
Order-URL: http://www.nber.org/papers/w3601
File-URL: http://www.nber.org/papers/w3601.pdf
File-Format: application/pdf
Publication-Status: published as "Target Zones, Broad and Narrow," Exchange Rate Targets and Currency Bands.eds. P. Krugman and M. Miller. Cambridge, U.K.: Cambridge University Press, for CEPR and NBER, 1992.
Abstract: Under different assumptions about the underlying monetary shocks, we study target zones of various widths and the effect they have on variables like the interest differential. The stochastic disturbances assumed are successively a non-zero mean random walk and a mean reverting process. The latter is used to incorporate the "leaning against the wind" policy (intrainarginal intervention) which is prevalent in the EMS.
Handle: RePEc:nbr:nberwo:3601
Template-Type: ReDIF-Paper 1.0
Title: Intertemporal Labor Supply: An Assessment
Author-Name: David Card
Author-Person: pca271
Note: LS
Number: 3602
Creation-Date: 1991-01
Order-URL: http://www.nber.org/papers/w3602
File-URL: http://www.nber.org/papers/w3602.pdf
File-Format: application/pdf
Publication-Status: forthcoming in Christopher Sims, ed., Advances in Econometrics, Sixth World Congress, (New York, Cambridge University Press, 1994)
Abstract: The lifecycle labor supply model has been proposed as an explanation for various dimensions of labor supply, including movements over the business cycle, changes with age, and within-person variation over time. According to the model, all of these elements are tied together by a combination of intertemporal substitution effects and wealth effects. This paper offers an assessment of the model's ability to explain the main components of labor supply, focusing on microeconomic evidence for men.
Handle: RePEc:nbr:nberwo:3602
Template-Type: ReDIF-Paper 1.0
Title: Destabilizing Effects of Exchange-Rate Escape Clauses
Author-Name: Maurice Obstfeld
Author-Person: pob13
Note: ITI IFM
Number: 3603
Creation-Date: 1991-01
Order-URL: http://www.nber.org/papers/w3603
File-URL: http://www.nber.org/papers/w3603.pdf
File-Format: application/pdf
Publication-Status: published as Journal of International Economics, Vol. 43 (August 1997): 61-77.
Abstract: This paper studies the merits of policy rules with escape clauses, analyzing as an example fixed exchange-rate systems that allow member countries the freedom to realign in periods of stress. Motivating this example is the debate within the European Monetary System over how quickly to move from the current regime of national currencies, linked by pegged but adjustable exchange rates, to a single European currency. The paper's main point is that while well-designed rules with escape clauses can raise society's welfare in principle, limited credibility makes it difficult for governments to implement such rules in practice. An EMS-type institution - which presumably imposes a political cost on policymakers who realign - may lead to an optimal escape-clause equilibrium, but may just as well lead to alternative equilibria far inferior to an irrevocably fixed exchange rate. Countries can suffer periods in which no realignment occurs, yet unemployment, real wages, and ex post real interest rates remain persistently and suboptimally high.
Handle: RePEc:nbr:nberwo:3603
Template-Type: ReDIF-Paper 1.0
Title: Government Revenue from Financial Repression
Author-Name: Alberto Giovannini
Author-Name: Martha de Melo
Note: PE ITI ME IFM
Number: 3604
Creation-Date: 1991-01
Order-URL: http://www.nber.org/papers/w3604
File-URL: http://www.nber.org/papers/w3604.pdf
File-Format: application/pdf
Publication-Status: published as American Economic Review, Vol. 83, no. 4 (1993): 953-963.
Abstract: This paper presents an analysis of the theoretical underpinnings and the relevance of the phenomenon of financial repression from a public-finance perspective. The analysis explicitly accounts for the interaction between capital controls and financial repression. The proposed empirical estimate of the revenue from financial repression is based on the difference between the domestic and the foreign cost of borrowing of the government. The correlations of the revenue from financial repression with inflation, exchange rates and per-capita income are discussed.
Handle: RePEc:nbr:nberwo:3604
Template-Type: ReDIF-Paper 1.0
Title: Reconciling the Pattern of Trade with the Pattern of Migration
Author-Name: James E. Rauch
Author-Person: pra166
Note: ITI LS IFM
Number: 3605
Creation-Date: 1991-01
Order-URL: http://www.nber.org/papers/w3605
File-URL: http://www.nber.org/papers/w3605.pdf
File-Format: application/pdf
Publication-Status: published as The American Economic Review, Vol. 81, No. 4, pp. 775-796, (September 1991)
Abstract: Empirical studies have consistently found that skilled-labor abundant countries tend to export skilled-labor intensive manufactured goods. Yet these countries also have higher wages for skilled workers, causing them to be net importers through migration of skilled labor from unskilled-labor abundant countries (the "brain drain"). A new explanation is presented for this combination of comparative and absolute advantage in skilled-labor abundant countries: if only skilled (educated) individuals can become managers, then given the same underlying distribution of managerial talent the country that is more poorly endowed with skilled labor must use a less talented manager at the margin in order to fully employ its work force. This causes wages for unskilled workers and skilled individuals who choose to become employees to be lower in the unskilled-labor abundant country while incomes of skilled individuals talented enough to become managers are lower (for a given talent level) in the skilled-labor abundant country. The consequences of the resulting migration of unskilled and skilled employees to the skilled-labor abundant country and managers to the unskilled-labor abundant country are then examined. There are several surprises: for example, migration of unskilled labor to the skilled-labor abundant country leads to a fall in the wages of both unskilled and skilled workers there and a rise in the wages of both unskilled and skilled workers in the country of origin.
Handle: RePEc:nbr:nberwo:3605
Template-Type: ReDIF-Paper 1.0
Title: Agricultural Productivity, Comparative Advantage and Economic Growth
Author-Name: Kiminori Matsuyama
Author-Person: pma143
Note: EFG
Number: 3606
Creation-Date: 1991-01
Order-URL: http://www.nber.org/papers/w3606
File-URL: http://www.nber.org/papers/w3606.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Economic Theory, December,1992.
Abstract: The role of agricultural productivity in economic development is addressed in a two-sector model of endogenous growth in which a) preferences are non-homothetic and the income elasticity of demand for the agricultural good is less than unitary, and b) the engine of growth is learning-by-doing in the manufacturing sector. For the closed economy case, the model predicts a positive link between agricultural productivity and economic growth and thus provides a formalization of the conventional wisdom, which asserts that agricultural revolution is a precondition for industrial revolution. For the open economy case, however, the model predicts a negative link; that is, an economy with a relatively unproductive agricultural sector experiences faster and accelerating growth. The result suggests that the openness of an economy should be an important factor when planning development strategy and predicting growth performance.
Handle: RePEc:nbr:nberwo:3606
Template-Type: ReDIF-Paper 1.0
Title: Cities in Space: Three Simple Models
Author-Name: Paul Krugman
Author-Person: pkr10
Note: ITI IFM
Number: 3607
Creation-Date: 1991-01
Order-URL: http://www.nber.org/papers/w3607
File-URL: http://www.nber.org/papers/w3607.pdf
File-Format: application/pdf
Abstract: Urban agglomerations arise at least in part out of the interaction between economies of scale in production and market size effects. This paper develops a simple spatial framework to develop illustrative models of the determinants of urban location, of the number and size of cities, and of the degree of urbanization. A Central theme is the probable existence of multiple equilibria, and the dependence of the range of potential outcomes on a few key parameters.
Handle: RePEc:nbr:nberwo:3607
Template-Type: ReDIF-Paper 1.0
Title: The Fertility of Immigrant Women: Evidence from High Fertility Source Countries
Author-Name: Francine D. Blau
Author-Person: pbl16
Note: LS
Number: 3608
Creation-Date: 1991-01
Order-URL: http://www.nber.org/papers/w3608
File-URL: http://www.nber.org/papers/w3608.pdf
File-Format: application/pdf
Publication-Status: published as George J. Borjas and Richard B. Freeman, editors. Immigration and the Work Force: Economic Consequences for the United States and Source Areas. Chicago: UCP, September 1992, pp. 93-133.
Publication-Status: published as The Fertility of Immigrant Women: Evidence from High-Fertility Source Countries , Francine D. Blau. in Immigration and the Work Force: Economic Consequences for the United States and Source Areas, Borjas and Freeman. 1992
Abstract: Using data from the 1970 and 1980 Censuses, we examined the fertility of immigrant women from the Middle East, Asia, Latin America and the Caribbean where fertility rates averaged in excess of 5.5 children per women during the period of immigration to the U.S. Perhaps the most interesting finding of this study is that immigrants from these on average high fertility source countries were found to have very similar unadjusted fertility to native-born women. The small immigrant-native differential appears to reflect the selectivity of immigrants as a low fertility group both relative to source country populations and to native-born women with similar personal characteristics (a relatively high fertility group in the U.S.). Immigrant fertility is also depressed relative to natives in the 1970 cross-section by the tendency of immigration to disrupt fertility. Tracking the relative fertility of synthetic cohorts of immigrants across the 1970 and 1980 Censuses, we found that immigrant fertility, especially of the most recent cohort of immigrants in 1970, increased relative to otherwise similar natives over the decade. Despite this increase in relative fertility, the fertility of these immigrants remained below that of natives with similar personal characteristics in 1980. One trend of interest is that recent arrivals had higher adjusted fertility relative to both natives and longer term immigrants in 1980 than in 1970. This in part represents the impact of declining birthrates in the U.S. over this period, while source country fertility rates remained on average fairly constant.
Handle: RePEc:nbr:nberwo:3608
Template-Type: ReDIF-Paper 1.0
Title: Investor Diversification and International Equity Markets
Author-Name: Kenneth R. French
Author-Person: pfr33
Author-Name: James M. Poterba
Author-Person: ppo19
Note: ME
Number: 3609
Creation-Date: 1991-01
Order-URL: http://www.nber.org/papers/w3609
File-URL: http://www.nber.org/papers/w3609.pdf
File-Format: application/pdf
Publication-Status: published as American Economic Review, Vol. 81, (May 1991), pp.222-226.
Publication-Status: published as French, Kenneth R. and James M. Poterba. "Investor Diversification And International Equity Markets," American Economic Review, 1991, v81(2), 222-226.
Abstract: The benefits of international diversification have been recognized for decades. In spite of this, most investors hold nearly all of their wealth in domestic assets. In this paper, we construct new estimates of the international equity portfolio holdings of investors in the U.S., Japan, and Britain. More than 98% of the equity portfolio of Japanese investors is held domestically; the analogous percentages are 94% for the U.S., and 82% for Britain. We use a simple model of investor preferences and behavior to show that current portfolio patterns imply that investors in each nation expect returns in their domestic equity market to be several hundred basis points higher than returns in other markets. This lack of diversification appears to be the result of investor choices, rather than institutional constraints.
Handle: RePEc:nbr:nberwo:3609
Template-Type: ReDIF-Paper 1.0
Title: New Goods and Index Numbers: U.S. Import Prices
Author-Name: Robert C. Feenstra
Author-Person: pfe116
Note: ITI PR IFM
Number: 3610
Creation-Date: 1991-02
Order-URL: http://www.nber.org/papers/w3610
File-URL: http://www.nber.org/papers/w3610.pdf
File-Format: application/pdf
Publication-Status: published as revised as "New Product Varieties and the Measurement of International Prices", American Economic Review, Vol. 84, no. 1, pp. 157-177, (March 1994).
Abstract: Researchers constructing index number frequently face the problem of new (or disappearing) goods, for which the price and quantity are not available in some periods. In theory, the correct way to handle a new good is to treat its price before it appears as equal to the reservation price (i.e., where demand is zero); in practice, this method can be difficult to implement. However, if the underlying aggregator function is CES then the reservation price is infinity, and we show that the corresponding price index takes on a very sensible form. We apply this formula to measure the price index for six disaggregate U.S. imports, which have been supplied from many new countries over the past several decades. We find that by incorporating the new supplying countries, the price index for developing countries is significantly lower than would otherwise be measured.
Handle: RePEc:nbr:nberwo:3610
Template-Type: ReDIF-Paper 1.0
Title: A Model of the Political Economy of the United States
Author-Name: Alberto Alesina
Author-Person: pal207
Author-Name: John Londregan
Author-Name: Howard Rosenthal
Number: 3611
Creation-Date: 1991-02
Order-URL: http://www.nber.org/papers/w3611
File-URL: http://www.nber.org/papers/w3611.pdf
File-Format: application/pdf
Publication-Status: published as With Jeffrey Sachs, published as "Political Parties and the Business Cyclein the United States, 1948-1984", Journal of Money, Credit and Banking, Vol. 20, no. 1 (1988): 63-82.
Abstract: We develop and test a model of joint determination of the rate of economic growth and the results of presidential and Congressional elections in the United States. In our model, economic agents and voters have rational expectations. Economic policy varies as a function of control of the White House and the two-party shares in Congress. Politics affects growth through unanticipated policy shifts following the outcome of presidential elections. The economy influences elections as voters use past realizations of growth to make rational inferences about the "competency" level of the incumbent administration. Elections are also influenced by voters using their midterm Congressional votes to moderate the policies of the incumbent administration. The theoretical model is used to generate a recursive system of equations in which the dependent variables are the growth rate and the vote shares in presidential and Congressional elections. The theory implies several restrictions on the equations. Tests of the restrictions generally support the model; however, the results support the traditional view of naive retrospective voting as well as the "rational" retrospective voting posited in the model.
Handle: RePEc:nbr:nberwo:3611
Template-Type: ReDIF-Paper 1.0
Title: Was there a bubble in the 1929 Stock Market?
Author-Name: Peter Rappoport
Author-Name: Eugene N. White
Author-Person: pwh5
Note: ME
Number: 3612
Creation-Date: 1991-02
Order-URL: http://www.nber.org/papers/w3612
File-URL: http://www.nber.org/papers/w3612.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Economic History, vol. 53, no. 3 (September 1993), pp. 549-574
Abstract: Standard tests find that no bubbles are present in the stock price data for the last one hundred years. In contrast., historical accounts, focusing on briefer periods, point to the stock market of 1928-1929 as a classic example of a bubble. While previous studies have restricted their attention to the joint behavior of stock prices and dividends over the course of a century, this paper uses the behavior of the premia demanded on loans collateralized by the purchase of stocks to evaluate the claim that the boom and crash of 1929 represented a bubble. We develop a model that permits us to extract an estimate of the path of the bubble and its probability of bursting in any period and demonstrate that the premium behaves as would be expected in the presence of a bubble in stock prices. We also find that our estimate of the bubble's path has explanatory power when added to the standard cointegrating regressions of stock prices and dividends, in spite of the fact that our stock price and dividend series are cointegrated.
Handle: RePEc:nbr:nberwo:3612
Template-Type: ReDIF-Paper 1.0
Title: Speculative Behavior in the Stock Markets: Evidence from the United States and Japan
Author-Name: Robert J. Shiller
Author-Person: psh69
Author-Name: Fumiko Kon-Ya
Author-Name: Yoshiro Tsutsui
Note: ME
Number: 3613
Creation-Date: 1991-02
Order-URL: http://www.nber.org/papers/w3613
File-URL: http://www.nber.org/papers/w3613.pdf
File-Format: application/pdf
Abstract: There have been enormous differences of opinion between U.S. and Japanese institutional investors about the outlook for stock prices, differences across the two countries in average one-year-ahead forecasts for the Japanese stock market as great as twenty percentage points. In the past two years most Japanese and U.S. institutional investors have had expectations for a reversal of trends in the stock market, and advised an investing strategy that depended on getting out of (or in to) the market before an anticipated market turnaround. These results, obtained from a number of questionnaire surveys in 1989 and 1990, help explain the relative lack of portfolio diversification across countries and show the short-term nature of speculative behavior.
Handle: RePEc:nbr:nberwo:3613
Template-Type: ReDIF-Paper 1.0
Title: Internal Currency Markets and Production in the Soviet Union
Author-Name: Linda S. Goldberg
Author-Person: pgo256
Author-Name: Ildar Karimov
Note: ITI IFM
Number: 3614
Creation-Date: 1991-02
Order-URL: http://www.nber.org/papers/w3614
File-URL: http://www.nber.org/papers/w3614.pdf
File-Format: application/pdf
Publication-Status: published as "Policy Initiatives, Internal Currency Markets, and Production Choices in Emerging Market Economies" Journal of Comparative Economics, (Dec 1995) vol 21, no 3, pp 267-288.
Abstract: This paper considers the impact of macroeconomic and microeconomic policy tools on enterprise activities within an economy in the process of economic reform. Assuming a dual exchange rate regime and the type of increased enterprise autonomy introduced as components of partial economic reform as in the Soviet Union, policy changes induce shifts in production and hard currency allocation decisions. This paper considers the implications for: the supply of hard currency to internal auctions or interbank markets; the free internal price of foreign exchange; export volumes; the trade balance; the supply of goods available for internal consumption; and open and hidden inflation. The concentration of market power of producers in domestic industries and the design of currency auctions or interbank markets are key determinants, respectively, of the magnitude and direction of the enterprise responses to policy changes and external shocks.
Handle: RePEc:nbr:nberwo:3614
Template-Type: ReDIF-Paper 1.0
Title: Host Country Benefits of Foreign Investment
Author-Name: Magnus Blomstrom
Author-Person: pbl88
Note: ITI IFM
Number: 3615
Creation-Date: 1991-02
Order-URL: http://www.nber.org/papers/w3615
File-URL: http://www.nber.org/papers/w3615.pdf
File-Format: application/pdf
Publication-Status: published as Foreign Investment, Technology and Economic Growth, edited by Donald McFetridge, pp. 93-108. Calgary: The University of Calgary Press, 1991.
Abstract: This paper reviews the empirical evidence on the very different conclusions that can be drawn about productivity spillovers of foreign direct investment. It explains the concept of host country spillover benefits, describes the various forms these benefits can take, both within and between industries, and summarizes the evidence regarding the relative magnitudes of the various forms of spillovers. Moreover, the paper discusses host country policy measures which can accelerate both the BC affiliates' technology imports and the diffusion of their technology in the host economies.
Handle: RePEc:nbr:nberwo:3615
Template-Type: ReDIF-Paper 1.0
Title: Capital Formation in Latin America
Author-Name: Eliana Cardoso
Note: ITI IFM
Number: 3616
Creation-Date: 1991-02
Order-URL: http://www.nber.org/papers/w3616
File-URL: http://www.nber.org/papers/w3616.pdf
File-Format: application/pdf
Publication-Status: Published as "Hyperinflation in Latin America", Challenge: The Magazine of Economic Affairs, Vol. 32, no. 1(1989): 11-19. Published as "Privatization Fever in Latin America", Challenge, Vol. 34,no. 5 (1991): 35-41.
Publication-Status: Published as "Private Investment in Latin America", Economic Development and Cultural Change , Vol. 41, no. 4(1993): 833-848.
Abstract: This paper studies investment in Latin America and explores the relationships of investment with growth, exchange rates and the terms of trade. It addresses the theoretical issue of the relationship between the real exchange rate and the real price of capital with a model of a small open economy with four assets. It discusses the dynamics of both the real price of capital and the real exchange rate in response to different shocks, including a change in monetary policy, an increase in external interest rates and a deterioration of the terms of trade. In the model (with a nominal exchange rate rule fixed by the central bank) a deterioration of the terms of trade leads to an immediate decline of the real price of capital, followed by a depreciating real exchange rate while the real price of capital slowly recovers. The paper explores the determinants of investment in Latin America. The regressions use quadrennial panel data for the period 1970-1985 in Argentina, Brazil, Chile, Colombia, Mexico and Venezuela. Together, these six countries account for 86 percent of the total GDP of the region. The decline in private investment shares in Latin America during the 1980s seems to result from the deterioration in the terms of trade, from the decline in growth (resulting from adjustment programs designed to reduce current account deficits), from a reduction in complementary public investment, from increased macroeconomic instability, and from a large stock of foreign debt. The real exchange rate and the real rate of depreciation have no significant role in the determination of private investment.
Handle: RePEc:nbr:nberwo:3616
Template-Type: ReDIF-Paper 1.0
Title: Window Dressing by Pension Fund Managers
Author-Name: Josef Lakonishok
Author-Name: Andrei Shleifer
Author-Person: psh93
Author-Name: Richard Thaler
Author-Name: Robert Vishny
Author-Person: pvi218
Note: ME
Number: 3617
Creation-Date: 1991-02
Order-URL: http://www.nber.org/papers/w3617
File-URL: http://www.nber.org/papers/w3617.pdf
File-Format: application/pdf
Publication-Status: published as American Economic Review Papers and Proceedings, May 1991.
Abstract: This paper takes a first look at investment strategies of managers of 769 pension funds, with total assets of $129 billion at the end of 1989. The data show that managers of these funds tend to oversell stocks that have performed poorly. Relative sales of losers accelerate in the fourth quarter, when funds' portfolios are closely examined by the sponsors. This result supports the view that fund managers "window dress" their portfolios to impress sponsors and suggests that managers are evaluated on their individual stock selections and not just aggregate portfolio performance.
Handle: RePEc:nbr:nberwo:3617
Template-Type: ReDIF-Paper 1.0
Title: Asset Sales and Debt Capacity
Author-Name: Andrei Shleifer
Author-Person: psh93
Author-Name: Robert W. Vishny
Author-Person: pvi218
Note: ME
Number: 3618
Creation-Date: 1991-02
Order-URL: http://www.nber.org/papers/w3618
File-URL: http://www.nber.org/papers/w3618.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Finance, Vol. 47, No. 4, September 1992,"Liquidation Values and Debt Capacity: A Market Equilibrium Approach"
Abstract: In this paper, we explore the link between asset sales end debt capacity. Asset sales are a common way far firms to raise cash, and so present an alternative to security issues for firms near financial distress. We argue that liquid assets -- those that can be resold at attractive terms -- are good candidates for debt finance because financial distress for firms with such assets is relatively inexpensive. We apply this logic to explain variation in debt capacity across industries and over the business cycle, as well as to the rise in U.S. corporate leverage in the 1980s.
Handle: RePEc:nbr:nberwo:3618
Template-Type: ReDIF-Paper 1.0
Title: Tax Policy and Business Fixed Investment in the United States
Author-Name: Alan J. Auerbach
Author-Person: pau33
Author-Name: Kevin Hassett
Author-Person: pha378
Note: PE
Number: 3619
Creation-Date: 1991-02
Order-URL: http://www.nber.org/papers/w3619
File-URL: http://www.nber.org/papers/w3619.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Public Economics, Vol.44, pp. 141-170, (1992).
Abstract: This paper derives and estimates models of nonresidential investment behavior in which current and future tax conditions directly affect the incentive to invest. The estimates suggest that taxes have played an independent role in affecting postwar U.S. investment behavior, particularly for investment in machinery and equipment. In addition, the paper develops a method for assessing the impact of tax policy on the volatility of investment when such policy is endogenous. Illustrative calculations using this technique, based on the paper's empirical estimates, suggest that tax policy has not served to stabilize investment in equipment or nonresidential structures during the sample period.
Handle: RePEc:nbr:nberwo:3619
Template-Type: ReDIF-Paper 1.0
Title: Reducing the Risk of Economic Crisis
Author-Name: Martin Feldstein
Author-Person: pfe112
Note: ME
Number: 3620
Creation-Date: 1991-02
Order-URL: http://www.nber.org/papers/w3620
File-URL: http://www.nber.org/papers/w3620.pdf
File-Format: application/pdf
Abstract: This paper examines the four most important potential economic crises that the United Stares fared in the 1980s in order to see what lessons can be drawn, individually and collectively, from these experiences: (1) the-developing country debt crisis; (2) the 1907 stork marker crash; (3) failures of savings and loan institutions; and (4) commercial bank failures.
Handle: RePEc:nbr:nberwo:3620
Template-Type: ReDIF-Paper 1.0
Title: The Genesis of Inflation and the Costs of Disinflation
Author-Name: Laurence Ball
Author-Person: pba605
Note: EFG
Number: 3621
Creation-Date: 1991-02
Order-URL: http://www.nber.org/papers/w3621
File-URL: http://www.nber.org/papers/w3621.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Money, Credit, and Banking, August 1991, 23(3), Part 2, pp. 439-452
Publication-Status: published as Laurence Ball, 1991. "The genesis of inflation and the costs of disinflation," Proceedings, Federal Reserve Bank of Cleveland, pages 439-461.
Abstract: This essay asks how high inflation arises and why it is costly to eliminate. Specifically, the paper discusses the roles of price rigidity and credibility problems in explaining the costs of disinflation; the puzzle of persistent inflation triggered by onetime macroeconomic shocks; and the case for returning to adaptive expectations in theories of inflation.
Handle: RePEc:nbr:nberwo:3621
Template-Type: ReDIF-Paper 1.0
Title: Quality and Trade
Author-Name: Kevin M. Murphy
Author-Person: pmu108
Author-Name: Andrei Shleifer
Author-Person: psh93
Note: ITI IFM
Number: 3622
Creation-Date: 1991-02
Order-URL: http://www.nber.org/papers/w3622
File-URL: http://www.nber.org/papers/w3622.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Developmental Economics, June 1997, Vol. 53(1): 1-15.
Publication-Status: published as Murphy, Kevin M. & Shleifer, Andrei, 1997. "Quality and trade," Journal of Development Economics, Elsevier, vol. 53(1), pages 1-15, June.
Abstract: We present a model of trade in which similar countries trade more with each other than very different countries. The reason is that high human capital countries have a comparative advantage at producing high quality goods, but are also rich enough to want to consume high quality. As a result, countries choose trading partners at a similar level of development, who produce similar quality products. The model helps account for the observed trade patterns, and sheds light on international income comparisons. It also helps explain recent concerns of Eastern European countries that they have "nothing to sell" to the West.
Handle: RePEc:nbr:nberwo:3622
Template-Type: ReDIF-Paper 1.0
Title: Foreign Direct Investment in the U.S. and U.S. Trade
Author-Name: Robert E. Lipsey
Author-Person: pli259
Note: ITI IFM
Number: 3623
Creation-Date: 1991-02
Order-URL: http://www.nber.org/papers/w3623
File-URL: http://www.nber.org/papers/w3623.pdf
File-Format: application/pdf
Publication-Status: published as The Annals of the American Academy of Political and Social Science, No. 516 , pp. 76-90, (July 1991).
Abstract: Foreign-owned manufacturing firms' shares of U.S. trade grew from almost nothing in the 1960s to 7 or 8 per cent of trade in manufactured goods by the 1980s. It has changed little in the past decade, except for fluctuations related to changing U.S. exchange rates. Foreign-owned firms are less export-oriented than U.S. parent companies, overall and in the same industries, and more dependent on imports, relative to their sales. The foreign affiliates' comparative advantage relative to U.S. parent firms and U.S. firms in general is concentrated in chemicals and metals industries. Foreign-owned firms in machinery and transport equipment do relatively little exporting from the U.S. in comparison with U.S.-owned firms. The trade of the foreign-owned firms, as measured by exports/sales and imports/sales ratios and by export/import ratios, fluctuates more than that of U.S. firms. In particular, foreign affiliates seem to be more responsive than U.S. parents to exchange rate changes, shifting their production between sales in the U.S. and exports and their inputs between U.S. production and imports as the value of the dollar rises and falls.
Handle: RePEc:nbr:nberwo:3623
Template-Type: ReDIF-Paper 1.0
Title: Updated Estimates of the Impact of Prenatal Care on Birthweight Outcomes by Race
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: 3624
Creation-Date: 1991-02
Order-URL: http://www.nber.org/papers/w3624
File-URL: http://www.nber.org/papers/w3624.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Human Resources, Vol. 27, No. 4, pp. 629-642 (Fall 1992).
Abstract: This paper estimates a quasi-structural birthweight production function using data on counties for the years 1975-1984. The analysis focuses on the effects of first trimester initiation of prenatal care, controlling for use of abortion services, cigarette smoking, birth order and income. Fixed effects model is used to control for unmeasured differences in health endowments across counties. The results indicate that early first trimester initiation of prenatal care leads to a reduction in low birthweight for both blacks and whites. Differences in use of prenatal care by race explain only a small part of the black-white differences in the fraction of low birthweight births.
Handle: RePEc:nbr:nberwo:3624
Template-Type: ReDIF-Paper 1.0
Title: Product Demand, Cost of Production, Spillovers, and the Social Rate of Return to R&D
Author-Name: Jeffrey I. Bernstein
Author-Person: pbe327
Author-Name: M. Ishaq Nadiri
Note: PR
Number: 3625
Creation-Date: 1991-02
Order-URL: http://www.nber.org/papers/w3625
File-URL: http://www.nber.org/papers/w3625.pdf
File-Format: application/pdf
Abstract: The purpose of this paper is to develop and estimate a model of production with endogenous technological change. Technological change arises from R&D capital accumulation decisions. These decisions respond to market and government incentives and generate R&D capital spillovers. A spillover network of senders and receivers is estimated. The network shows that each receiving industry is affected by a distinct set of R&D sources and each sending industry affects a unique set of receivers. For the receivers, spillovers generally expand product markets, lower product prices, increase production costs and input demands. For the sources, significant R&D spillovers cause the social rates of return to R&D capital to be substantially above the private returns.
Handle: RePEc:nbr:nberwo:3625
Template-Type: ReDIF-Paper 1.0
Title: Recent U.S. Investment Behavior and the Tax Reform Act of 1986: A Disaggregate View
Author-Name: Alan J. Auerbach
Author-Person: pau33
Author-Name: Kevin Hassett
Author-Person: pha378
Note: PE
Number: 3626
Creation-Date: 1991-02
Order-URL: http://www.nber.org/papers/w3626
File-URL: http://www.nber.org/papers/w3626.pdf
File-Format: application/pdf
Publication-Status: published as Carnegie-Rochester Conference Series on Public Policy, Vol. 35, pp. 185-215 , (Autumn 1991).
Abstract: The Tax Reform Act of 1986 was expected to cause an overall decline in business fixed investment and a shift in the composition of investment away from machinery and equipment, which previously had received an investment tax credit. Yet neither investment relative to GNP nor equipment investment relative to total investment declined during the period 1987-89. This paper's analysis of investment at the level of individual industries and assets helps reconcile the recent pattern of investment and the predicted effects of the Tax Reform Act. We find that the trend toward investment in equipment predated the Act, and that recent investment in equipment has fallen short of what would have been expected on the basis on nontax factors alone. Using a new technique to identify the impact of taxation on investment, we confirm the importance of tax policy using the cross-section pattern of equipment investment since 1986.
Handle: RePEc:nbr:nberwo:3626
Template-Type: ReDIF-Paper 1.0
Title: Internal Quota Allocation Schemes and the Costs of the MFA
Author-Name: Irene Trela
Author-Name: John Whalley
Author-Person: pwh8
Note: ITI IFM
Number: 3627
Creation-Date: 1991-02
Order-URL: http://www.nber.org/papers/w3627
File-URL: http://www.nber.org/papers/w3627.pdf
File-Format: application/pdf
Publication-Status: published as Trela, Irene & Whalley, John, 1995. "Internal Quota-Allocation Schemes and the Costs of the MFA," Review of International Economics, Blackwell Publishing, vol. 3(3), pages 284-306, October.
Abstract: This paper suggests that schemes used within developing countries to allocate textile export quota among domestic producers typically have more severe negative effects on developing country economic performance than the MFA export quotas themselves. We summarize allocation schemes in 17 countries, highlighting common 'lock-in' and 'rent dissipation' effects of such schemes. We then use a global general equilibrium model to evaluate the effects of MFA removal with and without these additional effects. Results indicate that estimates of gains to developing countries from an MFA removal are larger and by significant orders of magnitude (we suggest a factor of 8) when internal quota allocation schemes are also included. Removing the negative effects of quota allocation schemes thus seems to clearly dominate traditional access benefits to developing countries from MFA removal.
Handle: RePEc:nbr:nberwo:3627
Template-Type: ReDIF-Paper 1.0
Title: Decomposing the Welfare Costs of Capital Tax Distortions: The Importance of Risk Assumptions
Author-Name: Bob Hamilton
Author-Name: Jack Mintz
Author-Name: John Whalley
Author-Person: pwh8
Note: PE
Number: 3628
Creation-Date: 1991-02
Order-URL: http://www.nber.org/papers/w3628
File-URL: http://www.nber.org/papers/w3628.pdf
File-Format: application/pdf
Abstract: This paper analyzes the implications of alterative risk assumptions for estimates of the distorting effects of the corporate tax in Canada. These distortions are decomposed into three broad categories: inter-asset distortions; inter-industry distortions; and inter-temporal distortions. Estimates of marginal effective corporate tax rates are used in a multi-asset general equilibrium model to evaluate the costs of the various distortions, with marginal effective tax rates calculated under alterative risk assumptions. Results indicate that assessments of the relative importance of these distortions are sensitive to alterative risk assumptions used in marginal tax rate calculations. The paper also explores the sensitivity of results to key elasticity parameters in the model.
Handle: RePEc:nbr:nberwo:3628
Template-Type: ReDIF-Paper 1.0
Title: Multiple Equilibria and Persistence in Aggregate Fluctuations
Author-Name: Steven N. Durlauf
Author-Person: pdu117
Note: EFG
Number: 3629
Creation-Date: 1991-02
Order-URL: http://www.nber.org/papers/w3629
File-URL: http://www.nber.org/papers/w3629.pdf
File-Format: application/pdf
Publication-Status: published as The American Economic Review, Vol. 81, No. 2, pp.70-74, (May 1991).
Abstract: This paper explores the impact of incomplete markets and strong complementarities on the time series properties of aggregate activity. We consider an economy which consists of a large number of industries whose production functions both are nonconvex and exhibit localized technological complementarities. The productivity of each industry at t is determined by the production decisions of technologically similar industries at t - 1. No markets exist to coordinate production decisions. This feature implies that aggregate output dynamics for the model are quite different from those predicted by the associated Arrow-Debreu economy. First, multiple stochastic equilibria exist in aggregate activity. These equilibria are distinguished by differences in the mean and the variance of output. Second, output movements are persistent as aggregate productivity shocks indefinitely affect real activity by shifting the economy across equilibria. As a result, the model can exhibit periods of boom and depression.
Handle: RePEc:nbr:nberwo:3629
Template-Type: ReDIF-Paper 1.0
Title: Lump-Sums, Profit Sharing, and the Labor Costs in the Union Sector
Author-Name: Linda A. Bell
Author-Name: David Neumark
Author-Person: pne16
Note: LS
Number: 3630
Creation-Date: 1991-02
Order-URL: http://www.nber.org/papers/w3630
File-URL: http://www.nber.org/papers/w3630.pdf
File-Format: application/pdf
Publication-Status: published as Linda A. Bell and David Neumark. "Lump-sum Payments and Profit-sharing Plans in the Union Sector of the United States Economy" The Economic Journal, Vol. 103, No. 418 (May, 1993), pp. 602-619
Abstract: This paper documents the increase in the use of lump-sum payments and profit sharing plans in union contracts in the 1980s, and evaluates the extent to which these innovations may have contributed to moderation in the growth of labor costs, and increased pay flexibility. We find evidence that lump-sum and profit sharing arrangements reduced labor cost growth at both the aggregate and firm level. But the evidence linking these plans to labor cost flexibility is mixed; although the evidence suggests that profit sharing plans may be associated with greater flexibility at the firm level, there is no evidence that lump-sum plans increase flexibility at either the firm or aggregate level.
Handle: RePEc:nbr:nberwo:3630
Template-Type: ReDIF-Paper 1.0
Title: Habit Persistence and Durability in Aggregate Consumption: Empirical Tests
Author-Name: Wayne E. Ferson
Author-Person: pfe32
Author-Name: George M. Constantinides
Author-Person: pco144
Note: ME
Number: 3631
Creation-Date: 1991-02
Order-URL: http://www.nber.org/papers/w3631
File-URL: http://www.nber.org/papers/w3631.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Financial Economics, Vol. 29, No. 2, pp. 199-240, (October 1991)
Abstract: Habit persistence in consumption preferences and durability of consumption goods are two hypotheses which imply time-nonseparability in the derived utility for consumption expenditures. We study a simple model with both effects, in which lagged consumption expenditures enter the Euler equation. Habit persistence implies that the coefficients on the lagged expenditures are negative, while durability implies positive coefficients. If both effects are present, then estimating the sign of the coefficients addresses the question as to which of the two effects is dominant. Earlier empirical work on monthly data supported the durability of consumption expenditures. We estimate and test the Euler equation using monthly, quarterly and annual data and find evidence that habit persistence dominates the effect of durability.
Handle: RePEc:nbr:nberwo:3631
Template-Type: ReDIF-Paper 1.0
Title: Is the Fisher Effect for Real? A Reexamination of the Relationship Between Inflation and Interest Rates
Author-Name: Frederic S. Mishkin
Author-Person: pmi37
Note: ME
Number: 3632
Creation-Date: 1991-02
Order-URL: http://www.nber.org/papers/w3632
File-URL: http://www.nber.org/papers/w3632.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Monetary Economics, Vol. 30, pp. 195-215 (1992).appendix published as "Nonstationarity of Regressors and Tests of Real-Interest Rate Behavior" in Journal of Business & Economics Studies, Vol 13, No.
Publication-Status: published as 1, pp. 47-51, January 1995
Abstract: The basic puzzle about the so-called Fisher effect, in which movements in short-term interest rates primarily reflect fluctuations in expected inflation, is why a strong Fisher effect occurs only for certain periods but not for others. This paper resolves this puzzle by reexamining the relationship between inflation and interest rates with modern time-series techniques. Recognition that the level of inflation and interest rates may contain stochastic trends suggests that the apparent ability of short-term interest rates to forecast inflation in the postwar United States is spurious. Additional evidence does not support the presence of a short-run Fisher effect but does support the existence of a long-run Fisher effect in which inflation and interest rates trend together in the long run when they exhibit trends. The evidence here can explain why the Fisher effect appears to be strong only for particular sample periods, but not for others. The conclusion that there is a long-run Fisher effect implies that when inflation and interest rates exhibit trends, these two series will trend together and thus there will be a strong correlation between inflation and interest rates. On the other hand, the nonexistence of a short-run Fisher effect implies that when either inflation and interest rates do not display trends, there is no long-run Fisher effect to produce a strong correlation between interest rates and inflation. The analysis in this paper resolves an important puzzle about when the Fisher effect appears in the data.
Handle: RePEc:nbr:nberwo:3632
Template-Type: ReDIF-Paper 1.0
Title: Asset Returns and Intertemporal Preferences
Author-Name: Shmuel Kandel
Author-Name: Robert F. Stambaugh
Author-Person: pst282
Note: ME
Number: 3633
Creation-Date: 1991-02
Order-URL: http://www.nber.org/papers/w3633
File-URL: http://www.nber.org/papers/w3633.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Monetary Economics, Vol. 27 No. 1, pp. 39-71, February 1991.
Abstract: A representative-agent model with time-varying moments of consumption growth is used to analyze implications about means and volatilities of asset returns as well as the predictability of asset returns for various investment horizons. A comparative-statics analysis using non-expected-utility preferences indicates that, although risk aversion is important in determining the means of both equity returns and interest rates, implications about the volatility and the predictability of equity returns are affected primarily by intertemporal substitution. Lower elasticities of intertemporal substitution are associated with greater variance in the temporary component of equity prices.
Handle: RePEc:nbr:nberwo:3633
Template-Type: ReDIF-Paper 1.0
Title: Decoupling Liability: Optimal Incentives for Care and Litigation
Author-Name: A. Mitchell Polinsky
Author-Person: ppo94
Author-Name: Yeon-Koo Che
Author-Person: pch91
Note: LE
Number: 3634
Creation-Date: 1991-02
Order-URL: http://www.nber.org/papers/w3634
File-URL: http://www.nber.org/papers/w3634.pdf
File-Format: application/pdf
Publication-Status: published as Rand Journal of Economics, Vol 44, No. 4, pp. 562-570, (Winter 1991).
Abstract: A "decoupled" liability system is one in which the award to the plaintiff differs from the payment by the defendant. The optimal system of decoupling makes the defendant's payment as high as possible. Such a policy allows the award to the plaintiff to be lowered, thereby reducing the plaintiff's incentive to sue -- and hence litigation costs -- without sacrificing the defendant's incentive to exercise care. The optimal award to the plaintiff may be less than or greater than the optimal payment by the defendant. The possibility of an out-of-court settlement does not qualitatively affect these results. If the settlement can be monitored, it may be desirable to decouple it as well.
Handle: RePEc:nbr:nberwo:3634
Template-Type: ReDIF-Paper 1.0
Title: Why Do Countries and Industries with Large Seasonal Cycles Also Have Large Business Cycles?
Author-Name: J. Joseph Beaulieu
Author-Name: Jeffrey K. MacKie-Mason
Author-Person: pma1
Author-Name: Jeffrey A. Miron
Author-Person: pmi250
Note: EFG
Number: 3635
Creation-Date: 1991-02
Order-URL: http://www.nber.org/papers/w3635
File-URL: http://www.nber.org/papers/w3635.pdf
File-Format: application/pdf
Publication-Status: published as Quarterly Journal of Economics, May 1992
Abstract: We show there is a strong, positive correlation across countries and industries between the standard deviation of the seasonal component and the standard deviation of the non-seasonal component of aggregate variables such as output, labor input, interest rates, and prices. After documenting this stylized fact, we discuss possible explanations and develop a model that generates our empirical finding. The main feature of the model is that firms endogenously choose their degree of technological flexibility as a function of the amounts of seasonal and non-seasonal variation in demand. Although this model is intended to be illustrative, we find evidence supporting one of its key empirical implications.
Handle: RePEc:nbr:nberwo:3635
Template-Type: ReDIF-Paper 1.0
Title: Currency Substitution and the Fluctuations of Foreign-Exchange Reserves with Credibly Fixed Exchange Rates
Author-Name: Alberto Giovannini
Note: ITI IFM
Number: 3636
Creation-Date: 1991-02
Order-URL: http://www.nber.org/papers/w3636
File-URL: http://www.nber.org/papers/w3636.pdf
File-Format: application/pdf
Abstract: This paper studies the fluctuations of foreign exchange reserves under a regime of credibly fixed exchange rates. The paper considers a variety of assumptions on the determinants of money demand and currency substitution.
Handle: RePEc:nbr:nberwo:3636
Template-Type: ReDIF-Paper 1.0
Title: Persistent Differences in National Productivity Growth Rates with A Com-mon Technology and Free Capital Mobility: The Roles of Private Thrift, ...
Author-Name: Willem H. Buiter
Author-Person: pbu137
Author-Name: Kenneth M. Kletzer
Note: ITI IFM
Number: 3637
Creation-Date: 1991-02
Order-URL: http://www.nber.org/papers/w3637
File-URL: http://www.nber.org/papers/w3637.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Japanese and International Economics, Vol. 5, pp. 325-353 1991
Abstract: The paper develops a two-country endogenous growth model to investigate possible causes for the existence and persistence of productivity growth differentials between nations despite a common technology, constant returns to scale and perfect international capital mobility. Private consumption is derived from a three-period overlapping generations specification. The source of productivity (growth) differentials in our model is the existence of a non-traded capital good ('human capital') whose augmentation requires a non-traded current input (time spent by the young in education rather than leisure) We consider the influence on productivity growth differentials of private thrift, public debt, the taxation of capital and savings and of policy towards human capital formation.
Handle: RePEc:nbr:nberwo:3637
Template-Type: ReDIF-Paper 1.0
Title: Shareholder Trading Practices and Corporate Investment Horizons
Author-Name: Kenneth A. Froot
Author-Person: pfr60
Author-Name: Andre F. Perold
Author-Name: Jeremy C. Stein
Author-Person: pst43
Note: ITI ME IFM
Number: 3638
Creation-Date: 1991-02
Order-URL: http://www.nber.org/papers/w3638
File-URL: http://www.nber.org/papers/w3638.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Applied Corporate Finance, Volume 5, pp. 42-58 Summer 1992
Abstract: We investigate how shareholder trading practices might be linked to corporate investment horizons. We examine two possible linkages and analyze a range of data relevant to them. The first is excess volatility, which occurs when stock prices react not only to news about economic fundamentals, but also to trades based on non-fundamental factors. Excess volatility could lead to a higher cost of capital, and thereby reduce long-term corporate investment. The second linkage derives from an information ea between management and outside shareholders. In the presence of such a gap, maximizing short-run and long-run stock prices are not the same thing. Management may be able to raise current stock prices by undertaking certain actions that will reduce long-run value. In such a case, management faces the dilemma of which shareholders to please: those who do not plan to hold the stock for the long-run versus those who do. As shareholder horizons shorten, it can become more difficult to focus exclusively on maximizing long-run value. With respect to excess volatility, our basic conclusions are that neither changes in trading practices over time nor differences in trading practices across countries contribute significantly to any underinvestment problem. There is no evidence to indicate that measures to reduce trading volume (such as transactions taxes) would lower stock-price volatility in a way that would stimulate investment. With respect to the information gap hypothesis, we find "circumstantial' evidence consistent with certain preconditions for underinvestment. This is not, however, evidence of underinvestment itself. In addition, many of the forces that can lead to underinvestment -- such as hostile takeovers -- are also related to other, positive aspects of economic performance. Policy responses therefore involve a difficult set of tradeoffs.
Handle: RePEc:nbr:nberwo:3638
Template-Type: ReDIF-Paper 1.0
Title: Nursing Home Discharges and Exhaustion of Medicare Benefits
Author-Name: Alan M. Garber
Author-Name: Thomas E. MaCurdy
Note: AG EH
Number: 3639
Creation-Date: 1991-03
Order-URL: http://www.nber.org/papers/w3639
File-URL: http://www.nber.org/papers/w3639.pdf
File-Format: application/pdf
Publication-Status: published as Journal of the American Statistical Association, Volume 88, pp. 727-736, 1993.
Abstract: The price sensitivity of demand for nursing home care is a subject of considerable policy interest. Standard methods for measuring price responsiveness are difficult to apply to nursing home care, since accurate price information is usually unavailable and prices may reflect unmeasured quality characteristics. We estimate price sensitivity by exploiting the dynamic price variation implicit in Medicare payment rules for nursing home care. We determine whether the hazard rate for nursing home discharge shifts in response to the price changes that occur when Medicare coverage diminishes or ends. Our findings provide strong evidence that the duration of nursing home admissions is sensitive to price.
Handle: RePEc:nbr:nberwo:3639
Template-Type: ReDIF-Paper 1.0
Title: Actual and Warranted Relations Between Asset Prices
Author-Name: Andrea E. Beltratti
Author-Name: Robert J. Shiller
Author-Person: psh69
Note: ME
Number: 3640
Creation-Date: 1991-03
Order-URL: http://www.nber.org/papers/w3640
File-URL: http://www.nber.org/papers/w3640.pdf
File-Format: application/pdf
Publication-Status: published as Oxford Economic Papers, vol. 45, no. 3, p. 387-402, July 1993
Abstract: Efficient markets models assert that the price of each asset is equal to the optimal forecast of its ex-post (or fundamental) value, but the models do not imply that the covariances between prices equal the corresponding covariances of ex-post values. We present bounds for covariances and correlations of prices based on the covariance of ex-post values, and show how such bounds can be tightened using information about forecasting variables. The methods are used to examine the historical covariance between the U.S. and U.K. stock markers 1919-1989. The bounds on the covariance include the actual correlation.
Handle: RePEc:nbr:nberwo:3640
Template-Type: ReDIF-Paper 1.0
Title: The Invisible Hand and Modern Welfare Economics
Author-Name: Joseph E. Stiglitz
Note: PE
Number: 3641
Creation-Date: 1991-03
Order-URL: http://www.nber.org/papers/w3641
File-URL: http://www.nber.org/papers/w3641.pdf
File-Format: application/pdf
Publication-Status: published as Vines, David and Andrew A. Stevenson (eds.) Information, strategy and public policy. Oxford and Cambridge, MA: Blackwell, 1991.
Abstract: This paper reviews and puts into perspective recent work reassessing the first and second Fundamental Theorems of Welfare Economics. It assesses the implications of the Greenwald-Stiglitz theorem establishing the (constrained) Pareto inefficiency of market economies with imperfect information and incomplete markets as well as recent work on endogenous technological change. The information theoretic limitations to the Second Fundamental Theorem are also discussed, including the inability to separate out issues of equity and efficiency. The final sections of the paper consider the consequences of these problems for economic organization, economic policy, and the role of ideology in the belief in the Invisible Hand.
Handle: RePEc:nbr:nberwo:3641
Template-Type: ReDIF-Paper 1.0
Title: Price Equilibrium, Efficiency, and Decentralizability in Insurance Markets
Author-Name: Richard Arnott
Author-Person: par13
Author-Name: Joseph E. Stiglitz
Note: PE
Number: 3642
Creation-Date: 1991-03
Order-URL: http://www.nber.org/papers/w3642
File-URL: http://www.nber.org/papers/w3642.pdf
File-Format: application/pdf
Abstract: In this paper, we investigate the descriptive and normative properties of competitive equilibrium with moral hazard when firms offer "price contracts" which allow clients to purchase as much insurance as they wish at the quoted prices. We show that a price equilibrium always exists and is one of three types: i) zero profit price equilibrium - zero profit, zero effort, full insurance ii) positive profit price equilibrium - positive profit, positive effort, partial insurance iii) zero insurance price equilibrium - zero insurance, zero profit, positive effort. We also demonstrate circumstances under which the linear taxation of price insurance allows decentralization of the social optimum (conditional on the unobservability of effort), and when it, does not, whether it is at least utility-improving.
Handle: RePEc:nbr:nberwo:3642
Template-Type: ReDIF-Paper 1.0
Title: Measuring Risk Aversion From Excess Returns on a Stock Index
Author-Name: Ray Chou
Author-Name: Robert F. Engle
Author-Name: Alex Kane
Author-Person: pka501
Note: ME
Number: 3643
Creation-Date: 1991-03
Order-URL: http://www.nber.org/papers/w3643
File-URL: http://www.nber.org/papers/w3643.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Econometrics, vol. 52, pp. 201-224, 1992
Abstract: We distinguish the measure of risk aversion from the slope coefficient in the linear relationship between the mean excess return on a stock index and its variance. Even when risk aversion is constant, the latter can vary significantly with the relative share of stocks in the risky wealth portfolio, and with the beta of unobserved wealth on stocks. We introduce a statistical model with ARCH disturbances and a time-varying parameter in the mean (TVP ARCH-N). The model decomposes the predictable component in stock returns into two parts: the time-varying price of volatility and the time-varying volatility of returns. The relative share of stocks and the beta of the excluded components of wealth on stocks are instrumented by macroeconomic variables. The ratio of corporate profit over national income and the inflation rate ore found to be important forces in the dynamics of stock price volatility.
Handle: RePEc:nbr:nberwo:3643
Template-Type: ReDIF-Paper 1.0
Title: Exchange Rate Volatility and International Prices
Author-Name: Robert C. Feenstra
Author-Person: pfe116
Author-Name: Jon D. Kendall
Note: ITI IFM
Number: 3644
Creation-Date: 1991-03
Order-URL: http://www.nber.org/papers/w3644
File-URL: http://www.nber.org/papers/w3644.pdf
File-Format: application/pdf
Abstract: We examine how exchange rate volatility affects exporter's pricing decisions in the presence of optimal forward covering. By taking account of forward covering, we are able to derive an expression for the risk premium in the foreign exchange market, which is then estimated as a generalized ARCH model to obtain the time-dependent variance of the exchange rate. Our theory implies a connection between the estimated risk premium equation, and the influence of exchange rate volatility on export prices. In particular, we argue that if there is no risk premium, then exchange rate variance can only have a negative impact on export prices. In the presence of a risk premium, however, the effect of exchange rate variance on export prices is ambiguous, and may be statistically insignificant with aggregate data. These results are supported using data on aggregate U.S. imports and exchange rates of the dollar against the pound. yen and mark.
Handle: RePEc:nbr:nberwo:3644
Template-Type: ReDIF-Paper 1.0
Title: The Enforceability of Private Money Contracts, Market Efficiency, and Technological Change
Author-Name: Gary Gorton
Author-Person: pgo458
Note: ME
Number: 3645
Creation-Date: 1991-03
Order-URL: http://www.nber.org/papers/w3645
File-URL: http://www.nber.org/papers/w3645.pdf
File-Format: application/pdf
Abstract: The period prior to the U.S. civil War saw the introduction and rapid diffusion of the railroad. It was also the Free Banking Era (1838-1863) during which some states allowed relatively free entry into banking. Banks in all states issued distinct private monies, called bank notes, which circulated at discounts from face value in secondary markets at locations away from the issuing bank. This paper proposes a pricing model for bank notes, and then, using a newly discovered data set of monthly bank note prices for all banks in North America, studies the secondary market for privately issued bank notes during the American Free Banking Era, 1838-1859. To test the model, the durations and costs of trips from Philadelphia to other locations are constructed from pre-Civil War travelers' guides in order to measure improvements resulting from the diffusion of the railroad during this period. The results suggest that the note market accurately priced risk. Systematic wildcat banking was not possible. The transportation costs of note redemption explain only part of bank note discount variation. Bank default risk was differentially priced and such risk premia varied cyclically.
Handle: RePEc:nbr:nberwo:3645
Template-Type: ReDIF-Paper 1.0
Title: Why are Prices Sticky? Preliminary Results from an Interview Study
Author-Name: Alan S. Blinder
Author-Person: pbl41
Note: EFG
Number: 3646
Creation-Date: 1991-03
Order-URL: http://www.nber.org/papers/w3646
File-URL: http://www.nber.org/papers/w3646.pdf
File-Format: application/pdf
Publication-Status: published as American Economic Review, Vol. 81, No. 2, pp.89-96, May 1991.
Abstract: This paper reports preliminary results from a large research project on business pricing which is currently underway. The idea is to use interviews with actual price setters to assess the validity of a dozen theories of price stickiness. The rather unorthodox (for economists) methodology is defended; the research design is described briefly; and a few results based on the first 72 interviews (out of a projected 200) are presented. This sample suggests that the median firm changes its price annually and that price adjustments typically lag 3-4 months behind shocks to demand or cost.
Handle: RePEc:nbr:nberwo:3646
Template-Type: ReDIF-Paper 1.0
Title: Work Incentives and the Demand for Primary and Contingent Labor
Author-Name: James B. Rebitzer
Author-Person: pre77
Author-Name: Lowell J. Taylor
Author-Person: pta912
Note: LS
Number: 3647
Creation-Date: 1991-03
Order-URL: http://www.nber.org/papers/w3647
File-URL: http://www.nber.org/papers/w3647.pdf
File-Format: application/pdf
Publication-Status: published as Quarterly Journal of Economics November 1991, pp. 1373-1383
Abstract: This paper presents an incentive-based dual labor market model. Three implications of the model are emphasized. First, in equilibrium, there is an excess supply of workers to primary jobs. Second, when demand is uncertain, firms may choose a mix of primary and contingent workers to perform the same job, even when these workers are perfect substitutes in production. Third, firms prefer to hire into primary jobs workers with strong job attachment and workers whose preferences lead them to prefer long work hours. We argue that industries with high proportions of part-time workers will tend to have large concentrations of contingent workers. The empirical finding that the wages and benefits of full-time workers are significantly reduced in industries with large concentrations of part-time workers appears consistent with this hypothesis.
Handle: RePEc:nbr:nberwo:3647
Template-Type: ReDIF-Paper 1.0
Title: Efficient and Inefficient Employment Outcomes: A Study Based on Canadian Data
Author-Name: Louis N. Christofides
Author-Name: Andrew J. Oswald
Note: LS
Number: 3648
Creation-Date: 1991-03
Order-URL: http://www.nber.org/papers/w3648
File-URL: http://www.nber.org/papers/w3648.pdf
File-Format: application/pdf
Abstract: This paper estimates employment equations based on the traditional labour demand model and modern efficient bargain theory using data drawn from wage contracts signed in the Canadian private unionized sector between 1978 and 1984. Contrary to the labour demand model predictions, the alternative wage rate is consistently significant and has the negative coefficient predicted by efficient bargain theory. Though a credible labour demand model can sometimes be estimated, the results are sensitive to the assumed market structure and to the introduction of alternative wage and unemployment insurance variables. Non-nested tests favour efficient bargain specifications.
Handle: RePEc:nbr:nberwo:3648
Template-Type: ReDIF-Paper 1.0
Title: Tax Policy to Combat Global Warming: On Designing a Carbon Tax
Author-Name: James M. Poterba
Author-Person: ppo19
Note: PE
Number: 3649
Creation-Date: 1991-03
Order-URL: http://www.nber.org/papers/w3649
File-URL: http://www.nber.org/papers/w3649.pdf
File-Format: application/pdf
Publication-Status: published as Global Warming: Economic Policy Responses, edited by Rudiger Dornbusch and James M. Poterba, pp. 71-98. Cambridge, MA: MIT Press, 1991.
Abstract: This paper develops several points concerning the design and implementation of a carbon tax. First, if implemented without any offsetting changes in transfer programs, the carbon tax would be regressive. This regressivity could be offset with changes in either the direct tax system or transfers. Second, the production and consumption distortions associated with small carbon taxes, on the order of $5/ton of carbon, are relatively small: less than $1 billion per year for the United States. Stabilizing carbon dioxide emissions at their 1988 levels by the year 2000, however, would require a carbon tax ten to twenty times this size. It would more than triple the producer price of coal and nearly double the producer prices of petroleum and natural gas, would have much more significant private efficiency effects. Third, a central issue of carbon tax design is harmonization with other fiscal instruments designed to reduce greenhouse warming. Ensuring comparability between taxes rates on chlorofluorocarbons and fossil fuels is particularly important to avoid unnecessary distortions in production or consumption decisions.
Handle: RePEc:nbr:nberwo:3649
Template-Type: ReDIF-Paper 1.0
Title: Externalities, Incentives and Failure to Achieve National Objectives in Decentralized Economies
Author-Name: Joshua Aizenman
Author-Person: pai8
Author-Name: Peter Isard
Note: ITI IFM
Number: 3650
Creation-Date: 1991-03
Order-URL: http://www.nber.org/papers/w3650
File-URL: http://www.nber.org/papers/w3650.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Development Economics, June 1993, pp. 95-114
Abstract: The purpose of this paper is to study why decentralized economies often fail to achieve national objective in the presence of externalities. The paper employs a two-period, open economy framework in which the central government allocates its tax revenues among a larger number of individual decision makers (e.g., provincial authorities or managers of state enterprises). The central government has only limited monitoring capacity, which gives individual decision makers the opportunity to commit to spend more than the incomes they are officially allocated. Our analysis suggests that adverse macroeconomic shocks reduce the likelihood that decentralized decision makers will behave in a manner that limits spending and inflation to national objectives. This is demonstrated for declines in the current or expected future levels of domestic output, for a rise in foreign interest rates, and for a reduction in the quantity of external credit. We next demonstrate that debt relief can promote a shift in the composition of spending toward the types of productive investments that generate positive externalities. This is not only because debt relief that expands the availability of current resources has positive direct income effects, but also because debt relief can promote a shift from opportunistic behavior to cooperation among individual decision makers.
Handle: RePEc:nbr:nberwo:3650
Template-Type: ReDIF-Paper 1.0
Title: Stochastic Equilibrium and Exchange Rate Determination in a Small Open Economy with Risk Averse Optimizing Agents
Author-Name: Earl L. Grinols
Author-Name: Stephen J. Turnovsky
Author-Person: ptu5
Note: ITI IFM
Number: 3651
Creation-Date: 1991-03
Order-URL: http://www.nber.org/papers/w3651
File-URL: http://www.nber.org/papers/w3651.pdf
File-Format: application/pdf
Publication-Status: published as Grinols, Earl L. and Stephen J. Turnovsky. "Exchange Rate Determination And Asset Prices In A Stochastic Small Open Economy," Journal of International Economics, 1994, v36(1/2), 75-97.
Abstract: This paper constructs a stochastic general equilibrium model of a small open economy consisting of risk averse optimizing agents. The stochastic processes describing the rate of monetary growth, government expenditure, private production, and the foreign price level are taken to be exogenous, determining all asset risks and returns, and the equilibrium stochastic processes describing the domestic inflation rate and the exchange rate. The model is used to examine a number of issues. These include: (i) the effects of the means and variances of policy shocks on the equilibrium; (ii) the determinants of the foreign exchange risk premium; (iii) the relationship between net export instability and economic growth.
Handle: RePEc:nbr:nberwo:3651
Template-Type: ReDIF-Paper 1.0
Title: Information, Finance, and Markets: The Architecture of Allocative Mechanisms
Author-Name: Bruce C. Greenwald
Author-Name: Joseph E. Stiglitz
Note: ME
Number: 3652
Creation-Date: 1991-03
Order-URL: http://www.nber.org/papers/w3652
File-URL: http://www.nber.org/papers/w3652.pdf
File-Format: application/pdf
Publication-Status: published as Industrial and Corporate Change, Vol. 1, No. 1, pp. 37-68, (1992).
Abstract: While bankers and businessmen have long recognized the importance of finance. financial constraints, and financial institutions, they have played a secondary role in neoclassical economic theory. This paper identifies the economic functions with which financial institutions have been concerned, the central problems which they face, and the alternative ways by which those problems can and have been addressed. The importance of limited liability and the legal environment is stressed. The final section explores the relationship between information-based finance constraints, the evolution of the firm, and the growth of the economy.
Handle: RePEc:nbr:nberwo:3652
Template-Type: ReDIF-Paper 1.0
Title: The Staying Power of Leveraged Buyouts
Author-Name: Steven N. Kaplan
Note: ME
Number: 3653
Creation-Date: 1991-03
Order-URL: http://www.nber.org/papers/w3653
File-URL: http://www.nber.org/papers/w3653.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Financial Economics, Vol. 29, pp. 287-313, (1991).
Publication-Status: published as Steven N. Kaplan, 1993. "The Staying Power Of Leveraged Buyouts," Journal of Applied Corporate Finance, Morgan Stanley, vol. 6(1), pages 15-24.
Abstract: This paper documents the organizational status over time of 183 large leveraged buyouts (LBOs) completed between 1979 and 1986. As of August 1990, 63% of the LaOs are privately owned, 14% are independent public companies, and 23% are owned by other public companies As time since the LBO increases, the percentage of LBOs that have returned to public ownership increases. The (unconditional) median time LBOs remain private equals 6.70 years. This evidence suggests that the majority of LBO organizations are neither short-lived nor permanent. In addition the moderate fraction of LBOs assets owned by other (potentially related) companies implies that asset sales play a role in, but are not the primarily force motivating LBO transactions.
Handle: RePEc:nbr:nberwo:3653
Template-Type: ReDIF-Paper 1.0
Title: Debt Concentration and Secondary Markets Prices: A Theoretical and Empirical Analysis
Author-Name: Raquel Fernandez
Author-Person: pfe17
Author-Name: Sule Ozler
Note: ITI IFM
Number: 3654
Creation-Date: 1991-03
Order-URL: http://www.nber.org/papers/w3654
File-URL: http://www.nber.org/papers/w3654.pdf
File-Format: application/pdf
Publication-Status: published as International Economic Review, Vol. 40 (1999): 333-355.
Abstract: In the context of a model that distinguishes between large money center banks and smaller regional banks, we show that the percentage of a country's debt held by the large banks affects the secondary market price of that country's debt: the higher the concentration of the debt, the higher the secondary market price. We also show that the free trade of debt in the secondary market does not necessarily imply that the entire stock of debt will eventually be owned by the large banks. Our empirical analysis incorporates a number of potential determinants of secondary market prices. Among these are variables that are associated with a country's economic performance, variables that can be associated with the regulatory structure in the creditor's country, and the concentration of debt in the hands of the largest US banks. Our empirical findings indicate that concentration indeed has a positive effect on secondary market prices.
Handle: RePEc:nbr:nberwo:3654
Template-Type: ReDIF-Paper 1.0
Title: The Effect of the New Minimum Wage Law in a Low-Wage Labor Market
Author-Name: Lawrence F. Katz
Author-Person: pka266
Author-Name: Alan B. Krueger
Author-Person: pkr63
Note: LS
Number: 3655
Creation-Date: 1991-03
Order-URL: http://www.nber.org/papers/w3655
File-URL: http://www.nber.org/papers/w3655.pdf
File-Format: application/pdf
Publication-Status: published as Industrial Relations Research Association, Proceedings, 1991.
Publication-Status: published as Katz, Lawrence F. and Alan B. Krueger. "The Effect Of The Minimum Wage On The Fast-Food Industry," International Labor Relations Review, 1993, v46(1), 6-21.
Abstract: After nearly a decade without change, legislation that affected the Federal minimum wage in two significant ways took effect on April 1, 1990: (1) the hourly minimum wage was increased from $3.35 to $3.80; and (2) employers were enabled to pay a subminimum wage to teenage workers for up to six months. This paper examines the effect of these changes in the minimum wage law in a low-wage labor market using data from a survey of 167 fast food restaurants in Texas. We draw three main conclusions. First, our survey results indicate that less than 2 percent of fast food restaurants have taken advantage of the youth subminimum, even though 73 percent of the sampled restaurants paid a starting wage of less than $3.80 before the new minimum wage took effect. Second, we find that a sizeable minority of fast food restaurants increased wages for workers by an amount exceeding that necessary to comply with the higher minimum wage. Third, the majority of fast food restaurants in Texas that were directly affected by the minimum wage increase did not report that they attempted to offset their mandated wage increase by cutting fringe benefits or reducing employment.
Handle: RePEc:nbr:nberwo:3655
Template-Type: ReDIF-Paper 1.0
Title: International VAT Harmonization: Economic Effects
Author-Name: Jacob A. Frenkel
Author-Name: Assaf Razin
Author-Person: pra388
Author-Name: Steve Symansky
Note: ITI PE IFM
Number: 3656
Creation-Date: 1991-03
Order-URL: http://www.nber.org/papers/w3656
File-URL: http://www.nber.org/papers/w3656.pdf
File-Format: application/pdf
Publication-Status: published as IMF Staff Papers, Vol. 38, December 1991.
Abstract: This paper highlights macroeconomic issues pertinent to the understanding of the international and domestic effects of international VAT harmonization. It outlines elements of the policies of VAT harmonization envisaged for Europe of 1992, and develops a basic tax model which is suitable for the analysis of the incentive effects of various tax policies and their welfare implications. The model emphasizes the effects of changes in the time profile of the various taxes on the intertemporal allocations of savings, investment, and labor. Dynamic simulations reveal that the macroeconomic and welfare implications of VAT harmonization depend critically on the tax system and on the degree of substitution governing temporal and intertemporal allocations. In this context we consider several forms of income (cash flow, labor income, and capital income taxes) as well as tax systems embodying various saving and investment incentives. The simulations also reveal the potential conflicts of interest, within each country and between countries, that can arise from VAT harmonization.
Handle: RePEc:nbr:nberwo:3656
Template-Type: ReDIF-Paper 1.0
Title: Testing the Imports-as-Market-Discipline Hypothesis
Author-Name: James Levinsohn
Author-Person: ple386
Note: ITI IFM
Number: 3657
Creation-Date: 1991-03
Order-URL: http://www.nber.org/papers/w3657
File-URL: http://www.nber.org/papers/w3657.pdf
File-Format: application/pdf
Publication-Status: published as Journal of International Economics, Vol. 35, pp. 1-22, 1993.
Abstract: It has long been believed that international competition forces domestic firms to behave more competitively. I term this the imports-as--market-discipline hypothesis. I construct a simple static oligopoly model and estimate the model using panel data from Turkish manufacturing firms. The data span the course of a dramatic trade liberalization. Looking for changes in price-marginal cost markups as trade policy shifts, I test the imports-as-market discipline hypothesis. In all five industries to which the hypothesis is relevant, markups change in the direction predicted by the theory. These changes are statistically significant in all but one of the five industries.
Handle: RePEc:nbr:nberwo:3657
Template-Type: ReDIF-Paper 1.0
Title: Fiscal Deficits, Public Debt and Government Solvency: Evidence from OECD Countries
Author-Name: Giancarlo Corsetti
Author-Name: Nouriel Roubini
Author-Person: pro145
Note: ITI IFM
Number: 3658
Creation-Date: 1991-03
Order-URL: http://www.nber.org/papers/w3658
File-URL: http://www.nber.org/papers/w3658.pdf
File-Format: application/pdf
Publication-Status: published as Journal of the Japanese and International Economies. Volume 5, Issue 4, December 1991, pp.354-380.
Abstract: This paper discusses different empirical tests of public sector solvency and applies them to a sample of 18 OCED countries. Provided that the government solvency constraint need to be imposed, these tests develop from the idea of verifying whether the intertemporal budget constraint of the public sector would be satisfied a) had the fiscal and financial policy in the sample been pursued indefinitely and b) were the relevant macro and structural features of the economy stable over time. If solvency is not supported by the empirical evidence, a change either in the policy or in the relevant macro and structural variables (growth, inflation, interest rates, demographic factors) must occur at some point in the future. Among the G-7 countries, public sector solvency seems a serious issue in Italy, while does not appear to be a problem in the cases of Germany and Japan. The evidence for the U.S.A. is mixed. Problems of sustainability of the current path of fiscal policies are also present in Belgium, Ireland, the Netherlands and Greece.
Handle: RePEc:nbr:nberwo:3658
Template-Type: ReDIF-Paper 1.0
Title: The Distribution of Family Income: Measuring and Explaining Changes in the 1980s for Canada and the United States
Author-Name: McKinley L. Blackburn
Author-Person: pbl77
Author-Name: David E. Bloom
Author-Person: pbl79
Note: LS
Number: 3659
Creation-Date: 1991-03
Order-URL: http://www.nber.org/papers/w3659
File-URL: http://www.nber.org/papers/w3659.pdf
File-Format: application/pdf
Publication-Status: published as Small Differences That Matter: Labor Markets and Income Maintenance in Canada and the United States, edited by David Card and Richard Freeman, pp.233- 266, Chicago: University of Chicago Press, 1993.
Publication-Status: published as The Distribution of Family Income: Measuring and Explaining Changes in the 1980s for Canada and the United States, McKinley L. Blackburn, David E. Bloom. in Small Differences That Matter: Labor Markets and Income Maintenance in Canada and the United States, Card and Freeman. 1993
Abstract: This paper attempts to measure and explain recent changes in the distributions of family income in Canada and the U.S. using comparable micro-data for the two countries for 1979 and 1987. Three main sets of conclusions are reached. First, the distributions of total family income (pre-tax, post-transfer) in the two countries changed differently in the 1980s. Average family income increased faster in Canada than in the U.S.. though income inequality increased unambiguously in the U.S., but not in Canada. Imposing a simple structure on the data reveals that the social welfare implications of these changes are generally indeterminate for each country. Second, changes in the distribution of transfer income had important influences on the distribution of total family income in both Canada and the U.S. Transfer income in Canada increased more rapidly than it did in the U.S. during the 1980s and also became more redistributive in nature. Most notably, the shifts in transfer income left female-headed families in Canada with a higher mean income and less income inequality in 1987 than they had in 1970. Among female-headed families in the U.S., income inequality increased while average income declined. Third, increased income inequality in the U.S. partly reflects increased earnings inequality, which is itself associated with a widening of education-earnings differentials that occurred in the 1980s. Earnings inequality also increased in Canada in the 1980s, despite the stability of education-earnings differentials.
Handle: RePEc:nbr:nberwo:3659
Template-Type: ReDIF-Paper 1.0
Title: The Earnings of Linguistic Minorities: French in Canada and Spanish in the United States
Author-Name: David E. Bloom
Author-Person: pbl79
Author-Name: Gilles Grenier
Author-Person: pgr424
Note: LS
Number: 3660
Creation-Date: 1991-03
Order-URL: http://www.nber.org/papers/w3660
File-URL: http://www.nber.org/papers/w3660.pdf
File-Format: application/pdf
Publication-Status: published as The Quarterly Journal of Economics, Vol. 106, No. 2, pp. 557-586, (May 1991).
Abstract: This paper measures and compares the relative earnings of French and English speakers in Canada, and of Spanish and English speakers in the U.S., in the 1970s and 1980s. In Canada, the earnings gap between French and English speakers narrowed over time, especially in Quebec. This decline appears to have been caused primarily by a sharp increase in the relative demand for French-speaking workers within Quebec during the 1970s and 1980s. By 1986, nearly all of the remaining earnings gap between French and English speakers in Canada could be accounted for by differences in annual hours worked, marital status, age, education, and region. By contrast, the earnings gap between Spanish and English speakers in the United States remained high during the 1970s and 1980s and is not largely accounted for by differences in a standard set of control variables. If anything, there appears to have been a slight deterioration in the relative earnings of Spanish speakers in the U.S. during the 1970s. The most likely explanation for this change is an increase in the relative supply of Spanish speakers, due mainly to high levels of immigration.
Handle: RePEc:nbr:nberwo:3660
Template-Type: ReDIF-Paper 1.0
Title: Political-Economy Arguments for a Uniform Tariff
Author-Name: Arvind Panagariya
Author-Name: Dani Rodrik
Author-Person: pro60
Note: ITI IFM
Number: 3661
Creation-Date: 1991-03
Order-URL: http://www.nber.org/papers/w3661
File-URL: http://www.nber.org/papers/w3661.pdf
File-Format: application/pdf
Publication-Status: published as International Economic Review, August 1993
Abstract: Uniform tariffs have become increasingly popular in recent years, yet their economic rationale is not strong. We identify and evaluate three sets of reasons as to why governments may prefer tariff uniformity as a means of alleviating political motives for excessive protection. First, a free-rider effect may be conducive to less lobbying under a uniform tariff regime than under a regime in which tariffs are allowed to differ. Second, an input-price effect may dampen the enthusiasm of final-goods producers for import protection. Third, a precommitment effect may increase the cost to a future government of protecting favored sectors. None of these arguments provides an unambiguous, airtight case for tariff uniformity. The decision on uniformity has to be made on a case-by-case basis.
Handle: RePEc:nbr:nberwo:3661
Template-Type: ReDIF-Paper 1.0
Title: Targeting the Exchange Rate: An Empirical Investigation
Author-Name: Shula Pessach
Author-Name: Assaf Razin
Author-Person: pra388
Note: ITI IFM
Number: 3662
Creation-Date: 1991-03
Order-URL: http://www.nber.org/papers/w3662
File-URL: http://www.nber.org/papers/w3662.pdf
File-Format: application/pdf
Publication-Status: published as Review of International Economics, vol. 2, February 1994
Abstract: The purpose of this paper is to implement empirically a variant of the new theory of exchange rate targeting, suitable for high inflation small open economies. The theory formulates an expectations induced relationship between the exchange rate and the fundamental subject to random shocks and target zone constraints on rates of depreciation. The empirical analysis identifies the roles played by policy and market fundamentals in foreign exchange markets, and estimate the key parameters of the exchange rate dynamic equation.
Handle: RePEc:nbr:nberwo:3662
Template-Type: ReDIF-Paper 1.0
Title: Why Are There So Many Divided Senate Delegations?
Author-Name: Alberto Alesina
Author-Person: pal207
Author-Name: Morris Fiorina
Author-Name: Howard Rosenthal
Note: ME
Number: 3663
Creation-Date: 1991-03
Order-URL: http://www.nber.org/papers/w3663
File-URL: http://www.nber.org/papers/w3663.pdf
File-Format: application/pdf
Abstract: The last three decades have witnessed a sharp increase in the number of states with spilt Senate delegations, featuring two senators of different parties. In addition, there is evidence that senators of different parties do not cluster in the middle: they are genuinely polarized. We propose a model which explains this phenomenon. Our argument builds upon the fact that when a Senate election is held, there is already a sitting senator. If the voters care about the policy position of their state delegation in each election, they may favor the candidate of the party which is not holding the other seat. We show that, in general: (1) a candidate benefits if the non-running senator is of the opposing parry; (2) the more extreme the position of the non-running senator, the more extreme may be the position of the opposing party candidate. Our 'opposite party advantage' hypothesis is tested on a sample including every Senate race from 1946 to 1986. After controlling for other important factors, such as incumbency advantage, coattails end economic conditions, we find reasonably strong evidence of the 'opposite party advantage.'
Handle: RePEc:nbr:nberwo:3663
Template-Type: ReDIF-Paper 1.0
Title: Wage Bargaining and Unemployment Persistence
Author-Name: Olivier Jean Blanchard
Author-Person: pbl2
Note: EFG
Number: 3664
Creation-Date: 1991-03
Order-URL: http://www.nber.org/papers/w3664
File-URL: http://www.nber.org/papers/w3664.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Money, Credit and Banking, 23-3-1, 1991, pp. 277-292.
Abstract: This paper looks at models of unemployment which make two central assumptions. The first is that wages are bargained between firms and employed workers, and that unemployment affects the outcome only to the extent that it affects the labor market prospects of either employed workers or of firms. The second is that the duration of unemployment affects either the search behavior or the skills of the unemployed, and/or the perceptions of firms of such skills. It argues that such models may explain riot only the evolution of European unemployment over the last two decades -an evolution which triggered their development, but many of the cyclical features of labor markets in general.
Handle: RePEc:nbr:nberwo:3664
Template-Type: ReDIF-Paper 1.0
Title: Dispersion and Heterogeneity of Firm Performances in Nine French Service Industries, 1984-1987
Author-Name: Elizabeth Kremp
Author-Person: pkr237
Author-Name: Jacques Mairesse
Author-Person: pma712
Note: PR
Number: 3665
Creation-Date: 1991-03
Order-URL: http://www.nber.org/papers/w3665
File-URL: http://www.nber.org/papers/w3665.pdf
File-Format: application/pdf
Publication-Status: published as In Output Measurement in the Services Sectors, ed. Zvi Griliches. Chicago: University of Chicago Press, UCP 1992
Publication-Status: published as Dispersion and Heterogeneity of Firm Performances in Nine French Service Industries, 1984-1987, Elizabeth Kremp, Jacques Mairesse. in Output Measurement in the Service Sectors, Griliches. 1992
Abstract: In the present study, we have taken advantage of the wealth of information provided by the French annual survey of market services to construct a panel sample of data on about 2300 large firms, from 1984 to 1987, in nine selected service industries (at the four digit level of the industrial classification) . We have contrasted the average performances of firms across industries, in terms of labor productivity ratios and profitability margins, both in levels and in growth rates. We have compared these averages indicators for more or less inclusive sample definitions, going from the survey of all firms to a 'balanced' and "cleaned' panel data sample of large firms, and for the two kinds of averages usually considered in macro and micro-analyses. We, then proceeded to show that the differences across industries in average productivity and profitability are usually small when compared to the range of individual differences within industries, and have investigated to what extent the extreme variability in individual performances could be accounted for by other heterogeneity factors, besides the industry effects.
Handle: RePEc:nbr:nberwo:3665
Template-Type: ReDIF-Paper 1.0
Title: R&D Productivity: A Survey of Econometric Studies at the Firm Level
Author-Name: Jacques Mairesse
Author-Person: pma712
Author-Name: Mohamed Sassenou
Note: PR
Number: 3666
Creation-Date: 1991-03
Order-URL: http://www.nber.org/papers/w3666
File-URL: http://www.nber.org/papers/w3666.pdf
File-Format: application/pdf
Publication-Status: published as Science-Technology-Industry Review (OECD-Paris), No. 8, pp. 9-43, April 1991.
Publication-Status: published as "Recheche Developpement er Productivite: Un panorama des etudes econometrique sur daromees d'enterprises. En L'Evaluation Economique de la Rechercheet du Changement Technique, ed. J. De Bandt et D. Foray. Editions du CNRS Paris, 1991, pp. 61-96.
Abstract: This paper surveys econometric studies investigating the relationship between R&D and productivity at the firm level and assesses the results obtained so far and some of the problems encountered. The findings reviewed fall naturally into three major categories: based on the cross-sectional or time-series dimensions of the data and specified in terms of the elasticity of R&D or the rate of return to R&D. In view of the problems involved in modeling the effects of R&D on productivity and in measuring the appropriate variables, it is an agreeable surprise that most studies have managed to produce statistically significant and frequently plausible estimates. However, many of the current studies are not fully comparable and their results still leave much to be desired. The task of achieving progress is an arduous one.
Handle: RePEc:nbr:nberwo:3666
Template-Type: ReDIF-Paper 1.0
Title: Changes in the Structure of Wages in the Public and Private Sectors
Author-Name: Lawrence F. Katz
Author-Person: pka266
Author-Name: Alan B. Krueger
Author-Person: pkr63
Note: LS
Number: 3667
Creation-Date: 1991-03
Order-URL: http://www.nber.org/papers/w3667
File-URL: http://www.nber.org/papers/w3667.pdf
File-Format: application/pdf
Publication-Status: published as Ronald Ehrenberg, editor. Research in Labor Economics 12. Greenwich, CT: JAI Press, 1991, pp. 131-172
Abstract: The wage structure in the U.S. public sector responded sluggishly to substantial changes in private sector wages during the 1970s and 1980s. Despite a large expansion in the college/high school wage differential during the 1980s in the private sector, the public sector college wage premium remained fairly stable. Although wage differentials by skill, in the public sector were fairly unresponsive to changes in the private sector, overall pay levels for state and local government workers were quite sensitive to local labor market conditions. But federal government regional pay levels appear unaffected by local economic conditions. Several possible explanations are considered to account for the rigidity of the government internal wage structure, including employer size, unionization, and nonprofit status. None of these factors adequately explains the pay rigidity we observe in the government.
Handle: RePEc:nbr:nberwo:3667
Template-Type: ReDIF-Paper 1.0
Title: Distributive Politics and Economic Growth
Author-Name: Alberto Alesina
Author-Person: pal207
Author-Name: Dani Rodrik
Author-Person: pro60
Note: EFG
Number: 3668
Creation-Date: 1991-03
Order-URL: http://www.nber.org/papers/w3668
File-URL: http://www.nber.org/papers/w3668.pdf
File-Format: application/pdf
Publication-Status: published as Quarterly Journal of Economics, forthcomgin 1994
Abstract: This paper studies the relationship between political conflict and economic growth in a simple model of endogenous growth with distributive conflicts. We study both the case of two "classes" (workers and capitalists) and the case of a continuum distribution of agents, characterized by different capital/labor shares. We establish several results concerning the relationship between the political influence of the two groups and the level of taxation, public investment, redistribution of income and growth. For example, it is shown that policies which maximize growth are optimal only for a government that cares only about the "capitalists." Also, we show that in a democracy (where the "median voter theorem' applies) the rate of taxation is higher and the rate of growth lower, the more unequal is the distribution of wealth We present empirical results consistent with these implications of the model.
Handle: RePEc:nbr:nberwo:3668
Template-Type: ReDIF-Paper 1.0
Title: Government, Financial Markets, and Economic Development
Author-Name: Joseph E. Stiglitz
Note: ITI ME IFM
Number: 3669
Creation-Date: 1991-04
Order-URL: http://www.nber.org/papers/w3669
File-URL: http://www.nber.org/papers/w3669.pdf
File-Format: application/pdf
Abstract: Ideological debates on the role of government in development have focused on two contrasting prescriptions: one calling for large scale government interventions to solve problems of massive market failures, the other for the unfettering of markets, with the dynamic forces of capitalism naturally leading to growth and prosperity. This paper is part of an exploration of a middle road, focusing in particular on the role of government in financial markets. After explaining the importance of, and the limitations on, capital markets, particularly in allocating scarce investment resources, the results are used as a basis of a critique of the two 'extreme' approaches. Recognizing the limitations of government intervention as well as of free markets, the 'new view' of capital markets provides new insights into s variety of policy issues, which are addressed in the final section of the paper.
Handle: RePEc:nbr:nberwo:3669
Template-Type: ReDIF-Paper 1.0
Title: Intramarginal Intervention in the EMS and the Target-Zone Model of Exchange-Rate Behavior
Author-Name: Kathryn M. Dominguez
Author-Person: pdo227
Author-Name: Peter B. Kenen
Author-Person: pke59
Note: ITI IFM
Number: 3670
Creation-Date: 1991-04
Order-URL: http://www.nber.org/papers/w3670
File-URL: http://www.nber.org/papers/w3670.pdf
File-Format: application/pdf
Publication-Status: published as European Economic Review 36, pp. 1523-1532 (1992).
Abstract: Empirical work on exchange-rate behavior under a target-zone regime has used data produced by the European Monetary System (ENS) and has found that the data contradict important predictions made by the standard target-zone model. We argue that the contradictions reflect a misinterpretation of policies pursued by the ENS countries. They intervened intramarginally, to keep exchange rates well within the target zone, rather then intervening at the edges of the zone to prevent rates from crossing them. In the Besle-Nyborg Agreement of 1987, however, the ENS countries agreed to make fuller use of the band, and the effects of the agreement show up strongly in the data. Exchange rates behave differently after the agreement than they did before. The effect appears clearly in the behavior of the French franc and less decisively in the behavior of the Italian lira. The paper concludes by examining and rejecting alternative explanations for the observed differences in exchange-rate behavior.
Handle: RePEc:nbr:nberwo:3670
Template-Type: ReDIF-Paper 1.0
Title: Environmental Policy When Market Structure and Plant Locations are Endo-genous
Author-Name: James R. Markusen
Author-Person: pma528
Author-Name: Edward R. Morey
Author-Name: Nancy Olewiler
Note: ITI IFM
Number: 3671
Creation-Date: 1991-04
Order-URL: http://www.nber.org/papers/w3671
File-URL: http://www.nber.org/papers/w3671.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Environmental Economics and Management, vol. 24, 1993, p. 69-86
Abstract: A two-region, two-firm model is developed in which firms choose the number and the regional locations of their plants. Both firms pollute and, in this context, market structure is endogenous to environmental policy. There are increasing returns at the plant level, imperfect competition between the "home" and the "foreign" firm, and transport costs between the two markets. These features imply that at critical levels of environmental policy variables, small policy changes cause large discrete jumps in a region's pollution and welfare as a firm closes or opens a plant, or shifts production for the foreign region from/to the home-region plant to/from a foreign branch plant. The implications for optimal environmental policy differ significantly from those suggested by traditional Pigouvian marginal analysis.
Handle: RePEc:nbr:nberwo:3671
Template-Type: ReDIF-Paper 1.0
Title: Investment Policies in the GATT
Author-Name: Rachel McCulloch
Author-Person: pmc10
Note: ITI IFM
Number: 3672
Creation-Date: 1991-04
Order-URL: http://www.nber.org/papers/w3672
File-URL: http://www.nber.org/papers/w3672.pdf
File-Format: application/pdf
Publication-Status: published as The World Economy, Vol. 13 No. 4, pp. 541-533, December 1990.
Abstract: Host country policies toward inward direct investment can have predictable effects on trade flows. Trade related investment measures' (TRIMs) such as local-content requirements and minimum-export requirements have recently come under official scrutiny in the General Agreement on Tariffs and Trade. This paper examines the economic and political context of the Uruguay Round negotiations on TRIMs. In the negotiations, investment measures have been treated as a particular instance of a broader problem: the proliferation of nontariff trade distortions. As with other trade distortions, the negotiating strategy has been to identify specific policies to be proscribed or limited. However, this approach ignores the typical interactions between multinational firms and host governments. Observed investment regimes are often the result of a lengthy and complex bargaining process. While some investment regimes actually alter the allocation of resources in production and trade, others affect mainly the distribution of rents between firms and host countries. In particular, the trade impact, if any, depends as much on economic conditions as on the specific combination of investment measures imposed.
Handle: RePEc:nbr:nberwo:3672
Template-Type: ReDIF-Paper 1.0
Title: Rent Sharing in the Multi-Fibre Arrangement: Theory and Evidence from US Apparel Imports from Hong Kong
Author-Name: Kala Krishna
Author-Person: pkr26
Author-Name: Refik Erzan
Author-Name: Ling Hui Tan
Author-Person: pta161
Note: ITI IFM
Number: 3673
Creation-Date: 1991-04
Order-URL: http://www.nber.org/papers/w3673
File-URL: http://www.nber.org/papers/w3673.pdf
File-Format: application/pdf
Publication-Status: published as Review of International Economics, February 1994, vol. 2, no. 1, pp. 62-73,
Abstract: Available estimates of tariff equivalents of quotas and welfare calculations on the costs of MFA quotas for developing countries are based on the premise of perfect competition in both product and license markets. It is also assumed that the exporting countries which administer the MFA quotas receive all the scarcity rent. We argue that in the presence of market power on the buyers' side in the product market combined with concentration in the license markets, the importing countries may retain part of this rent, i.e. share it with the exporters. We analyze US imports of apparel products from Hong Kong to see if the data conform with all the relevant predictions of the competitive model. Our method essentially tests whether the license price inclusive Hong Kong price, adjusted for tariffs and transport costs, is equal to the domestic (US) price. A deviation between the two prices is taken to indicate rent sharing. We test the hypothesis with homogeneous goods, modify it to take into account compositional differences and, finally, consider differentiated goods. We find evidence that importers retain a substantial portion of the MFA quota rents.
Handle: RePEc:nbr:nberwo:3673
Template-Type: ReDIF-Paper 1.0
Title: Learning About Intervention Target Zones
Author-Name: Michael W. Klein
Author-Person: pkl9
Author-Name: Karen K. Lewis
Author-Person: ple1119
Note: ITI IFM
Number: 3674
Creation-Date: 1991-04
Order-URL: http://www.nber.org/papers/w3674
File-URL: http://www.nber.org/papers/w3674.pdf
File-Format: application/pdf
Publication-Status: published as Journal of International Econmics, vol. 35(3-4), pp. 275-295, November 1993
Publication-Status: published as Klein, Michael W. & Lewis, Karen K., 1993. "Learning about intervention target zones," Journal of International Economics, Elsevier, vol. 35(3-4), pages 275-295, November.
Abstract: This paper provides a framework for evaluating how market participants' beliefs about foreign exchange target zones change as they learn about central bank intervention policy. In order to examine this behavior, we first generalize the standard target zone model to allow for intra-marginal intervention. Intra-marginal intervention implies that the position of market participants' beliefs about the target zone can be determined from their beliefs about the likelihood of intervention. As an application of this model, we estimate a probability of intervention model using daily exchange rates and market observations of central bank interventions following the Louvre Accord. Interestingly, even over this relatively stable Louvre Accord period, we find that the market's views of intervention target zones would have varied quite a bit over time.
Handle: RePEc:nbr:nberwo:3674
Template-Type: ReDIF-Paper 1.0
Title: Alcohol Consumption During Prohibition
Author-Name: Jeffrey A. Miron
Author-Person: pmi250
Author-Name: Jeffrey Zwiebel
Number: 3675
Creation-Date: 1991-04
Order-URL: http://www.nber.org/papers/w3675
File-URL: http://www.nber.org/papers/w3675.pdf
File-Format: application/pdf
Publication-Status: published as The American Economic Review, Vol. 81, No. 2, pp. 242-247, (May 1991).
Abstract: We estimate the consumption of alcohol during Prohibition using mortality, mental health and crime statistics. We find that alcohol consumption fell sharply at the beginning of Prohibition, to approximately 30 percent of its pre-Prohibition level. During the next several years, however, alcohol consumption increased sharply, to about 60-70 percent of its pre-prohibition level. The level of consumption was virtually the same immediately after Prohibition as during the latter part of Prohibition, although consumption increased to approximately its pre-Prohibition level during the subsequent decade.
Handle: RePEc:nbr:nberwo:3675
Template-Type: ReDIF-Paper 1.0
Title: Earnings, Dividend Policy, and Present Value Relations: Building Blocks of Dividend Policy Invariant Cash Flows
Author-Name: Bruce N. Lehmann
Note: ME
Number: 3676
Creation-Date: 1991-04
Order-URL: http://www.nber.org/papers/w3676
File-URL: http://www.nber.org/papers/w3676.pdf
File-Format: application/pdf
Publication-Status: published as Bruce N. Lehmann, 1993. "Earnings, dividend policy, and present value relations: Building blocks of dividend policy invariant cash flows," Review of Quantitative Finance and Accounting, vol 3(3), pages 263-282.
Abstract: In a Modigliani-Miller world, price equals the risk-adjusted present value of future dividends and dividend policy is irrelevant for asset pricing. This paper searches for cash flows with two characteristics: asset prices can be calculated from their present values and they are invariant with respect to dividend policy. Residual income measures with these features are identified under two assumptions: dividend policy does not alter risk premiums and income earned from investments associated with dividend policy includes capital gains and losses. These results hold for otherwise arbitrary risk premiums in the general no-arbitrage approach to the valuation of uncertain income streams.
Handle: RePEc:nbr:nberwo:3676
Template-Type: ReDIF-Paper 1.0
Title: Notes on Dynamic Factor Pricing Models
Author-Name: Bruce N. Lehmann
Note: ME
Number: 3677
Creation-Date: 1991-04
Order-URL: http://www.nber.org/papers/w3677
File-URL: http://www.nber.org/papers/w3677.pdf
File-Format: application/pdf
Publication-Status: published as Review of Quantitative Finance and Accounting, Vol. 2, No. 1, pp. 69-87, (March 1992).
Abstract: These notes discuss three aspects of dynamic factor pricing (i.e., APT) models. The first one is that diversifiable idiosyncratic risk is unpredictable in a no-arbitrage world. The second feature is that the conditional factor loadings or betas on the common factors are approximately constant when returns follow an unconditional factor structure. The third topic concerns the estimation of dynamic factor pricing models in large cross-sections when returns follow an unconditional factor structure. These results aid in the interpretation of existing applications and identify some of the issues in the formulation and estimation of dynamic factor pricing models.
Handle: RePEc:nbr:nberwo:3677
Template-Type: ReDIF-Paper 1.0
Title: Purchased Services, Outsourcing, Computers, and Productivity in Manufacturing
Author-Name: Donald Siegel
Author-Name: Zvi Griliches
Note: PR
Number: 3678
Creation-Date: 1991-04
Order-URL: http://www.nber.org/papers/w3678
File-URL: http://www.nber.org/papers/w3678.pdf
File-Format: application/pdf
Publication-Status: published as Output Measurement in the Service Sectors, ed. Zvi Griliches. Chicago: University of Chicago Press, UCP 1992, pp.429-458.
Publication-Status: published as Purchased Services, Outsourcing, Computers, and Productivity in Manufacturing, Donald Siegel, Zvi Griliches. in Output Measurement in the Service Sectors, Griliches. 1992
Abstract: Increases in purchased services, foreign outsourcing, and investments in computers are alleged to have resulted in an understatement of input growth in manufacturing, and thus. overstatement of growth in productivity. GNP, and value-added in industries heavily engaged in these activities. Based on Census Bureau data, we examine whether the recent (post-1979) improvement in measured manufacturing productivity growth can be attributed to an increase in the rate of foreign and domestic outsourcing. Our preliminary evidence, based on data that are not comprehensive, suggests that an industry's propensity to outsource is unrelated to its acceleration in productivity. In auditing the industry numbers, we found that a non-negligible number of sectors were not consistently defined over time. Using industry and establishment-level data sets (the NBER 4-digit SIC Productivity data set and the Longitudinal Research Database), we conclude that some of these anomalies may be due to the general decline in the magnitude of information solicited from establishments by the Census Bureau in conducting its economic surveys. Another consistency problem explored in this paper is the industry reclassification of large plants. Although these definitional and sampling problems are troubling and need to be carefully documented, there does not appear to be a systematic relationship between an industry's post-1979 productivity growth and attrition or "switches" in its ASM plants. We do find, however, positive and statistically significant relationship between total factor productivity growth and an industry's rate of investment in Computers.
Handle: RePEc:nbr:nberwo:3678
Template-Type: ReDIF-Paper 1.0
Title: Trade Liberalization in a Multinational-Dominated Industry: A Theoretical and Applied General-Equilibrium Analysis
Author-Name: Linda Hunter
Author-Name: James R. Markusen
Author-Person: pma528
Author-Name: Thomas F. Rutherford
Author-Person: pru142
Note: ITI IFM
Number: 3679
Creation-Date: 1991-04
Order-URL: http://www.nber.org/papers/w3679
File-URL: http://www.nber.org/papers/w3679.pdf
File-Format: application/pdf
Publication-Status: published as James R. Markusen, Thomas F. Rutherford, Linda Hunter, "Trade Liberalization in a Multinational-Dominated Industry," Journal of International Economics, volume 38, no. 1-2, February 1995, pp. 95-117.
Publication-Status: published as Linda Hunter & James R. Markusen & Thomas F. Rutherford, 1991. "Trade liberalization in a multinational-dominated industry: a theoretical and applied general equilibrium analysis," Proceedings, Federal Reserve Bank of Dallas, pages 39-42.
Abstract: A theoretical model is developed and applied to the North American auto industry, motivated by the possibility of US-Mexico free trade. Special features of the model include (1) significant scale economies at the plant level, (2) imperfect competition among firms, (3) joint ownership of plants and production coordination across plants by each firm, (4) an (initial) ability of firms to segment markets, (5) a separate treatment of non-resident firms in determining oligopolistic markups. Using an applied GE model, we find that (A) the gains to Mexico are significant and the effects on the US and Canada are essentially zero following North American free trade if firms can continue to segment markets: (B) Because of the way that the North American multinationals determine markups, increased imports from Mexico do not result in a rationalization of US and Canadian production in the way it should if firms were strictly national. (C) Genuinely free trade for consumers (integrated markets) results in large gains for Mexico as the Mexican industry is forced to rationalize, while losses to the US and Canada are very small.
Handle: RePEc:nbr:nberwo:3679
Template-Type: ReDIF-Paper 1.0
Title: Endogenous Capital Utilization and Productivity Measurement in Dynamic Factor Demand Models: Theory and an Application to the U.S. Electrical...
Author-Name: Ingmar R. Prucha
Author-Person: ppr355
Author-Name: M. Ishaq Nadiri
Note: PR
Number: 3680
Creation-Date: 1991-04
Order-URL: http://www.nber.org/papers/w3680
File-URL: http://www.nber.org/papers/w3680.pdf
File-Format: application/pdf
Publication-Status: published as Prucha, Ingmar R. & Nadiri, M. Ishaq, 1996. "Endogenous capital utilization and productivity measurement in dynamic factor demand models Theory and an application to the U.S. electrical machinery industry," Journal of Econometrics, Elsevier, vol. 71(1-2), pages 343-379.
Abstract: Studies of the firm's demand for factor inputs often assume a constant rate of utilization of the inputs and ignore the fact that the firm can simultaneously choose the level and the rate of utilization of its inputs. In particular, the literature on dynamic factor demand models has, until recently, largely overlooked the issue of capital utilization and/or did not distinguish carefully between the distinct concepts of capital and capacity utilization. In this paper we allow for variations in the rate of capital utilization within the context of a dynamic factor demand model by adopting a modeling framework within which the firm combines its beginning-of-period stocks with other inputs to produce its outputs as well as its end-of-period stocks. We also derive measures of productivity and capacity utilization for the adopted modeling framework. Given the depreciation rate is endogenous a consistent capital stock series must be generated during estimation from the investment data. This yields, as a byproduct, a consistent decon1position of gross investment into replacement and expansion investment. As an illustration, the model is applied to U.S. Electrical Machinery data.
Handle: RePEc:nbr:nberwo:3680
Template-Type: ReDIF-Paper 1.0
Title: Measuring and Testing the Impact of News on Volatility
Author-Name: Robert F. Engle
Author-Name: Victor K. Ng
Note: ME
Number: 3681
Creation-Date: 1991-04
Order-URL: http://www.nber.org/papers/w3681
File-URL: http://www.nber.org/papers/w3681.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Finance, 1993, vol. 48, issue 5, pages 1749-78
Abstract: This paper introduces the News Impact Curve to measure how new information is incorporated into volatility estimates. A variety of new and existing ARCH models are compared and estimated with daily Japanese stock return data to determine the shape of the News Impact Curve. New diagnostic tests are presented which emphasize the asymmetry of the volatility response to news. A partially non-parametric ARCH model is introduced to allow the data to estimate this shape. A comparison of this model with the existing models suggests that the best models are one by Glosten Jaganathan and Runkle (GJR) and Nelson's EGARCE. Similar results hold on a pre-crash sample period but are less strong.
Handle: RePEc:nbr:nberwo:3681
Template-Type: ReDIF-Paper 1.0
Title: Time-Varying Volatility and the Dynamic Behavior of the Term Structure
Author-Name: Robert F. Engle
Author-Name: Victor K. Ng
Note: ME
Number: 3682
Creation-Date: 1991-04
Order-URL: http://www.nber.org/papers/w3682
File-URL: http://www.nber.org/papers/w3682.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Money, Credit and Banking, 1993, vol. 25, issue 3, pages 336-49.
Abstract: In this paper, we consider a framework with which the cross sectional and time series behavior of the yield curve can be studied simultaneously. We examine the relationship between the yield curve and the time-varying conditional volatility of the Treasury bill market. We demonstrate that differently shaped yield curves can result given different combinations of volatility and expectations about future spot rates. Moreover, adjusting the forward rate for the volatility related liquidity premium can improve its performance as a predictor of future spot rates at least for the period from August 1964 to August 1979.
Handle: RePEc:nbr:nberwo:3682
Template-Type: ReDIF-Paper 1.0
Title: Do Exchange Auctions Work? An Examination of the Bolivian Experience
Author-Name: Kathryn M. Dominguez
Author-Person: pdo227
Note: ITI IFM
Number: 3683
Creation-Date: 1991-04
Order-URL: http://www.nber.org/papers/w3683
File-URL: http://www.nber.org/papers/w3683.pdf
File-Format: application/pdf
Abstract: The Bolivian experience suggests that, even in highly indexed economies, exchange rate auctions can work. After introduction of its auction, the Bolsin, not only did the parallel market premium for dollars all but disappear in Bolivia, but the Boliviano exchange rate remained surprisingly stable. This paper examines how the Bolsin accomplished this. The empirical evidence from daily auction data suggests that credit for the Bolsin's success should be attributed largely to central bank policy at the auction rather than the auction as an institution.
Handle: RePEc:nbr:nberwo:3683
Template-Type: ReDIF-Paper 1.0
Title: The EMS, the EMU, and the Transition to a Common Currency
Author-Name: Kenneth A. Froot
Author-Person: pfr60
Author-Name: Kenneth Rogoff
Author-Person: pro164
Note: ITI IFM
Number: 3684
Creation-Date: 1991-04
Order-URL: http://www.nber.org/papers/w3684
File-URL: http://www.nber.org/papers/w3684.pdf
File-Format: application/pdf
Publication-Status: published as NBER Macroeconomics Annual 1991, Vol. 6, eds. O.J. Blanchard and S. Fischer , Cambridge: MIT Press, January 1992.
Publication-Status: published as The EMS, the EMU, and the Transition to a Common Currency, Kenneth A. Froot, Kenneth Rogoff. in NBER Macroeconomics Annual 1991, Volume 6, Blanchard and Fischer. 1991
Abstract: When central banks are about to relinquish control over their exchange rate and enter into a currency union, the reptutational costs to devaluation are very low. As with any finite-horizon game, the endpoint affects the earlier expectations of private agents, here causing them to demand higher interest rates and higher wages from countries whose currencies are relatively weak. In looking at the countries within the EMS, we find that Italian long-term interest rates as well as price and wages levels relative to Germany show evidence of growing gaps We also find that the real appreciation of the lira appears to be predominantly due to increases in relative Italian government spending, and not to relatively rapid Italian productivity growth. Taken together, this evidence suggests that convergence within the EMS may have peaked. Furthermore, moving forward the date of currency union may in the short run increase both the growth of the gaps and the need for exchange-rate realignment.
Handle: RePEc:nbr:nberwo:3684
Template-Type: ReDIF-Paper 1.0
Title: Expected and Predicted Realignments: The FF/DM Exchange Rate During the EMS
Author-Name: Andrew K. Rose
Author-Person: pro71
Author-Name: Lars E.O. Svensson
Author-Person: psv2
Note: ITI IFM
Number: 3685
Creation-Date: 1991-04
Order-URL: http://www.nber.org/papers/w3685
File-URL: http://www.nber.org/papers/w3685.pdf
File-Format: application/pdf
Publication-Status: published as Scandinavian Journal of Economics, Vol. 97, No. 2 (1995), 173-200
Abstract: An empirical model of time-varying realignment risk in an exchange rate target zone is developed. Expected rates of devaluation are estimated as the difference between interest race differentials and estimated expected rates of depreciation within the exchange rate band, using French Franc/Deutsche Mark data during the European Monetary System. The behavior of estimated expected rates of depreciation accord well with the theoretical model of Bertola-Svensson (1990) . We are also able to predict actual realignments with some success.
Handle: RePEc:nbr:nberwo:3685
Template-Type: ReDIF-Paper 1.0
Title: Monetary Economics: A Review Essay
Author-Name: Herschel I. Grossman
Note: ME EFG
Number: 3686
Creation-Date: 1991-04
Order-URL: http://www.nber.org/papers/w3686
File-URL: http://www.nber.org/papers/w3686.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Monetary Economics, Vol. 28, No. 2, pp. 323-345, (October 1991).
Abstract: In this essay I define money to be whatever objects serve as generally acceptable media of exchange and I define monetary economics to be the study of the causes and economic consequences of the monetization of exchange -- that is, of the use of media of exchange. These definitions lead me to specify the distinctive objectives of monetary economics to be to understand (1) the monetization of exchange and its relation to the technologies of production and of exchange, (2) the form that money takes and, especially, the viability of fiat money, (3) the determination and significance of the real value of units of money, and (4) the relation between the nominal quantity of money and aggregate economic activity. The essay tries to acquaint the reader with the contents of the recently published "Handbook of Monetary Economic" as they relate to these objectives of monetary economics and offer some critical thoughts on selected unsettled issues in monetary economics that my reading of the "Handbook" suggested.
Handle: RePEc:nbr:nberwo:3686
Template-Type: ReDIF-Paper 1.0
Title: Trading, Communication and the Response of Price to New Information
Author-Name: Gary Gorton
Author-Person: pgo458
Author-Name: James Dow
Author-Person: pdo106
Note: ME
Number: 3687
Creation-Date: 1991-04
Order-URL: http://www.nber.org/papers/w3687
File-URL: http://www.nber.org/papers/w3687.pdf
File-Format: application/pdf
Publication-Status: published as Dow, James & Gorton, Gary, 1993. "Trading, Communication and the Response of Asset Prices to News," Economic Journal, Royal Economic Society, vol. 103(418), pages 639-46, May.
Abstract: The dynamic behavior of security prices is studied in a setting where two agents trade strategically and learn over time from market prices. The model introduces an information structure which is intended to capture the notion that information is difficult to interpret. Strategic interaction and the complexity of the information result in a protracted price response. Indeed, equilibrium price paths of the model may display reversals in which the two traders rationally revise their beliefs, first in one direction, and then in the opposite direction, even though no new information has entered the system. A piece of information which is initially thought to be bad news may be revealed, through trading, to be good news.
Handle: RePEc:nbr:nberwo:3687
Template-Type: ReDIF-Paper 1.0
Title: Pensions, Bonding, and Lifetime Jobs
Author-Name: Steven G. Allen
Author-Person: pal6
Author-Name: Robert L. Clark
Author-Name: Ann A. McDermed
Note: LS
Number: 3688
Creation-Date: 1991-04
Order-URL: http://www.nber.org/papers/w3688
File-URL: http://www.nber.org/papers/w3688.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Human Resources, Summer 1993, vol. 28, no. 3, p. 463-481
Abstract: A well-known, if underappreciated, finding in the mobility literature is that turnover is much lower in jobs covered by pensions than in other jobs. This could result from capital losses for job changes created by most benefit formulas, the tendency of turnover-prone individuals to avoid jobs covered by pensions, or higher overall compensation levels in such jobs. A switching bivariate probit model of pension coverage and turnover is developed to estimate the effect of each of these factors. The results show that capital losses are the main factor responsible for lower turnover in jobs covered by pensions, but self-selection and compensation levels also play an important role. This is the first direct evidence that bonding is important for understanding long-term employment relationships.
Handle: RePEc:nbr:nberwo:3688
Template-Type: ReDIF-Paper 1.0
Title: Money versus Credit Rationing: Evidence for the National Banking Era, 1880-1914
Author-Name: Michael D. Bordo
Author-Person: pbo243
Author-Name: Peter Rappoport
Author-Name: Anna J. Schwartz
Note: ME DAE
Number: 3689
Creation-Date: 1991-04
Order-URL: http://www.nber.org/papers/w3689
File-URL: http://www.nber.org/papers/w3689.pdf
File-Format: application/pdf
Publication-Status: published as Strategic Factors in Nineteenth Century American Economic History, edited by Claudia Goldin and Hugh Rockoff, pp. 189-223. Chicago: The University of Chicago Press, 1992.
Publication-Status: published as Money versus Credit Rationing: Evidence for the National Banking Era, 1880-1914, Michael D. Bordo, Peter Rappoport, Anna J. Schwartz. in Strategic Factors in Nineteenth Century American Economic History: A Volume to Honor Robert W. Fogel, Goldin and Rockoff. 1992
Abstract: In this paper we examine the evidence for two competing views of how monetary and financial disturbances influenced the real economy during the national banking era, 1880-1914. According to the monetarist view, monetary disturbances affected the real economy through changes on the liability side of the banking system's balance sheet independent of the composition of bank portfolios. According to the credit rationing view, equilibrium credit rationing in a world of asymmetric information can explain short-run fluctuations in real output. Using structural VARs we incorporate monetary variables in credit models and credit variables in monetarist models, with inconclusive results. To resolve this ambiguity, we invoke the institutional features of the national banking era. Most of the variation in bank loans is accounted for by loans secured by stock, which in turn reflect volatility in the stock market. When account is taken of the stock market, the influence of credit in the VAR model is greatly reduced, while the influence of money remains robust. The breakdown of the composition of bank loans into stock market loans (traded in open asset markets) and other business loans (a possible setting for credit rationing) reveals that other business loans remained remarkably stable over the business cycle.
Handle: RePEc:nbr:nberwo:3689
Template-Type: ReDIF-Paper 1.0
Title: Japan's High Saving Rate Reaffirmed
Author-Name: Robert Dekle
Author-Person: pde414
Author-Name: Lawrence H. Summers
Author-Person: psu137
Note: EFG
Number: 3690
Creation-Date: 1991-04
Order-URL: http://www.nber.org/papers/w3690
File-URL: http://www.nber.org/papers/w3690.pdf
File-Format: application/pdf
Publication-Status: published as Bank of Japan Monetary and Economic Studies, 9:2, Sept. 1991, pp. 63-78
Abstract: Compared to the U.S. national accounts, the Japanese accounts understate consumption and government spending, and therefore overstate the national saving rate. Recently, Hayashi has recalculated Japan's national saving according to the American Department of Commerce definition and found that from the mid-1970s until today, Japan's national saving rate is nearly halved. In this paper, we argue that Hayashi's adjustments to the Japanese income accounts are exaggerated, and present measures of Japanese and U.S. private saving that are immune from national income accounting biases. Our saving measures are constructed from the balance sheets of the household sectors in the United States and Japan. Far from being equal, we find that the two country gap in saving rates in the early 1980s has averaged between 15 and 30 percentage points, depending on the measure.
Handle: RePEc:nbr:nberwo:3690
Template-Type: ReDIF-Paper 1.0
Title: Immigration Policy, National Origin, and Immigrant Skills: A Comparison of Canada and the United States
Author-Name: George J. Borjas
Author-Person: pbo44
Note: LS
Number: 3691
Creation-Date: 1991-04
Order-URL: http://www.nber.org/papers/w3691
File-URL: http://www.nber.org/papers/w3691.pdf
File-Format: application/pdf
Publication-Status: published as Small Differences That Matter: Labor Markets and Income Maintenance in Canada and the United States, edited by David Card and Richard Freeman, pp. 21- 44, Chicago, University of Chicago Press, 1993.
Publication-Status: published as Immigration Policy, National Origin, and Immigrant Skills: A Comparison of Canada and the United States, George J. Borjas. in Small Differences That Matter: Labor Markets and Income Maintenance in Canada and the United States, Card and Freeman. 1993
Abstract: Over 12 million persons migrated to Canada or the United States between 1959 and 1981. Beginning in the mid?1960s, the immigration policies of the two countries began to diverge considerably: the United States stressing family reunification and Canada stressing skills. This paper shows that the point system used by Canada generated, on average, a more skilled immigrant flow than that which entered the United States. This skill gap, however, is mostly attributable to differences in the national origin mix of the immigrant flows admitted by the two countries. In effect, the point system "works" because it alters the national origin mix of immigrant flows, and not because it generates a more skilled immigrant flow from a given source country.
Handle: RePEc:nbr:nberwo:3691
Template-Type: ReDIF-Paper 1.0
Title: Bequest Taxes and Accumulation of Household Wealth: U.S. - Japan Comparison
Author-Name: Thomas A. Barthold
Author-Name: Takatoshi Ito
Note: PE
Number: 3692
Creation-Date: 1991-05
Order-URL: http://www.nber.org/papers/w3692
File-URL: http://www.nber.org/papers/w3692.pdf
File-Format: application/pdf
Publication-Status: published as Takatoshi Ito and Anne O. Krueger, eds. The Political Economy of Tax Reform . Chicago: The University of Chicago Press, 1992.
Publication-Status: published as Bequest Taxes and Accumulation of Household Wealth: U.S.-Japan Comparison, Thomas A. Barthold, Takatoshi Ito. in The Political Economy of Tax Reform, Ito and Krueger. 1992
Abstract: The objective of this paper is two-fold. First, we describe and compare the gift and bequest (estate) tax systems in the United States and Japan. Second, we use tax data to estimate the magnitude of intergenerational transfers. The magnitude of intergenerational transfers provides aid in determining how much outstanding wealth is obtained through intergenerational transfers, an issue of current controversy. In both Japan and the United States, a substantial portion of wealth, and especially of land in Japan, is bequeathed from one generation to the next.
Handle: RePEc:nbr:nberwo:3692
Template-Type: ReDIF-Paper 1.0
Title: Omitted-Ability Bias and the Increase in the Return to Schooling
Author-Name: McKinley L. Blackburn
Author-Person: pbl77
Author-Name: David Neumark
Author-Person: pne16
Note: LS
Number: 3693
Creation-Date: 1991-05
Order-URL: http://www.nber.org/papers/w3693
File-URL: http://www.nber.org/papers/w3693.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Labor Economics. Volume 11, Issue 3, Page 521, Jan 1993
Abstract: Over the 1980s there were sharp increases in the return to schooling estimated with conventional wage regressions. We use both a signaling model and a human capital model to explore how the relationship between ability and schooling could have changed over this period in ways Chat would have increased the schooling coefficient in these regressions. Our empirical results reject the hypothesis that an increase in the upward bias of the schooling coefficient, due to a change in the relationship between ability and schooling, underlies the observed increase in the return to education over the 1980s. We also find that the increase in the return to education has occurred largely for workers with relatively high levels of academic ability.
Handle: RePEc:nbr:nberwo:3693
Template-Type: ReDIF-Paper 1.0
Title: Unemployment and Infant Health: Times-Series Evidence from the State of Tennessee
Author-Name: Theodore J. Joyce
Author-Person: pjo112
Author-Name: Naci H. Mocan
Author-Person: pmo270
Note: EH
Number: 3694
Creation-Date: 1991-05
Order-URL: http://www.nber.org/papers/w3694
File-URL: http://www.nber.org/papers/w3694.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Human Resources, Vol. 28, No. 1, pp. 185-203 (Winter 1993).
Abstract: The relationship between unemployment and health continues to absorb social scientists. The primary reason is the potential significance of an association. If a substantial deterioration in aggregate health is related to economic downturns, then the cost of a recession may be much greater than the foregone output. This paper investigates the aggregate time-series relationship between unemployment and low birthweight with monthly data from the state of Tennessee from 1970 through 1989. The study differs from previous work in that we decompose the unemployment rate into its structural and cyclical components. Moreover, we use vector autoregressions to test the reduced form relationship between unemployment and low birthweight. The well-defined exogeneity of unemployment and the lag length restriction imposed by the duration of a pregnancy strengthens the specification considerably. We fail to find a relationship between unemployment and low birthweight. This basic finding remains unchanged irrespective of whether we test structural or cyclical unemployment, or whether we use total or race-specific rates of low birthweight.
Handle: RePEc:nbr:nberwo:3694
Template-Type: ReDIF-Paper 1.0
Title: The Evolution of Buyout Pricing and Financial Structure
Author-Name: Steven N. Kaplan
Author-Name: Jeremy C. Stein
Author-Person: pst43
Note: ME
Number: 3695
Creation-Date: 1991-05
Order-URL: http://www.nber.org/papers/w3695
File-URL: http://www.nber.org/papers/w3695.pdf
File-Format: application/pdf
Publication-Status: published as Quarterly Journal of Economics, Vol. CVIII, Issue 2, pp. 313-357, (May 1993).
Abstract: This paper presents evidence on systematic changes in the pricing and financial structure of 124 large management buyouts completed between 1980 and 1989. We find that over tine (1) prices increased relative to current cash flows with no accompanying decrease in risk or increase in projected future cash flows; (2) required bank principal repayments accelerated, leading to sharply lower ratios of cash flow to total debt obligations; (3) private subordinated debt was replaced by public debt while the use of strip-financing techniques declined; and (4) management teams invested a smaller fraction of their net worth in post-buyout equity. These patterns of buyout prices and structures suggest that based on ex ante data, one could have expected lower returns and more frequent financial distress in later buyouts. Preliminary post-buyout evidence is consistent with this interpretation.
Handle: RePEc:nbr:nberwo:3695
Template-Type: ReDIF-Paper 1.0
Title: Information and the Scope of Liability for Breach of Contract: The Rule of Hadley V. Baxendale
Author-Name: Lucian Arye Bebchuk
Author-Person: pbe72
Author-Name: Steven Shavell
Author-Person: psh42
Note: LE
Number: 3696
Creation-Date: 1991-05
Order-URL: http://www.nber.org/papers/w3696
File-URL: http://www.nber.org/papers/w3696.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Law, Economics, and Organization, Vol. 7, No. 2, pp. 284-312, Fall 1991.
Abstract: According to the contract law principle established in the famous nineteenth century English case of Hadley v. Baxendale, and followed ever since in the common law world, liability for a breach of contract is limited to losses "arising ... according to the usual course of things," or that may be reasonably supposed "to have been in the contemplation of both parties, at the time they made the contract, ..." Using a formal model, we attempt in this paper to analyze systematically the effects and the efficiency of this limitation on contract damages. We study two alternative rules: the limited liability rule of Hadley, and an unlimited liability rule. Our analysis focuses on the effects of the alternative rules on two types of decisions: buyers' decisions about communicating their valuations of performance to sellers; and sellers' decisions about their level of precautions to reduce the likelihood of nonperformance. We identify the efficient behavior of buyers and sellers. We then compare this efficient behavior with the decisions that buyers and sellers in fact make under the limited and unlimited liability rules. This analysis enables us to provide a full characterization of the conditions under which each of the rules induces, or fails to induce, efficient behavior, as well as the conditions under which each of the rules is superior to the other.
Handle: RePEc:nbr:nberwo:3696
Template-Type: ReDIF-Paper 1.0
Title: Productivity, Market Power and Capacity Utilization When Spot Markets are Complete
Author-Name: Benjamin Eden
Author-Person: ped25
Author-Name: Zvi Griliches
Note: PR
Number: 3697
Creation-Date: 1991-05
Order-URL: http://www.nber.org/papers/w3697
File-URL: http://www.nber.org/papers/w3697.pdf
File-Format: application/pdf
Publication-Status: published as American Economic Review, May 1993, (Papers and Proceedings), 83(2),p. 219-223
Abstract: Our test of price-taking behavior looks at the choice of capacity rather than the choice of output. It is motivated by a complete spot markets model in which goods are distinguished by the selling probabilities in addition to other characteristics. When output is explained by total man-hours and a capacity utilization proxy, the coefficient of the first variable is the elasticity of capacity with respect to fixed labor. Under competition and risk neutrality this coefficient is equal to an average labor share. We use this observation to interpret Abbot-Griliches-Hausman's regressions and to argue that once the capacity utilization proxy is included in the regression, Hall's data at the manufacturing level fail to reject the joint hypothesis of competition and risk neutrality. It is also argued that the coefficient of total man-hours does not tell us anything about monopoly power once the capacity utilization proxy is omitted from the regression.
Handle: RePEc:nbr:nberwo:3697
Template-Type: ReDIF-Paper 1.0
Title: From Centrally-Planned to Market Economies: The Road from CPE to PCPE
Author-Name: Guillermo A. Calvo
Author-Person: pca694
Author-Name: Jacob A. Frenkel
Note: ITI IFM
Number: 3698
Creation-Date: 1991-05
Order-URL: http://www.nber.org/papers/w3698
File-URL: http://www.nber.org/papers/w3698.pdf
File-Format: application/pdf
Publication-Status: published as Guillermo A. Calvo & Jacob A. Frenkel, 1991. "From Centrally Planned to Market Economy: The Road from CPE to PCPE," Staff Papers - International Monetary Fund, vol 38(2).
Abstract: This paper deals with the early stages of transformation of centrally-planned economies (CBEs) into market economies during which expectations playa key role. It focuses on the transitional phase during which the economy is not any more a CPE but has not yet become a market economy. During this phase the economy is referred to as a 'previously centrally-planned economy" (PCPE). A simple model is developed to analyze the consequences of expected price liberalization. The model highlights the anticipatory character of economic behavior during the early stages of the transformation process. A major focus is given to credit markets. The CPEs undergoing transformation lack depth and breadth of financial markets. The lack of information necessary to assess risk and creditworthiness complicates the conduct of credit polity. The analysis illustrates the benefits of an early development of such markets, and of finding appropriate ways to "clean" the balance sheets of enterprises and banks from bad loans. It demonstrates the cost of a fine-tuning strategy and the benefits from a quick implementation of price reform. The paper also examines alternative means to reduce 'liquidity overhang," and shows that all involve taxation of one form or another. The consequences of privatization are analyzed and the benefits of an early development of an effective tax system highlighted.
Handle: RePEc:nbr:nberwo:3698
Template-Type: ReDIF-Paper 1.0
Title: The Effect of Social Security on Labor Supply: A Cohort Analysis of the Notch Generation
Author-Name: Alan B. Krueger
Author-Person: pkr63
Author-Name: Jorn-Steffen Pischke
Author-Person: ppi29
Note: LS
Number: 3699
Creation-Date: 1991-05
Order-URL: http://www.nber.org/papers/w3699
File-URL: http://www.nber.org/papers/w3699.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Labor Economics, Vol. 10, no. 4 (October 1992): 412-437
Abstract: This paper uses aggregate birth year/calendar year level data derived from the Current Population Survey (CPS) to estimate the effect of Social Security wealth on the labor supply of older men in the 1970s and 1980s. The analysis focuses on the 1977 amendments to the Social Security Act t which created a substantial t unanticipated differential in benefits for otherwise identical individuals depending on whether they were born before or after 1917. This differential has become known as the benefit notch. There are two principal differences between the present analysis and the previous literature. First t this paper uses time-series variations in benefit levels to estimate the relationship between benefits and labor supply in an era when real benefits were falling for new recipients: Second t variation in benefit levels across cohorts is used to estimate the relationship between benefits and labor supply. The results support a conclusion that labor supply continued to decline for the "notch babies" who received lower Social Security benefits than earlier cohorts.
Handle: RePEc:nbr:nberwo:3699
Template-Type: ReDIF-Paper 1.0
Title: Incentives, Optimality, and Publicly Provided Goods: The Case of Mental Health Services
Author-Name: Richard Frank
Author-Name: Martin Gaynor
Author-Person: pga1
Note: EH
Number: 3700
Creation-Date: 1991-05
Order-URL: http://www.nber.org/papers/w3700
File-URL: http://www.nber.org/papers/w3700.pdf
File-Format: application/pdf
Publication-Status: published as Richard G. Frank & Martin Gaynor, 1995. "Incentives, Optimality, and Publicly Provided Goods: the Case of Mental Health Services," Public Finance Review, , vol. 23(2), pages 167-192, April.
Abstract: In this paper we investigate the incentives present in intergovernmental transfers for public mental health care. This represents an important issue due to the large portion of mental health care that is provided by local governments, the central role of states in financing care via intergovernmental transfers, and recent innovations adopted by some states altering the traditional terms of these transfers. Using a relatively simple model we show that when a state government provides both financing and a free input into local government production there will be excessive use of that input. If the preferences of society and those of the local provider of service are identical. this problem can be remedied by simply charging the provider a price equal to marginal cost for use of the input. If. however, the provider and society differ in their preferences, setting the price of the input at marginal cost will not induce optimal behavior, nor will the imposition of capacity constraints. Setting the correct Pigovian subsidies and taxes may induce social optimality. However it is unlikely that optimality will be achieved if the budget for the public good is fixed. The optimal prices are proportional to the sum of the elasticities of the provider's supply of services with respect to the subsidy (tax). These results are directly analogous to those for optimal commodity taxation. Examination of the transfer contracts for Wisconsin, Ohio and for Texas reveals that these contracts may not be optimal. These departures from optimal decisions may be partially due to the practical issues related to implementation of optimal transfer arrangements, e.g., setting subsidy or tax levels or imposing budget reductions.
Handle: RePEc:nbr:nberwo:3700
Template-Type: ReDIF-Paper 1.0
Title: The Socioeconomic Consequences of Teen Childbearing Reconsidered
Author-Name: Arline T. Geronimus
Author-Name: Sanders Korenman
Note: LS
Number: 3701
Creation-Date: 1991-05
Order-URL: http://www.nber.org/papers/w3701
File-URL: http://www.nber.org/papers/w3701.pdf
File-Format: application/pdf
Publication-Status: published as Quarterly Journal of Economics, November 1992, pp. 1187-1214
Abstract: Teen childbearing is commonly viewed as an irrational behavior that leads to long-term socioeconomic disadvantage for mothers and their children. Cross-sectional studies that estimate relationships between maternal age at first birth and socioeconomic indicators measured later in life form the empirical basis for this view. However1 these studies have failed to account adequately for differences in family background among women who time their births at different ages. We present new estimates of the consequences of teen childbearing that take into account observed and unobserved family background heterogeneity, comparing sisters who have timed their first births at different ages. Sister comparisons suggest that previous estimates are biased by failure to control adequately for family background heterogeneity, and, as a result, have overstated the consequences of early fertility.
Handle: RePEc:nbr:nberwo:3701
Template-Type: ReDIF-Paper 1.0
Title: Growth, Macroeconomics, and Development
Author-Name: Stanley Fischer
Note: EFG ITI IFM
Number: 3702
Creation-Date: 1991-05
Order-URL: http://www.nber.org/papers/w3702
File-URL: http://www.nber.org/papers/w3702.pdf
File-Format: application/pdf
Publication-Status: published as NBER Macroeconomics Annual 1991, Vol.6, eds, O.J. Blanchard and S. Fischer, Cambridge: MIT Press, January 1992.
Publication-Status: published as Growth, Macroeconomics, and Development, Stanley Fischer. in NBER Macroeconomics Annual 1991, Volume 6, Blanchard and Fischer. 1991
Abstract: The 1980s were both the lost decade of growth for much of Latin America and Africa, and the period in which -- through the new growth theory -- macroeconomists returned to the study of growth and development. The new growth theory is production function driven and concerned primarily with steady states, and has paid little attention to the role of macroeconomic policy -- as reflected for instance in the rate of inflation and the budget deficit -- in determining growth. This paper presents a variety of evidence that macroeconomic policies matter for long-run growth. First, macroeconomic variables enter the typical new growth theory cross-country regressions with statistical significance and the expected signs. Second, evidence from large multi?country case studies, and from case-studies of Chile and Cote d'Ivoire presented in the paper, shows that macroeconomic policy choices have had a significant impact on growth over periods of more than a decade. The conclusion is that macroeconomic policy choices, including the budget deficit, the exchange rate system, and those choices that determine the inflation rate, matter for long-term economic growth.
Handle: RePEc:nbr:nberwo:3702
Template-Type: ReDIF-Paper 1.0
Title: Privatization in East European Transformation
Author-Name: Stanley Fischer
Note: ITI IFM
Number: 3703
Creation-Date: 1991-05
Order-URL: http://www.nber.org/papers/w3703
File-URL: http://www.nber.org/papers/w3703.pdf
File-Format: application/pdf
Publication-Status: published as Clague, Christopher and Gordon C. Rausser (eds.) The emergence of market economies in Eastern Europe. Cambridge, MA and Oxford: Blackwell, 1992.
Abstract: Privatization of state assets is an essential step to the creation of a viable private sector in the formerly socialist economies of Eastern Europe and the Soviet Union. A standard approach to the problem has rapidly emerged. Small firms are being privatized by sale very rapidly. The strategy then turns to larger industrial firms, which are to be corporatized as soon as possible, moved out of the shelter of the ministries that now in principle control them, and put under the direction of corporate boards; at the next stage the intention is to distribute shares, through sale or free transfer, to some combination of current workers in the firms, current management, mutual funds, holding companies, banks, insurance companies, pension funds, citizens, and the government. I analyze the standard approach and alternatives, as well as progress in implementing privatization, with emphasis on Poland, Hungary, and Czechoslovakia. Progress in privatizing small firms has been rapid in several East European countries, but privatization of large firms has been slow, with most success to date in Hungary.
Handle: RePEc:nbr:nberwo:3703
Template-Type: ReDIF-Paper 1.0
Title: The Decline in Black Teenage Labor Force Participation in the South, 1900-1970: The Role of Schooling
Author-Name: Robert A. Margo
Author-Person: pma319
Author-Name: T. Aldrich Finegan
Note: DAE LS
Number: 3704
Creation-Date: 1991-05
Order-URL: http://www.nber.org/papers/w3704
File-URL: http://www.nber.org/papers/w3704.pdf
File-Format: application/pdf
Publication-Status: published as American Economic Review, vol. 83, March 1993, p. 234-247
Abstract: Between 1950 and 1970 the labor force participation rate of southern black males aged 16-19 declined by 27 percentage points. This decline has been attributed to two demand-side shocks: the mechanization of cotton agriculture in the 1950s and extensions in the coverage of the federal minimum wage in the 1960s. We show, however, that participation rates of southern black teens fell continuously between 1900 and 1950. The proximate causes of the pre-1950 decline in black teen participation were increases in school enrollment rates and decreases in labor force participation by teens enrolled in school. Because the underlying causes of both effects had not run their course by mid-century, we conclude that about half of the post-1950 decline in black teen participation in the South would have occurred even if cotton agriculture had not mechanized in the 1950s or coverage of the minimum wage had not been extended in the 1960s.
Handle: RePEc:nbr:nberwo:3704
Template-Type: ReDIF-Paper 1.0
Title: The Company You Keep: The Effects of Family and Neighborhood on Disadvantaged Youths
Author-Name: Anne C. Case
Author-Person: pca108
Author-Name: Lawrence F. Katz
Author-Person: pka266
Note: LS
Number: 3705
Creation-Date: 1991-05
Order-URL: http://www.nber.org/papers/w3705
File-URL: http://www.nber.org/papers/w3705.pdf
File-Format: application/pdf
Abstract: We examine the effects of family background variables and neighborhood peers on the behaviors of inner-city youths in a tight labor market using data from the 1989 NBER survey of youths living in low-income Boston neighborhoods. We find that family adult behaviors are strongly related to analogous youth behaviors. The links between the behavior of older family members and youths are important for criminal activity, drug and alcohol use, childbearing out of wedlock, schooling, and church attendance. We also find that the behaviors of neighborhood peers appear to substantially affect youth behaviors in a manner suggestive of contagion models of neighborhood effects. Residence in a neighborhood in which a large proportion of other youths are involved in crime is associated with a substantial increase in an individual's probability of the being involved in crime. Significant neighborhood peer effects are also apparent for drug and alcohol use, church attendance, and the propensity of youths to be out of school and out of work. Our results indicate that family and peer influences both operate in manner such that "like begets like."
Handle: RePEc:nbr:nberwo:3705
Template-Type: ReDIF-Paper 1.0
Title: Equalizing Exchange: A Study of the Effects of Trade Liberalization
Author-Name: Dan Ben-David
Author-Person: pbe276
Note: EFG
Number: 3706
Creation-Date: 1991-05
Order-URL: http://www.nber.org/papers/w3706
File-URL: http://www.nber.org/papers/w3706.pdf
File-Format: application/pdf
Publication-Status: published as The Quarterly Journal of Economics, vol. cviii, issue 3, August 1993, (MIT Press, Cambridge), p. 653
Abstract: It has been quite broadly documented that, historically, there has not been widespread convergence in levels of income across countries. This paper addresses the question of whether the behavior of cross-country income differentials over time, within a specified group of countries, might be affected by the removal of trade barriers. The analysis focuses on the evolutionary period of the European Economic Community, which is characterized by a specific timetable for the removal of trade barriers. This liberalization is shown to be strongly related to a significant income convergence that took place between the members of the Community. The evidence indicates that, until their trade became more liberalized, the income differentials between the countries of the EEC behaved very much like the income differentials between the industrialized countries today. After the onset of freer trade, the EEC countries achieved a reduction in income disparity that exhibited a marked similarity to the income convergence that occurred between the states of the U.S. This came about despite the fact that inter-state migration is considerably more widespread and unrestricted than are labor movements within the European Community.
Handle: RePEc:nbr:nberwo:3706
Template-Type: ReDIF-Paper 1.0
Title: Rational Finite Bubbles
Author-Name: Franklin Allen
Author-Person: pal67
Author-Name: Gary Gorton
Author-Person: pgo458
Note: ME
Number: 3707
Creation-Date: 1991-05
Order-URL: http://www.nber.org/papers/w3707
File-URL: http://www.nber.org/papers/w3707.pdf
File-Format: application/pdf
Publication-Status: published as Allen, Franklin and Gary Gorton. Churning Bubbles." Review of Economic Studies 60, 4 no. 205 (October 1993): 813-836.
Abstract: There has been a long-running debate about whether stock market prices are determined by fundamentals. To date no consensus has been reached. An important issue in this debate concerns the circumstances in which deviations from fundamentals are consistent with rational behavior. A continuous-time example where there are a finite number of rational traders with finite wealth is presented. it is shown that a finitely-lived security can trade above its fundamental.
Handle: RePEc:nbr:nberwo:3707
Template-Type: ReDIF-Paper 1.0
Title: A Note on Taxation as Social Insurance for Uncertain Labor Income
Author-Name: Louis Kaplow
Author-Person: pka44
Note: PE
Number: 3708
Creation-Date: 1991-05
Order-URL: http://www.nber.org/papers/w3708
File-URL: http://www.nber.org/papers/w3708.pdf
File-Format: application/pdf
Publication-Status: published as Public Finance, vol. 49, pp. 111-123, (1994).
Abstract: Various authors, notably Eaton and Rosen (1980a) and Varian (1980), have proposed that income taxation may be justified to some extent on the ground that it serves as social insurance against uncertainties in labor income. They assume that private insurance is unavailable. primarily because of moral hazard, and demonstrate that some taxation is efficient because the benefits of mitigating risk exceed incentive costs. This note suggests that private insurance should be considered explicitly in examining this question. Moral hazard problems limiting private insurance coverage are not alleviated by government insurance. Moreover, in the presence of moral hazard, government insurance, through labor income taxation or otherwise, may be an inefficient policy because private insurance decisions are distorted. More traditional justifications for redistributive taxation are unaffected by this argument.
Handle: RePEc:nbr:nberwo:3708
Template-Type: ReDIF-Paper 1.0
Title: Taxation and Risk Taking: A General Equilibrium Perspective
Author-Name: Louis Kaplow
Author-Person: pka44
Note: PE
Number: 3709
Creation-Date: 1991-05
Order-URL: http://www.nber.org/papers/w3709
File-URL: http://www.nber.org/papers/w3709.pdf
File-Format: application/pdf
Publication-Status: published as National Tax Journal, Vol. 47 (1994), pp. 789-798.
Abstract: Taxation and risk taking are examined in a general equilibrium model that incorporates uncertain government revenue in a nonrestrictive manner and allows the government to influence its revenue through portfolio investments as well as through tax policy. It is demonstrated that each of a wide range of taxes can be decomposed into some combination of a wage tax, an ex ante wealth tax, and a modification of the government's investment portfolio. For example, a tax on investment returns (from risky and riskless assets) is equivalent, with an adjustment in the government's portfolio, to a tax on the riskless component of investment returns or to an ex ante wealth tax -- both of which absorb no private risk and yield certain revenue. The concept of equivalence employed is strong: two regimes are equivalent if, for each state of nature, individuals' wealth and government revenue are the same under both regimes and total investment in each asset is the same. Implications for behavior (private and total risk taking) and welfare are immediate. Moreover, these results are independent of the government's objective function, the manner in which individual utility depends on government expenditures, and some of the restrictive assumptions found necessary in previous treatments of the problem.
Handle: RePEc:nbr:nberwo:3709
Template-Type: ReDIF-Paper 1.0
Title: Do Minimum Wages Reduce Employment? A Case Study of California, 1987-89
Author-Name: David Card
Author-Person: pca271
Note: LS
Number: 3710
Creation-Date: 1991-05
Order-URL: http://www.nber.org/papers/w3710
File-URL: http://www.nber.org/papers/w3710.pdf
File-Format: application/pdf
Publication-Status: published as Industrial and Labor Relations Review Volume 4, No. 1, pp.38-54 October 1992
Abstract: In July 1988 California's minimum wage rose from $3.35 to $4.25. In the previous year, 11 percent of California workers and fully one-half of its teenage workers earned less than the new state minimum. The state-specific nature of the California increase provides a valuable opportunity to study the effects of minimum wage legislation. As in a conventional non-experimental program evaluation, labor market trends in other states can be used to infer what would have happened in California in the absence of the law. Drawing on published labor market statistics and microdata samples from the Current Population Survey, I apply this strategy to estimate the effects of the rise in the minimum wage on various groups and industries in the state. Special attention is paid to teenage workers and employees in retail trade. The results are striking. The increase in the minimum raised wages of teenagers and other low wage workers by 5-10 percent. Contrary to conventional predictions, however, the employment rate of teenage workers rose, while their school enrollment rate fell.
Handle: RePEc:nbr:nberwo:3710
Template-Type: ReDIF-Paper 1.0
Title: Security Baskets and Index-Linked Securities
Author-Name: Gary Gorton
Author-Person: pgo458
Author-Name: George Pennacchi
Author-Person: ppe479
Note: ME
Number: 3711
Creation-Date: 1991-05
Order-URL: http://www.nber.org/papers/w3711
File-URL: http://www.nber.org/papers/w3711.pdf
File-Format: application/pdf
Publication-Status: published as The Journal of Business, Vol. 66, no. 1 (January 1993): 1-27.
Abstract: Security baskets and index-lined securities are securities whose values are functions of the cash flows or values of other assets. Creation of these "composite" securities would seem to be redundant since investors can cost1ess1y replicate them. In this paper we study the existence and optimal design of composite securities. We first show that when some investors possess inside information, composite securities are not redundant. By holding composite securities, uninformed investors with unexpected needs to trade can reduce their expected losses to insiders. The existence of these securities will affect real investment decisions. We then show that when uniformed investors are heterogeneous with respect to nontradeable endowment risk, the size of such clienteles determines whether the portfolio for a liquidity trader consists of a clientele-specific composite or a single market composite combined with individual security holdings. In the latter case, markets for the composite security and its component securities coexist. No results depend on the existence of exogenous "noise" traders.
Handle: RePEc:nbr:nberwo:3711
Template-Type: ReDIF-Paper 1.0
Title: Invention and Bounded Learning by Doing
Author-Name: Alwyn Young
Note: EFG
Number: 3712
Creation-Date: 1991-05
Order-URL: http://www.nber.org/papers/w3712
File-URL: http://www.nber.org/papers/w3712.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Political Economy 101 (June 1993): 443-472.
Abstract: This paper presents a model of the interaction between invention and learning by doing. Learning depends upon invention in that learning by doing is viewed as the serendipitous exploration of the finite productive potential of invented technologies. At the same time, the profitability of costly invention is dependent upon learning in that costs of production depend upon the society's aggregate historical learning experience. The resulting model is a true hybrid. With small markets, the profitability of invention is low, and hence the rate of invention becomes the constraining factor in growth. With large markets, invention is very profitable and tends to pull ahead of the society's learning experience. The consequent growing gap between the technological frontier and the society's industrial maturity squeezes returns, leading to an equilibrium in which the rate of invention (and growth) is paced by the society's rate of learning.
Handle: RePEc:nbr:nberwo:3712
Template-Type: ReDIF-Paper 1.0
Title: School Quality and Black-White Relative Earnings: A Direct Assessment
Author-Name: David Card
Author-Person: pca271
Author-Name: Alan B. Krueger
Author-Person: pkr63
Note: LS
Number: 3713
Creation-Date: 1991-05
Order-URL: http://www.nber.org/papers/w3713
File-URL: http://www.nber.org/papers/w3713.pdf
File-Format: application/pdf
Publication-Status: published as The Quarterly Journal of Economics, Vol. 107, no. 1, February 1992, p. 151- 200
Abstract: The average wage differential between black and white men fell from 40 percent in 1960 to 25 percent in 1980. Much of this convergence is attributable to a relative increase in the rate of return to schooling among black workers. It is widely argued that the growth in the relative return to black education reflects the dramatic improvements in the quality of black schooling over the past century. To test this hypothesis we have assembled data on three aspects of school quality -- pupil teacher ratios. annual teacher pay. and term length for black and white schools in 18 segregated states from 1915 to 1966. The school quality data are linked to estimated rates of return to education for Southern-born men from different cohorts and states. measured in 1960. 1970. and 1980. Improvements in the relative quality of black schools explain 20 percent of the narrowing of the black-white earnings gap between 1960 and 1980.
Handle: RePEc:nbr:nberwo:3713
Template-Type: ReDIF-Paper 1.0
Title: The Demand for and Return to Education When Education Outcomes are Uncertain
Author-Name: Joseph G. Altonji
Author-Person: pal266
Note: LS
Number: 3714
Creation-Date: 1991-05
Order-URL: http://www.nber.org/papers/w3714
File-URL: http://www.nber.org/papers/w3714.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Labor Economics,11, no. 1, Part 1, January 1993, p. 48-83
Abstract: The vast literature on human capital and earnings assumes that individuals know in advance that they will complete a particular program of schooling. This paper treats education as a sequential choice that is made under uncertainty. A simple two period structural model is used to explore the effects of ability, high school preparation, preferences for schooling, the borrowing rate, and ex post payoffs to college on the probability of various post secondary college outcomes and the ex ante return to starting college. The model provides the basis for a simple empirical method of accounting for uncertainty about educational outcomes and for nonlinearity in the relationship between years of education and earnings when estimating the expected return to the first year of college. I present estimates of the effects of gender, aptitude, high school curriculum, family background characteristics, and other variables on the expected return to starting college.
Handle: RePEc:nbr:nberwo:3714
Template-Type: ReDIF-Paper 1.0
Title: Industrial Shifts, Skills Levels, and the Labor Market for White and Black Males
Author-Name: John Bound
Author-Person: pbo406
Author-Name: Harry J. Holzer
Author-Person: pho162
Note: LS
Number: 3715
Creation-Date: 1991-05
Order-URL: http://www.nber.org/papers/w3715
File-URL: http://www.nber.org/papers/w3715.pdf
File-Format: application/pdf
Publication-Status: published as The Review of Economics and Statistics, Vol. 75, No. 3 (Aug., 1993), pp. 387-396
Abstract: In this paper we estimate the effects of industrial shifts in the 1970s and 1980s on the wages and employment of black and white males. We use micro Census data for 52 MSAs, and estimate effects separately by age and education group. The results show that industrial shifts did reduce demand for blacks and 1essskilled males in 1970s and 1980s. Demand shifts away from manufacturing, in particular, reduced employment and wages for black and white males. While the magnitudes of these effects are fairly small for many groups, they can account for one-third to one-half of the employment decline for less-educated young blacks in the 1970s. These results imply fairly large effects on the earnings of less-skilled males in the 1980s as well.
Handle: RePEc:nbr:nberwo:3715
Template-Type: ReDIF-Paper 1.0
Title: Trade Orientation, Distortions and Growth in Developing Countries
Author-Name: Sebastian Edwards
Author-Person: ped3
Note: ITI IFM
Number: 3716
Creation-Date: 1991-05
Order-URL: http://www.nber.org/papers/w3716
File-URL: http://www.nber.org/papers/w3716.pdf
File-Format: application/pdf
Publication-Status: published as "The Political Economy of Inflation and Stabilization in Developing Countries," Economic Development and Cultural Change, January 1994, 42(2): 235-266
Publication-Status: published as "Interest Rate Determination in Developing Countries: A Conceptual Framework," IMF Staff Papers, September 1985, 32(3): 377-403
Publication-Status: published as with Peter J. Montiel, "Devaluation Crises and the Macroeconomic Consequences of Postponed Adjustment in Developing Countries," IMF Staff Papers, December 1989, 36(4): 875-903
Publication-Status: published as "Explaining Fiscal Policies and Inflation in Developing Countries," Journal of International Money and Finance, March 1991, vol. 10 (supp. 1): S16-S48
Publication-Status: published as "Openness,Trade Liberalization, and Growth in Developing Countries," Journal of Economic Literature, September 1993, 31(3): 1358-1393
Publication-Status: published as Edwards, Sebastian, 1992. "Trade orientation, distortions and growth in developing countries," Journal of Development Economics, Elsevier, vol. 39(1), pages 31-57, July.
Abstract: In this paper I use a cross country data set to analyze the relationship between trade orientation, trade distortions and growth. I first develop a simple endogenous growth model that emphasizes the process of technological absorption in small developing countries. According to this model countries that liberalize their international trade and become more open will tend to grow faster. Whether this higher growth is permanent, or only a short run result, will depend on the relative size of some key parameters. using nine alternative indicators of trade orientation I find out that the data supports the view that more open economies tend to grow faster than economies with trade distortions. The results are robust to the method of estimation, to correction for errors in variables and for the deletion of outliers. I finally argue that future research in the area should move towards the empirical investigation of the microeconomics of technological innovations and growth.
Handle: RePEc:nbr:nberwo:3716
Template-Type: ReDIF-Paper 1.0
Title: Convergence of International Output Movements
Author-Name: Andrew B. Bernard
Author-Name: Steven N. Durlauf
Author-Person: pdu117
Note: EFG
Number: 3717
Creation-Date: 1991-05
Order-URL: http://www.nber.org/papers/w3717
File-URL: http://www.nber.org/papers/w3717.pdf
File-Format: application/pdf
Publication-Status: published as Bernard, Andrew B. and Steven N. Durlauf. "Convergence In International Output," Jouranl of Applied Econometrics, 1995, v10(2), 97-108.
Abstract: This paper explores the convergence of real per capita output in advanced industrialized economies. We start by observing that in a stochastic environment. convergence in per capita GDP requires that permanent shocks to one econ~ be associated with permanent shocks to other economies. Convergence is a natural outcome, of models where exogenous technical change migrates across countries with similar microeconomic specifications. Conversely, in a world where some component of permanent output movements is due to technical change whereas other components are due to domestic factors. national economies may diverge over time. we formalize a general definition of convergence using the notions of unit roots and cointegration developed in the time series literature. We construct bivariate and multivariate tests of convergence across advanced industrialized economies. Our evidence indicates that one cannot reject the no convergence null. Further. the estimated time series representation of cross-country output deviations exhibits substantial persistence. These results suggest that previous empirical work on convergence has neglected some aspects of the null hypothesis.
Handle: RePEc:nbr:nberwo:3717
Template-Type: ReDIF-Paper 1.0
Title: Path Dependence in Aggregate Output
Author-Name: Steven N. Durlauf
Author-Person: pdu117
Note: EFG
Number: 3718
Creation-Date: 1991-05
Order-URL: http://www.nber.org/papers/w3718
File-URL: http://www.nber.org/papers/w3718.pdf
File-Format: application/pdf
Publication-Status: published as Steven N. Durlauf, 1991. "Path dependence in aggregate output," Proceedings, Federal Reserve Bank of San Francisco, issue Nov.
Publication-Status: published as STEVEN N. DURLAUF, 1994. "Path Dependence in Aggregate Output," Industrial and Corporate Change, vol 3(1), pages 149-171.
Abstract: This paper studies an economy in which incomplete markets and strong complementarities interact to generate path dependent aggregate output fluctuations. An economy is said to be path dependent when the effect of a shock on the level of aggregate output is permanent in the absence of future offsetting shocks. Extending the model developed in Durlauf 11991(a),(b)). we analyze the evolution of an economy which consists of a countable infinity of industries. The production functions of individual firms in each industry are nonconvex and are linked through localized technological complementarities. The productivity of each firm at t is determined by the production decisions of technologically similar industries at t-1. No markets exist which allow firms and industries to exploit complementarities by coordinating production decisions. This market incompleteness produces several interesting effects on aggregate output behavior. First, multiple stochastic equilibria exist in aggregate activity. These equilibria are distinguished by differences in both the mean and the variance of output. Second, output movements are path dependent as aggregate productivity shocks indefinitely affect real activity by shifting the economy across equilibria. Third, when aggregate shocks are recurrent, the economy cycles between periods of boom and depression. Simulations of example economies illustrate how market incompleteness can produce rich aggregate dynamics.
Handle: RePEc:nbr:nberwo:3718
Template-Type: ReDIF-Paper 1.0
Title: Nonergodic Economic Growth
Author-Name: Steven N. Durlauf
Author-Person: pdu117
Note: EFG
Number: 3719
Creation-Date: 1991-05
Order-URL: http://www.nber.org/papers/w3719
File-URL: http://www.nber.org/papers/w3719.pdf
File-Format: application/pdf
Publication-Status: published as Review of Economic Studies, Vol. 60, no. 203 (1993): 349-366.
Abstract: This paper explores the role of complementarities and coordination failure in economic growth. We analyze the evolution composed of a countable set of infinitely-lived heterogenous industries. Individual industries exhibit nonconvexities in production and are linked across time through localized technological complementarities. Each industry employs one of two production techniques. One technique is more efficient in using capital than the other, but requires the payment of a fixed capital cost. Both techniques exhibit technological complementarities in the sense that the productivity of capital invested in a technique is a function of the technique choices made by various industries the previous period. These complementarities, when strong enough, interact with incompleteness of markets to produce multiple Pareto-rankable equilibria in ling run economic activity. The equilibria have a simple probabilistic structure that demonstrates how localized coordination failures can affect the aggregate equilibrium. The model is capable of generating interesting aggregate dynamics as coordination problems become the source of aggregate volatility. Modifications of the model illustrate how leading sectors can cause a takeoff into high growth.
Handle: RePEc:nbr:nberwo:3719
Template-Type: ReDIF-Paper 1.0
Title: Externalities from Labor Mobility
Author-Name: Laurence Ball
Author-Person: pba605
Note: EFG
Number: 3720
Creation-Date: 1991-05
Order-URL: http://www.nber.org/papers/w3720
File-URL: http://www.nber.org/papers/w3720.pdf
File-Format: application/pdf
Abstract: This paper assumes that workers can move from a market with high unemployment to one with low unemployment at a cost. In principle. equilibrium mobility can be greater or less than the social optimum. For most plausible parameter values. however. mobility is too low. Intuitively. mobility has a beneficial externality: it helps workers remaining in the high-unemployment market by reducing competition for jobs. Mobility hurts workers in the market that movers join, but this effect is usually smaller.
Handle: RePEc:nbr:nberwo:3720
Template-Type: ReDIF-Paper 1.0
Title: Political Instability, Political Weakness and Inflation: An Empirical Analysis
Author-Name: Sebastian Edwards
Author-Person: ped3
Author-Name: Guido Tabellini
Author-Person: pta37
Note: ITI IFM
Number: 3721
Creation-Date: 1991-05
Order-URL: http://www.nber.org/papers/w3721
File-URL: http://www.nber.org/papers/w3721.pdf
File-Format: application/pdf
Publication-Status: published as Sims, A.C. (Ed.) Advances In Econometrics, 2(0), 1994.
Abstract: In this paper we analyze empirically the most important implications of two family political economy models of inflation: the "myopic? government approach and the "weak" government approach. In myopic government models inflation is the deliberate outcome of politicians strategic behavior, while in weak government models inflation is the unavoidable result of a political struggle between different factions. In testing the implications of these two models we use a new data set on political developments in 76 countries for the period 1971-1982. Using a number of alternative definitions of the inflation tax we find out that the data supports the implications of the myopic governments models; countries with a more unstable political environment tend to rely more heavily on the inflation tax. There is no evidence in favor of the weak government hypothesis.
Handle: RePEc:nbr:nberwo:3721
Template-Type: ReDIF-Paper 1.0
Title: Wage Dispersion Between and Within U.S. Manufacturing Plants, 1963-1986
Author-Name: Steve J. Davis
Author-Person: pda15
Author-Name: John Haltiwanger
Author-Person: pha231
Note: LS
Number: 3722
Creation-Date: 1991-05
Order-URL: http://www.nber.org/papers/w3722
File-URL: http://www.nber.org/papers/w3722.pdf
File-Format: application/pdf
Publication-Status: published as Martin Baily and Clifford Winston, eds., Brookings papers on Economic Activity, Microeconomics 1991, pp.115-200, September 1991.
Abstract: This paper exploits a rich and largely untapped source of information on the wages and other characteristics of individual manufacturing plants to cast new light on recent changes in the United States wage structure. Our primary data source, the Longitudinal Research Datafile (LRD) , contains observations on more than 300,000 manufacturing plants during Census years (1963, 1967, 1972, 1977, 1982) and 50,000-70,000 plants during intercensus years since 1972. We use the information in the LRD to investigate changes in the plant-wage structure over the past three decades. We also combine plant-level wage observations in the LRD with wage observations on individual workers in the Current Population Survey (CPS) to estimate the between-plant and within-plant components of overall wage dispersion.
Handle: RePEc:nbr:nberwo:3722
Template-Type: ReDIF-Paper 1.0
Title: The Income Tax as Insurance: The Casualty Loss and Medical Expense Deductions and the Exclusion of the Medical Insurance Premiums
Author-Name: Louis Kaplow
Author-Person: pka44
Note: PE
Number: 3723
Creation-Date: 1991-05
Order-URL: http://www.nber.org/papers/w3723
File-URL: http://www.nber.org/papers/w3723.pdf
File-Format: application/pdf
Publication-Status: published as California Law Review, Vol. 79, No. 6, pp. 1485-1510, (December 1991).
Abstract: Whether personal income tax deductions are appropriate refinements to the concept of income or unwarranted tax expenditures continues to be the subject of debate. The casualty loss and medical expense deductions are frequently justified on the ground that ability to pay is reduced by largely unavoidable expenditures or losses. This article reconsiders the question taking account of the availability of private insurance, which is in fact widespread for relevant losses in both areas. When individuals can insure, the second level of insurance implicit in the casualty loss and medical expense deductions distorts consumption choices and insurance decisions. In particular, individuals may be more exposed to losses because of tax deductions commonly believed to mitigate them. Given the option, individuals would prefer a regime that eliminated the deductions and offered correspondingly lower tax rates.
Handle: RePEc:nbr:nberwo:3723
Template-Type: ReDIF-Paper 1.0
Title: Relationships Among the Family Incomes and Labor Market Outcomes of Relatives
Author-Name: Joseph G. Altonji
Author-Person: pal266
Author-Name: Thomas A. Dunn
Note: LS
Number: 3724
Creation-Date: 1991-06
Order-URL: http://www.nber.org/papers/w3724
File-URL: http://www.nber.org/papers/w3724.pdf
File-Format: application/pdf
Publication-Status: published as Research in Labor Economics, 12(1991) 269-310
Abstract: This paper examines the links between the labor market outcomes of individuals who are related by blood or by marriage using panel data on pairs of matched family members from the National Longitudinal Survey of Labor Market Experience. We examine the intergenerational and sibling correlations among a broad set of labor market variables using time average, method of moments and regression techniques designed to reduce the biases introduced by transitory and measurement errors. We also show that family data can be exploited to investigate theories of job turnover, labor supply. and the industry structure of wages. Our primary findings follow. First, there are strong correlations between the family incomes of relatives. Our method of moments estimates are .38 for brother pairs, .73 for sister pairs. and .56 for brother-sister pairs. The intergenerational family income correlations are .36 for father-son pairs, .48 for father-daughter pairs, and .56 for both mother-son and mother-daughter pairs. These estimates. except for the father-son result, are large compared to those in the literature for the U.S. Second, we find strong correlations in the wages and earnings of relatives. Wage correlations vary around .40 for all family member pairs, and earnings correlations vary around .35. Work hours of family members of the same sex are also fairly strongly related. Fourth, we find strong correlations in the earnings of "in-laws" that may support a theory of assortive mating in which parental earnings have value. We also provide evidence that job turnover rates depend on family characteristics and are negatively correlated with labor market productivity. Further, we show that young men whose fathers work in high wage industries tend themselves to work in high wage industries. Lastly, we find that a father's collective bargaining coverage has a strong positive influence on his son's collective bargaining status.
Handle: RePEc:nbr:nberwo:3724
Template-Type: ReDIF-Paper 1.0
Title: U.S. Trade Policy in the 1980s: Turns -- and Roads Not Taken
Author-Name: J. David Richardson
Note: ITI IFM
Number: 3725
Creation-Date: 1991-06
Order-URL: http://www.nber.org/papers/w3725
File-URL: http://www.nber.org/papers/w3725.pdf
File-Format: application/pdf
Publication-Status: published as American Economic Policy in the 1980s. Chicago: University of Chicago Press, 1994.
Abstract: This paper is an assessment of three tilts in U.S. trade policy during the 1980s: minilateralism, managed trade, and Congressional activism. It describes their economic and political causes, and whether or not alternative policy directions might have been possible. Taking as given the unfavorable macroeconomic environment for trade policy, a few alternatives do seem possible, but only a few. Sectoral minilateralism might have been a feasible replacement for the more aggressive managed trade experiments, e.g., in semiconductors, and earlier Executive Branch initiative in drafting trade legislation of the late 1980s might have blunted some of the sharper edges of the Congressional arsenal in the 1988 act. Minilateralism is forecast to have mildly liberalizing effects in the near term. The prognosis for the effects of managed trade and Congressional activism is decidedly more mixed.
Handle: RePEc:nbr:nberwo:3725
Template-Type: ReDIF-Paper 1.0
Title: Was the Great Depression a Low-Level Equilibrium?
Author-Name: John Dagsvik
Author-Name: Boyan Jovanovic
Note: EFG
Number: 3726
Creation-Date: 1991-06
Order-URL: http://www.nber.org/papers/w3726
File-URL: http://www.nber.org/papers/w3726.pdf
File-Format: application/pdf
Publication-Status: published as European Economic Review, vol 38, (1994) pp. 1711-1729 (December 1994).
Abstract: Was the Great Depression the outcome of a massive coordination failure? Or was it a unique equilibrium response to adverse shocks? More generally, do aggregates fluctuate partly because agents occasionally settle on inferior, low-level equilibria? These questions lie at the heart of the current disagreement over how one should view business cycles. This paper estimates an employment model with monetary and real shocks. In one region of the parameter-space the model yields uniqueness, while in the other it yields up to three equilibria. When more than one equilibrium exists, a selection rule is needed. The equilibrium selection rule that we use has a Markovian structure, but the money supply is denied a coordination role -- it can not affect the choice of the equilibrium point. The global maximum likelihood estimates lie in the uniqueness region, implying that instead of being a low-level, coordination-failure equilibrium, the Depression era was caused by movements in fundamentals only. This result held for each of the three subperiods (since 1900) for which the estimation was done, but the estimates are imprecise and the conclusions that we draw from them are tentative. The paper also computes the local maxima in the region of multiplicity, and here some of our estimates indicate that the years 1932 and 1933 would have exhibited low level equilibria had more than one equilibrium existed.
Handle: RePEc:nbr:nberwo:3726
Template-Type: ReDIF-Paper 1.0
Title: Do the Benefits of Fixed Exchange Rates Outweigh Their Costs? The Franc Zone in Africa
Author-Name: Shantayanan Devarajan
Author-Name: Dani Rodrik
Author-Person: pro60
Note: LS
Number: 3727
Creation-Date: 1991-06
Order-URL: http://www.nber.org/papers/w3727
File-URL: http://www.nber.org/papers/w3727.pdf
File-Format: application/pdf
Publication-Status: published as I. Goldin and A. Winters, eds., International Dimensions of Structural Adjustment. London: Cambridge University Press for CEPR, 1992
Abstract: We develop a simple formal framework to clarify the trade-offs involved in the choice between a fixed and flexible exchange-rate system. We then apply the framework to the CFA Zone countries in Africa, which have maintained a fixed parity with the French Franc since independence. Thanks to the predominance of a few agricultural products and natural resources in their exports, CFA member countries have suffered frequent shocks in their terms of trade. A flexible exchange rate could have possibly alleviated the costs of these external shocks. On the other hand, CFA member countries have managed to maintain lower inflation levels than their neighbors. Our framework provides a way of weighing these costs and benefits. The inflation differential between CFA and non-CFA African countries has been around 14 percentage points. We attribute this differential to the standard time-consistency problem inherent in discretionary macroeconomic policy. Nonetheless, our highly stylized calculations suggest that fixed exchange rates have been, on the whole, a bad bargain for the CFA member countries. Under reasonable output-inflation tradeoffs, the output costs of maintaining a fixed exchange rate have outweighed the benefits of lower inflation.
Handle: RePEc:nbr:nberwo:3727
Template-Type: ReDIF-Paper 1.0
Title: Gross Job Creation, Gross Job Destruction and Employment Reallocation
Author-Name: Steve J. Davis
Author-Person: pda15
Author-Name: John Haltiwanger
Author-Person: pha231
Note: EFG LS
Number: 3728
Creation-Date: 1991-06
Order-URL: http://www.nber.org/papers/w3728
File-URL: http://www.nber.org/papers/w3728.pdf
File-Format: application/pdf
Publication-Status: published as Quarterly Journal of Economics, August 1992, pp.819-863, Volume 107, No. 3
Abstract: This study measures the heterogeneity of establishment-level employment changes in the U.S. manufacturing sector over the 1972 to 1986 period. We measure this heterogeneity in terms of the gross creation and destruction of jobs and the rate at which jobs are reallocated across plants. Our measurement efforts enable us to quantify the connection between job reallocation and worker reallocation, to evaluate theories of heterogeneity in plant-level employment dynamics, and to establish new results related to the cyclical behavior of the labor market.
Handle: RePEc:nbr:nberwo:3728
Template-Type: ReDIF-Paper 1.0
Title: Heterogeneity and Output Fluctuations in a Dynamic Menu-Cost Economy
Author-Name: Ricardo J. Caballero
Author-Person: pca44
Author-Name: Eduardo M.R.A. Engel
Author-Person: pen3
Note: EFG
Number: 3729
Creation-Date: 1991-06
Order-URL: http://www.nber.org/papers/w3729
File-URL: http://www.nber.org/papers/w3729.pdf
File-Format: application/pdf
Publication-Status: published as Review of Economic Studies, 60(1), January 1993, p. 95-120
Abstract: When firms face menu costs, the relation between their output and money is highly nonlinear. At the aggregate level, however, this needs not be so. In this paper we study the dynamic behavior of a general equilibrium menu-cost economy where firms are heterogeneous in the shocks they perceive, and the demands and adjustment Costs they face. In this context we (i) generalize the Caplin and Spulber [1987] steady state monetary neutrality result; (ii) show that uniqueness of equilibria depends not only on the degree of strategic complementarities but also on the degree of dispersion of firms' positions in their price-cycle; (iii) characterize the path of output outside the steady state and show that as strategic complementarities become more important, expansions become longer and smoother than contractions; and (iv) show that the potential effectiveness of monetary policy is an increasing function of the distance of the economy from its steady state, but that an uninformed policy maker will have no effect on output on average.
Handle: RePEc:nbr:nberwo:3729
Template-Type: ReDIF-Paper 1.0
Title: Dividends and Profits: Some Unsubtle Foreign Influences
Author-Name: James R. Hines Jr.
Author-Person: phi111
Note: PE
Number: 3730
Creation-Date: 1991-06
Order-URL: http://www.nber.org/papers/w3730
File-URL: http://www.nber.org/papers/w3730.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Finance, vol. LI, no. 2, pp. 661-689, June 1996.
Abstract: American corporations earn a large and growing share of their profits from their foreign operations. This paper evaluates the effect of foreign earnings on dividend payments by American corporations. The results suggest that the effect may be rather dramatic: that, all other things equal, U.S. corporations pay dividends out of foreign earnings at rates that are three times higher than their payout rates from domestic earnings. Why firms do so is unclear, though this behavior may be consistent with a signaling view of dividends. There is a curious tax consequence of this high payout rate on foreign earnings: the tax system, which grants foreign tax credits to U.S. corporations for the foreign taxes they pay, may receive more revenue from taxing the dividends of U.S. shareholders than from the corporate tax on foreign earnings.
Handle: RePEc:nbr:nberwo:3730
Template-Type: ReDIF-Paper 1.0
Title: Nonrational Actors and Financial Market Behavior
Author-Name: Richard Zeckhauser
Author-Person: pze7
Author-Name: Jayendu Patel
Author-Name: Darryll Hendricks
Note: ME
Number: 3731
Creation-Date: 1991-06
Order-URL: http://www.nber.org/papers/w3731
File-URL: http://www.nber.org/papers/w3731.pdf
File-Format: application/pdf
Publication-Status: published as Theory and Decision, vol 31, 1991, pp 257-287
Abstract: The insights of descriptive decision theorists and psychologists, we believe, have much to contribute to our understanding of financial market macrophenomena. We propose an analytic agenda that distinguishes those individual idiosyncrasies that prove consequential at the macro-level from those that are neutralized by market processes such as poaching. We discuss five behavioral traits - barn-door closing, expert/reliance effects, status quo bias, framing, and herding - that we employ in explaining financial flows. Patterns in flows to mutual funds, to new equities, across national boundaries, as well as movements in debt-equity ratios are shown to be consistent with deviations from rationality.
Handle: RePEc:nbr:nberwo:3731
Template-Type: ReDIF-Paper 1.0
Title: The Diffusion of Technology and Inequality Among Nations
Author-Name: Boyan Jovanovic
Author-Name: Saul Lach
Author-Person: pla110
Note: EFG
Number: 3732
Creation-Date: 1991-06
Order-URL: http://www.nber.org/papers/w3732
File-URL: http://www.nber.org/papers/w3732.pdf
File-Format: application/pdf
Abstract: One usually accounts for output growth in terms of the growth of the primary inputs: labor, physical capital, and possibly human capital. In this paper we account for growth with labor and with intermediate goods. Because we have no measures of the extent of adoption of most intermediate goods in most countries, we have to assume something about how they spread, based on what we see in U.S. data. We find that if all countries have (al the same production function, (b) the same speed of adoption technology, and (c) imperfectly correlated technology shocks, then we can easily account for the extent and persistence of inequality among nations. Unfortunately, while it easily generates the sorts of low frequency movements that we observe, our technology shock seems to have little to do with high frequency movements in GNP so that if our definition of this shock is correct, real business cycle models are way off the mark.
Handle: RePEc:nbr:nberwo:3732
Template-Type: ReDIF-Paper 1.0
Title: Technology Adoption and Growth
Author-Name: Stephen L. Parente
Author-Person: ppa5
Author-Name: Edward C. Prescott
Author-Person: ppr10
Note: EFG
Number: 3733
Creation-Date: 1991-06
Order-URL: http://www.nber.org/papers/w3733
File-URL: http://www.nber.org/papers/w3733.pdf
File-Format: application/pdf
Publication-Status: published as Revised version "Barriers to Technology Adoption and Development" Journal of Public Economics, April 1994, pp. 298-321
Abstract: Technology change is modeled as the result of decisions of individuals and groups of individuals to adopt more advanced technologies. The structure is calibrated to the U.S. and postwar Japan growth experiences. Using this calibrated structure we explore how large the disparity in the effective tax rates on the returns to adopting technologies must be to account for the huge observed disparity in per capita income across countries. We find that this disparity is not implausibly large.
Handle: RePEc:nbr:nberwo:3733
Template-Type: ReDIF-Paper 1.0
Title: Dynamic (S,s) Economies
Author-Name: Ricardo J. Caballero
Author-Person: pca44
Author-Name: Eduardo M.R.A. Engel
Author-Person: pen3
Note: EFG
Number: 3734
Creation-Date: 1991-06
Order-URL: http://www.nber.org/papers/w3734
File-URL: http://www.nber.org/papers/w3734.pdf
File-Format: application/pdf
Publication-Status: published as Econometrica, November 1991,pp. 1659-1686
Abstract: In this paper we provide a framework to study the aggregate dynamic behavior of an economy where individual units follow (S,s) policies. We characterize structural and stochastic heterogeneities that ensure convergence of the economy's aggregate to that of its frictionless counterpart, determine the speed at which convergence takes place, and describe the transitional dynamics of this economy. In particular, we consider a dynamic economy where agents differ in their initial positions within their bands and face both stochastic and structural heterogeneity; where the former refers to the presence of (unit specific) idiosyncratic shocks, and the latter to differences in the widths of units' (S,s) bands and their response to aggregate shocks. We study the evolution of the economy's aggregate and the evolution of the difference between this aggregate and that of an economy without macroeconomic friction, where the latter pertains to a situation where individual units adjust with no delay to all shocks. We also examine the sensitivity of this difference to common shocks. For example, in the retail inventory problem the aggregate deviation and sensitivity to common shocks correspond to the aggregate inventory level and its sensitivity to aggregate demand shocks, respectively.
Handle: RePEc:nbr:nberwo:3734
Template-Type: ReDIF-Paper 1.0
Title: A Fallacy of Composition
Author-Name: Ricardo J. Caballero
Author-Person: pca44
Note: EFG
Number: 3735
Creation-Date: 1991-06
Order-URL: http://www.nber.org/papers/w3735
File-URL: http://www.nber.org/papers/w3735.pdf
File-Format: application/pdf
Publication-Status: published as American Economic Review, December 1992
Abstract: The representative agent framework has endowed macroeconomists with powerful microeconomic tools. Unfortunately, it has also blurred the distinction between statements that are valid at the individual level from those that apply to the aggregate. In this paper I argue that probability theory puts strong restrictions on the joint behavior of a large number of units that are less than fully synchronized, and that many fallacies arise from disregarding these restrictions. For example, the observation that the aggregate price level is more rigid to downward changes than to upward changes, has led many authors to suggest asymmetries at the firm level as responsible for the alleged macroeconomic fact. However, the basic insight developed in this paper shows that asymmetric pricing policies at the firm level do not necessarily imply asymmetries in upward and downward adjustments of the aggregate price level; and asymmetries in the aggregate price level need not come from asymmetries at the firm level. Similarly, asymmetric factor adjustment costs at the firm level need not imply asymmetric responses of the aggregate capital stock and the level of employment to positive and negative shocks.
Handle: RePEc:nbr:nberwo:3735
Template-Type: ReDIF-Paper 1.0
Title: Black-White Earnings Over the 1970s and 1980s: Gender Differences in Trends
Author-Name: Francine D. Blau
Author-Person: pbl16
Author-Name: Andrea H. Beller
Author-Person: pbe1177
Note: LS
Number: 3736
Creation-Date: 1991-06
Order-URL: http://www.nber.org/papers/w3736
File-URL: http://www.nber.org/papers/w3736.pdf
File-Format: application/pdf
Publication-Status: published as Review of Economics and Statistics, May 1992
Abstract: This paper uses CPS data to analyze gender differences in black-white annual earnings trends over the 1970s and 1980s. We find that in at least two respects black women fared better than men over this period. First, due to decreasing relative annual time inputs for black males, but not black females, black women experienced increases in both annual earnings and estimated wages compared to white women, while black men gained only in terms of wages compared to white men. Second, since the gender earnings gap among whites was narrowing during this time, as black women's wages rose relative to white women's, they also made faster progress relative to white males than did black males. In other important respects, however, the experience of black men and women over the period was similar. First, for both groups, while earnings and wages relative to whites of the same sex rose during the 1970s, they stagnated or declined during the 1980s. Second, in contrast to the 1960s, younger blacks did not fare better than older blacks during the 1970s and 1980s. While in 1971, both unadjusted wage ratios and adjusted earnings ratios were highest within each sex group for labor market entrants, by 1988 these ratios were fairly similar across experience groups.
Handle: RePEc:nbr:nberwo:3736
Template-Type: ReDIF-Paper 1.0
Title: Japanese Foreign Direct Investment
Author-Name: Kenneth A. Froot
Author-Person: pfr60
Note: ITI ME IFM
Number: 3737
Creation-Date: 1991-06
Order-URL: http://www.nber.org/papers/w3737
File-URL: http://www.nber.org/papers/w3737.pdf
File-Format: application/pdf
Publication-Status: published as US-Japan Economic Forum, Feldstein and Kosai, eds., 1991
Abstract: Japan's outflows of foreign direct investment (FDI) have increased dramatically in recent years, to the point where Japan has become the world's largest overseas direct investor. This paper documents the increase in Japanese FDI, as well as its breakdown across industries and countries. Investments in real estate and financial services have grown most rapidly, as has Japanese FDI into North America, which now accounts for fully half of Japan's outflows. The paper then goes on to discuss and evaluate some of the most popular explanations for this explosion in investment: Japanese current account surpluses; actual or anticipated protectionism abroad; appreciated stock prices and value of the yen; and changes in international tax policy.
Handle: RePEc:nbr:nberwo:3737
Template-Type: ReDIF-Paper 1.0
Title: Determinants of External Imbalances: The Role Taxes, Government Spending and Productivity
Author-Name: Leonardo Leiderman
Author-Name: Assaf Razin
Author-Person: pra388
Note: ITI EFG IFM
Number: 3738
Creation-Date: 1991-06
Order-URL: http://www.nber.org/papers/w3738
File-URL: http://www.nber.org/papers/w3738.pdf
File-Format: application/pdf
Publication-Status: published as Journal of the Japanese and International Economies, Vol. 5, pp. 421-450, ( December 1991).
Abstract: This paper develops and estimates a dynamic optimizing model of the current account. The model focuses, on real factors that determine the evolution of saving and investment, and hence the external balance. Three types of shocks are at the center of the analysis: productivity shocks, shocks to labor input, and tax policy shocks. While our approach is in line with the real business cycle models of the current account, the distinguishing feature of the work is the application of econometric methods to time series data for a small open economy so as to directly estimate the parameters governing saving and investment under rational expectations restrictions.
Handle: RePEc:nbr:nberwo:3738
Template-Type: ReDIF-Paper 1.0
Title: A Model of Optimal Fines for Repeat Offenders
Author-Name: A. Mitchell Polinsky
Author-Person: ppo94
Author-Name: Daniel L. Rubinfeld
Note: LE
Number: 3739
Creation-Date: 1991-06
Order-URL: http://www.nber.org/papers/w3739
File-URL: http://www.nber.org/papers/w3739.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Public Economics, Vol. 46, No. 3, pp. 291-306, (December 1991)
Abstract: This paper analyzes optimal fines in a model in which individuals can commit up to two offenses. The fine for the second offense is allowed to differ from the fine for the first offense. There are four natural cases in the model, defined by assumptions about the gains to individuals from committing the offense. In the case fully analyzed it may be optimal to punish repeat offenders more severely than first-time offenders. In another case, it may be optimal to impose less severe penalties on repeat offenders. And in the two remaining cases, the optimal penalty does not change.
Handle: RePEc:nbr:nberwo:3739
Template-Type: ReDIF-Paper 1.0
Title: First Nature, Second Nature, and Metropolitan Location
Author-Name: Paul R. Krugman
Author-Person: pkr10
Note: ITI IFM
Number: 3740
Creation-Date: 1991-06
Order-URL: http://www.nber.org/papers/w3740
File-URL: http://www.nber.org/papers/w3740.pdf
File-Format: application/pdf
Publication-Status: published as Paul Krugman, 1993. "FIRST NATURE, SECOND NATURE, AND METROPOLITAN LOCATION," Journal of Regional Science, vol 33(2), pages 129-144.
Abstract: This paper develops models of spatial equilibrium in which a central metropolis emerges to supply manufactured goods to an agricultural hinterland. The location of the metropolis is not fully determined by the location of resources: as long as it is not too far from the geographical center of the region, the concentration of economic mass at the metropolis makes it the optimal location for manufacturing firms, and is thus self-justifying. The approach in this paper therefore helps explain the role of historical accident and self-fulfilling expectations in metropolitan location.
Handle: RePEc:nbr:nberwo:3740
Template-Type: ReDIF-Paper 1.0
Title: How Would Universities Respond to Increased Federal Support for Graduate Students?
Author-Name: Ronald G. Ehrenberg
Author-Person: peh2
Author-Name: Daniel I. Rees
Author-Person: pre268
Author-Name: Dominic J. Brewer
Note: LS
Number: 3741
Creation-Date: 1991-06
Order-URL: http://www.nber.org/papers/w3741
File-URL: http://www.nber.org/papers/w3741.pdf
File-Format: application/pdf
Publication-Status: published as "Institutional Responses to Increased External Support for Graduate Students", Review of Economics and Statistics, 75, November 1993.
Publication-Status: published as How Would Universities Respond to Increased Federal Support for Graduate Students?, Ronald G. Ehrenberg, Daniel I. Rees, Dominic J. Brewer. in Studies of Supply and Demand in Higher Education, Clotfelter and Rothschild. 1993
Abstract: Projections of forthcoming shortages of Ph.D.s and thus new faculty for the academic sector, abound. Among the policies proposed to prevent such shortages is increased federal support for graduate students. Lost in the policy debate, however, has been concern for the possibility that increased federal support might induce academic institutions to redirect their own internal resources in a way that at least partially frustrates the intent of the policy change. Our paper presents an analysis of this issue using institutionally-based data for science and engineering fields. We find that doctorate-producing universities do respond to changes in external support for graduate students by altering the number of students they support on institutional funds. While adjustments to changes in external support levels appear to be quite rapid, the magnitude of these responses are quite small. On average, an increase of 100 in the number of students supported by external funds is estimated to reduce the number supported on institutional funds by 22 to 23. We also find that the magnitude of the response varies across fields, that within the science and engineering fields there is some fungibility of external support across fields, and that changes in external support influence the distribution of internal support by type of support (fellowship, research assistantship, and teaching assistantship) .
Handle: RePEc:nbr:nberwo:3741
Template-Type: ReDIF-Paper 1.0
Title: No News is Good News: An Asymmetric Model of Changing Volatility in Stock Returns
Author-Name: John Y. Campbell
Author-Person: pca54
Author-Name: Ludger Hentschel
Note: ME
Number: 3742
Creation-Date: 1991-06
Order-URL: http://www.nber.org/papers/w3742
File-URL: http://www.nber.org/papers/w3742.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Financial Economics vol. 31, 1992, p. 281-318
Abstract: It is sometimes argued that an increase in stock market volatility raises required stock returns, and thus lowers stock prices. This paper modifies the generalized autoregressive conditionally heteroskedastic (GARCH) model of returns to allow for this volatility feedback effect. The resulting model is asymmetric, because volatility feedback amplifies large negative stock returns and dampens large positive returns, making stock returns negatively skewed and increasing the potential for large crashes. The model also implies that volatility feedback is more important when volatility is high. In U.S. monthly and daily data in the period 1926-88, the asymmetric model fits the data better than the standard GARCH model, accounting for almost half the skewness and excess kurtosis of standard monthly GARCH residuals. Estimated volatility discounts on the stock market range from 1% in normal times to 13% after the stock market crash of October 1987 and 25% in the early 1930's. However volatility feedback has little effect on the unconditional variance of stock returns.
Handle: RePEc:nbr:nberwo:3742
Template-Type: ReDIF-Paper 1.0
Title: Expected Changes in the Workforce and Implications for Labor Markets
Author-Name: Phillip B. Levine
Author-Person: ple553
Author-Name: Olivia S. Mitchell
Author-Person: pmi73
Note: LS
Number: 3743
Creation-Date: 1991-06
Order-URL: http://www.nber.org/papers/w3743
File-URL: http://www.nber.org/papers/w3743.pdf
File-Format: application/pdf
Publication-Status: published as Levine, Philip B. and Olivia S. Mitchell. "Expected Changes in the Work- Force and Implications for Labor Markets." Demography and Retirement: The 21st Century. Edited by A. Rappaport and R. Scheiber. Pension Research Concil, Praeger, 1993, P. 73-96.
Abstract: This paper examines the likely effects of the aging of the baby boom on labor force attachment, unemployment, and wages. Labor market trends between now and 2020 are the focus of analysis, when the majority of the baby boom generation will confront its retirement decision. We begin by reviewing past labor force trends and discussing important limitations of existing projection methods. Key elements needed to project the consequences of the demographic shock facing the labor market are identified. The task of developing a fully specified economic model to examine the effect of the aging of the baby boom on the labor market is as yet incomplete. On the basis of the best available evidence, we suggest the following conclusions can be drawn: The trend towards earlier retirement will slow and perhaps reverse in the next few decades. Unemployment should fall among older workers and the aggregate full-employment unemployment rate should also decline as the baby boom ages. The aging of the baby boom will not depress wages substantially, either for older workers or for other demographic groups.
Handle: RePEc:nbr:nberwo:3743
Template-Type: ReDIF-Paper 1.0
Title: Trends in Pension Benefit Formulas and Retirement Provisions
Author-Name: Olivia S. Mitchell
Author-Person: pmi73
Note: LS AG
Number: 3744
Creation-Date: 1991-06
Order-URL: http://www.nber.org/papers/w3744
File-URL: http://www.nber.org/papers/w3744.pdf
File-Format: application/pdf
Publication-Status: published as Mitchell, Olivia S. "Trends in Pension Benefit Formulas and Retirement Provisions." In Trends in Pensions 1992, edited by J. Turner and D. Beller. U.S. Dept. of Labor, 1992
Abstract: Changes in pension plan retirement formulas and benefit provisions over the last decade are examined, drawing on data collected and tabulated by the U.S. Department of Labor's Employee Benefits Survey of medium and large firms. The evidence shows that pension provisions have changed a great deal over the last decade, among both defined benefit and defined contribution plans. In the defined benefit environment, participation and vesting rules changed substantially; early retirement became more accessible and benefits somewhat more generous; normal retirement ages declined; and pension benefits were increasingly likely to depend on final rather than career earnings. Benefit integration with social security also grew to almost two-thirds of all participants in defined benefit plans. Overall, though pension replacement rates rose slightly over time, benefit ceilings remained pervasive for work at older ages and disability benefit provisions became more stringent. Defined contribution pension plans also changed a great deal over the decade of the 1980s. Workers were increasingly likely to be covered by combinations of defined benefit and defined contribution plans, with the latter usually a savings and thrift plan permitting a lump sum distribution. Profit sharing and stock plans appear to have stagnated during the latter part of the 1980s.
Handle: RePEc:nbr:nberwo:3744
Template-Type: ReDIF-Paper 1.0
Title: The Asset Allocation of Private Pension Plans
Author-Name: Leslie E. Papke
Author-Person: ppa153
Note: AG ME
Number: 3745
Creation-Date: 1991-06
Order-URL: http://www.nber.org/papers/w3745
File-URL: http://www.nber.org/papers/w3745.pdf
File-Format: application/pdf
Publication-Status: published as Turner, John and Daniel Beller (eds.) Trends in Pensions 1992. Washington, DC: Department o Labor, Pension, and Welfare Benefits Administration, 1992.
Abstract: This paper summarizes the Form 5500 data on private pension fund investment. Using Form 5500 data from 1981 to 1987, the asset allocation of single employer and mu1tiemp1oyer defined benefit and defined contribution plans is reported, as well as the asset mix of the following subgroups: defined benefit plans categorized by plan funding ratio, sole and multiple defined contribution plans, savings or thrift, money purchase, ESOP, and 401(k) defined contribution plans. A brief survey of the literature on pension fund investment policy is also included; however, the focus of the paper is to describe the Form 5500 data and inform subsequent research on investment policies of private pension funds. The average single employer defined benefit plan holds about 50 percent in fixed-income securities, 20 percent in equities, and 20 percent in pooled funds (a 50/20/20 mix). Larger single employer defined benefit plans hold a 60/30/2 portfolio on average. While portfolio theory for these plans predicts extreme investment policies, few portfolios are extreme. About 20 percent of plans hold more than 60 percent in equity; about 9 percent of plans hold more than 60 percent in long term fixed-income securities. Multiemployer defined benefit plans hold a 63/19/8 mix. Single employer defined contribution plans invest in a 41/30/20 mix on average, where the mix is 49/38/2 for larger plans. A defined contribution plan which is one of several plans invests more in equities and less in fixed income securities than the average sole defined contribution plan. Multiemployer defined contribution plans invest more heavily in fixed-income securities (73/5/8) .
Handle: RePEc:nbr:nberwo:3745
Template-Type: ReDIF-Paper 1.0
Title: A Longitudinal Analysis of Young Entrepreneurs in Australia and the United States
Author-Name: David G. Blanchflower
Author-Person: pbl22
Author-Name: Bruce D. Meyer
Author-Person: pme273
Note: LS
Number: 3746
Creation-Date: 1991-06
Order-URL: http://www.nber.org/papers/w3746
File-URL: http://www.nber.org/papers/w3746.pdf
File-Format: application/pdf
Publication-Status: published as Small Business Economics, Jan 1994, pp. 1-19 (vol. 6, No. 1).
Abstract: This paper examines the pattern of self-employment in Australia and the United States. We particularly focus on the movement of young people in and out of self-employment using comparable longitudinal data from the two countries. We find that the forces that influence whether a person becomes self-employed are broadly similar: in both countries skilled manual workers, males and older workers were particularly likely to move to self-employment. We also find that previous firm size, previous union status and previous earnings are important determinants of transitions to self-employment. The main difference we observe is that additional years of schooling had a positive impact on the probability of being self-employed in the US but were not a significant influence in Australia. However, the factors influencing the probability of leaving self-employment are different across the two countries. The only similarity is that in both countries younger individuals are more likely to leave.
Handle: RePEc:nbr:nberwo:3746
Template-Type: ReDIF-Paper 1.0
Title: A Note on Internationally Coordinated Policy Packages Intended to be Robust Under Model Uncertainty
Author-Name: Jeffrey Frankel
Author-Person: pfr12
Author-Name: Scott Erwin
Author-Name: Katharine Rockett
Author-Person: pro265
Note: ITI IFM
Number: 3747
Creation-Date: 1991-06
Order-URL: http://www.nber.org/papers/w3747
File-URL: http://www.nber.org/papers/w3747.pdf
File-Format: application/pdf
Publication-Status: published as "International Macroeconomic Policy Coordination When Policymakers Do Not Agree on the True Model: Reply," American Economic Review, Vol. 82, No. 4,pp. 1052-1056 (September 1992).
Abstract: Holtham and Hughes Hallett, and a number of other authors, have suggested that a printout of all 1,000 cases of coordination considered in Frankel and Rockett (1988) should be made available. They wish to check whether, if coordination is restricted to policy packages that they call 'strong' bargains, it would raise welfare a higher percentage of the time. We now make those results available. The results show that if coordination is restricted to packages that are robust with respect to model uncertainty, such as the so-called 'strong' bargains, it does indeed improve the odds in favor of gains from coordination.
Handle: RePEc:nbr:nberwo:3747
Template-Type: ReDIF-Paper 1.0
Title: Durable Goods: An Explanation for Their Slow Adjustment
Author-Name: Ricardo J. Caballero
Author-Person: pca44
Note: EFG
Number: 3748
Creation-Date: 1991-06
Order-URL: http://www.nber.org/papers/w3748
File-URL: http://www.nber.org/papers/w3748.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Political Economy, April 1993
Abstract: Aggregate expenditure on durable goods responds too slowly to wealth and other aggregate innovations to be consistent with the simplest frictionless version of PIH (permanent income hypothesis). In this paper I present a model of aggregate expenditure on durab1es that builds up from the lumpy nature of microeconomic purchases, and provide evidence supporting its contribution to the resolution of the ?slowness? puzzle. The paper also contains several new results on the problem of dynamic aggregation of stochastically heterogeneous units. In particular, I provide a simple characterization of the effects of heterogeneity and microeconomic lumpiness on aggregate dynamics.
Handle: RePEc:nbr:nberwo:3748
Template-Type: ReDIF-Paper 1.0
Title: Mergers, Deregulation and Cost Savings in the U.S. Rail Industry
Author-Name: Ernst R. Berndt
Author-Name: Ann F. Friedlaender
Author-Name: Judy Shaw-Er Wang Chiang
Author-Name: Christopher A. Vellturo
Note: PR
Number: 3749
Creation-Date: 1991-06
Order-URL: http://www.nber.org/papers/w3749
File-URL: http://www.nber.org/papers/w3749.pdf
File-Format: application/pdf
Publication-Status: published as "Cost Effect of Mergers and Deregulation in the U.S. Railroad Industry", Journal of Productivity Analysis, vol 4, no.2 1993, pp. 127-144
Abstract: The success of deregulation in creating a viable private rail freight system in the ?U.S. since 1979 is relatively undisputed. Deregulation has proceeded in three ways: (i) eased rate setting restrictions; (ii) simplified merger applications and approval procedures; and (iii) relaxed route abandonment policies. In this paper we attempt to disentangle the effects of deregulation on rail costs from those directly attributable to mergers and acquisitions. We employ a translog variable cost function, based on an unbalanced panel data set of annual observations for major U.S. Class I railroads from 1974 to 1986. We find that both deregulation and mergers contributed significantly to cost savings. However, of the accumulated cost savings achieved by the six major firms involved in mergers post-deregulation, we estimate that by 1986 about 91% of the reduction in accumulated costs is due to deregulation, and about 9% is directly due to mergers and acquisitions (which in turn were facilitated by regulatory reforms). In terms of factor biases, we find that both deregulation and mergers resulted in a substantial labor-saving bias; the point estimate of the deregulation labor-saving bias is larger than that for mergers, but we were not able to estimate this bias precisely. We conclude that mergers were not a prerequisite for railroads being able to achieve substantial cost and productivity improvements in our 1974-1986 sample period. Deregulation also had an enormous direct impact; indeed, its impact appears to have been much larger.
Handle: RePEc:nbr:nberwo:3749
Template-Type: ReDIF-Paper 1.0
Title: Lifetime vs. Annual Perspectives on Tax Incidence
Author-Name: Don Fullerton
Author-Person: pfu10
Author-Name: Diane Lim Rogers
Note: PE
Number: 3750
Creation-Date: 1991-06
Order-URL: http://www.nber.org/papers/w3750
File-URL: http://www.nber.org/papers/w3750.pdf
File-Format: application/pdf
Publication-Status: published as "Lifetime Versus Annual Perspectives on Tax Incidence." From National Tax Journal, Vol. XLIV, No. 3, pp. 277-287, (September 1991).
Abstract: Recent academic research on tax incidence has shifted from an emphasis on static and annual perspectives to examinations of dynamic and lifetime issues. Meanwhile, policy economists are forced to rely on annual data and hence annual analyses. The purpose of this paper is to discuss the nature and analysis of lifetime tax incidence, and to compare and contrast this lifetime perspective with the more familiar annual perspective. In our comparison, we find that (1) the lifetime perspective requires much more data over longer periods of time, because results depends critically on the whole shape of the lifetime earnings profile, (2) individuals classified by annual income decile are often reclassified into very different lifetime income deciles, (3) the personal income tax and corporate income tax appear less progressive on a lifetime basis, while consumption taxes appear less regressive on a lifetime basis, and (4) despite the different approaches and the different reasons underlying the incidence of each particular tax, the lifetime incidence of the entire U.S. tax system is strikingly similar to the annual incidence.
Handle: RePEc:nbr:nberwo:3750
Template-Type: ReDIF-Paper 1.0
Title: An Indicator of Future Inflation Extracted From the Steepness of the Interest Rate Yield Curve Along Its Entire Length
Author-Name: Jeffrey A. Frankel
Author-Person: pfr12
Author-Name: Cara S. Lown
Note: ME
Number: 3751
Creation-Date: 1991-06
Order-URL: http://www.nber.org/papers/w3751
File-URL: http://www.nber.org/papers/w3751.pdf
File-Format: application/pdf
Publication-Status: published as Quarterly Journal of Economics, May 1994, pp. 517-530
Abstract: It is often suggested that the slope of the term structure of interest rates contains information about the expected future path of inflation. Mishkin (1990) has recently shown that the spread between the 12-month and 3-month interest rates helps to predict the difference between the 12-month and 3-month inflation rates. His approach however, lacks a theoretical foundation, other than the (rejected) hypothesis that the real interest rate is constant. This paper applies a simple existing theoretical framework, which allows the real interest rate to vary in the short run but converge to a constant in the long run, to the problem of predicting the inflation spread. It is shown that the appropriate indicator of expected inflation can make use of the entire length of the yield curve, in particular by estimating the steepness of a specific nonlinear transformation of the curve, rather than being restricted to a spread between two points. The resulting indicator, besides having a firmer theoretical foundation does a relatively good job of predicting the inflation rate over the period 1960 to 1988.
Handle: RePEc:nbr:nberwo:3751
Template-Type: ReDIF-Paper 1.0
Title: The Equity Premium and the Risk Free Rate: Matching the Moments
Author-Name: Stephen G. Cecchetti
Author-Person: pce4
Author-Name: Pok-sang Lam
Author-Name: Nelson C. Clark
Note: ME
Number: 3752
Creation-Date: 1991-06
Order-URL: http://www.nber.org/papers/w3752
File-URL: http://www.nber.org/papers/w3752.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Monetary Economics, vol. 31, no. 1, p. 21-46, February 1993
Abstract: This paper investigates the ability of a representative agent model with time separable utility to explain the mean vector and the covariance matrix of the risk free interest rate and the return to leveraged equity in the stock market. The paper generalizes the standard calibration methodology by accounting for the uncertainty in both the sample moments to be explained and the estimated parameters to which the model is calibrated. We develop a testing framework to evaluate the model's ability to match the moments of the data. We study two forms of the model, both of which treat leverage in a manner consistent with the data. In the first, dividends explicitly represent the flow that accrues to the owner of the equity, and they are discounted by the marginal rate of intertemporal substitution defined over consumption. The second form of the model introduces bonds and treats equities as the residual claim to the total endowment stream. We find that the first moments of the data can be matched for a wide range of preference parameter values. But for both models the implied first and second moments taken together are always statistically significantly different from the data at standard levels. This last result contrasts sharply with other recent treatments of leverage in the literature.
Handle: RePEc:nbr:nberwo:3752
Template-Type: ReDIF-Paper 1.0
Title: The Timing of Intergenerational Transfers, Tax Policy, and Aggregate Savings
Author-Name: David Altig
Author-Name: Steve J. Davis
Author-Person: pda15
Note: PE
Number: 3753
Creation-Date: 1991-06
Order-URL: http://www.nber.org/papers/w3753
File-URL: http://www.nber.org/papers/w3753.pdf
File-Format: application/pdf
Publication-Status: published as American Economic Review December 1992, Volume 82, No. 5
Abstract: We analyze the interest rate and savings effects of fiscal policy in an overlapping generations framework that accommodates two observations: (1) The interest rate on consumption loans exceeds the rate of return to household savings. (2) Private intergenerational transfers are widespread and primarily occur early in the lifecycle of recipients. The wedge between borrowing and lending rates in our model arises from the asymmetric tax treatment of interest income and interest payments. Intergenerational transfers are altruistically motivated. Under the assumption that altruistic transfers occur in at least some family lines and other plausible conditions, we prove the invariance of capital's steady-state marginal product to government expenditures, government debt, the labor income tax schedule, and the tax rate on capital income. In contrast, we find that the tax treatment of interest payments has powerful effects on capitals? marginal product and aggregate savings in life-cycle and, especially, altruistic linkage models. Our theoretical analysis also generates new testable implications for empirical work on how tax policy effects aggregate savings and on the connection between the age distribution of resources and the age distribution of consumption. Simulations of our model suggest that the 1986 Tax Reform Act's elimination of interest deductibility on consumer loan repayments will significantly increase per capita savings.
Handle: RePEc:nbr:nberwo:3753
Template-Type: ReDIF-Paper 1.0
Title: Real Interest Rates and the Savings and Loan Crisis: The Moral Hazard Premium
Author-Name: John B. Shoven
Author-Name: Scott B. Smart
Author-Name: Joel Waldfogel
Author-Person: pwa46
Note: ME
Number: 3754
Creation-Date: 1991-06
Order-URL: http://www.nber.org/papers/w3754
File-URL: http://www.nber.org/papers/w3754.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Economic Perspectives, Vol. 6, no. 1 (Winter 1992): 155-167.
Abstract: Real interest rates rose to historically high levels in 1980 and remained high throughout the decade. Macroeconomists attribute this phenomenon to a combination of tight monetary policy, fiscal deficits, and variable inflation rates. This paper presents preliminary evidence for an additional explanation of high real rates that is related to the decade-long crisis in the savings and loan industry. Deposit insurance, moral hazard, and regulatory forbearance provide the incentives and the means for insolvent thrifts to issue liabilities that compete with Treasury securities in the market for funds. Thus, as the magnitude of the thrift crisis grew during the 1990s, so did pressure on Treasury yields. Even if the effect of the S&L crisis on interest rates is small, the increased cost of financing the public debt adds significantly to the total costs associated with the savings and loan fiasco.
Handle: RePEc:nbr:nberwo:3754
Template-Type: ReDIF-Paper 1.0
Title: Technology Commitment and the Cost of Economic Fluctuations
Author-Name: Garey Ramey
Author-Person: pra338
Author-Name: Valerie A. Ramey
Author-Person: pra154
Note: EFG
Number: 3755
Creation-Date: 1991-06
Order-URL: http://www.nber.org/papers/w3755
File-URL: http://www.nber.org/papers/w3755.pdf
File-Format: application/pdf
Abstract: When firms must make technology commitments, economic fluctuations impose costs in the form of ex post inefficiency in production technology. We present a general equilibrium model in which, due to the presence of technology commitment, greater volatility of productivity shocks leads to lower mean output. When learning-by-doing is incorporated, mean output becomes permanently lower as a consequence of higher volatility. The negative and persistent relationship between mean and variance of output implied by our model is strongly verified by the data. We estimate that observed volatility has imposed a cost amounting to almost two percentage points of U.S. GNP growth.
Handle: RePEc:nbr:nberwo:3755
Template-Type: ReDIF-Paper 1.0
Title: The Source of Fluctuations in Money: Evidence From Trade Credit
Author-Name: Valerie A. Ramey
Author-Person: pra154
Note: EFG ME
Number: 3756
Creation-Date: 1991-06
Order-URL: http://www.nber.org/papers/w3756
File-URL: http://www.nber.org/papers/w3756.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Monetary Economics, 30, November 1992,: 171-193
Abstract: This paper tests the importance of technology shocks versus financial shocks for explaining, fluctuations in money. The model presented extends the theory of King and Plosser by recognizing that both money and trade credit provide transactions services. The model shows that the comovements between money and trade credit can reveal the nature of the underlying shocks. The empirical results strongly suggest that shocks to the financial system account for most of the fluctuations in money. Thus, the results cast doubt on the hypothesis that nonfinancial technology shocks are the main source of the money-income correlation.
Handle: RePEc:nbr:nberwo:3756
Template-Type: ReDIF-Paper 1.0
Title: How Fast Do Old Men Slow Down?
Author-Name: Ray C. Fair
Author-Person: pfa24
Note: AG
Number: 3757
Creation-Date: 1991-06
Order-URL: http://www.nber.org/papers/w3757
File-URL: http://www.nber.org/papers/w3757.pdf
File-Format: application/pdf
Publication-Status: published as Review of Economics and Statistics, Vol. 76, no. 1 (1994): 103-118.
Abstract: This study uses data on men's track and field and road racing records by age to estimate the rate at which men slow down with age. For most of the running events (400 meters through the half marathon), the slowdown rate per year is estimated to be .80 percent between ages 35 and 51. At age 51 the rate begins to increase. It is 1.04 percent at age 60, 1.46 percent at age 75, and 2.01 percent at age 95. The slowdown rate is smaller for 100 meters. For the events longer than the half marathon, the rate is smaller through about age 60 and then larger after that. The slowdown rate is generally larger at all ages for the field events. Table 2 shows that the age-factors in Masters Age-Graded Tables are excessively variable and biased against older runners. Tables 3 and 5 present the age-factors implied by this study. These tables can be used to estimate one's projected time or distance by age. They can also be used by race officials for age-graded events. A brief comparison of the present results to results in the physiological literature is also presented in this paper. The main estimation technique used is a combination of the polynomialspline method and the frontier-function method. A number of the events have been pooled to provide more efficient estimates.
Handle: RePEc:nbr:nberwo:3757
Template-Type: ReDIF-Paper 1.0
Title: Economic Development, Urban Underemployment, and Income Inequality
Author-Name: James E. Rauch
Author-Person: pra166
Note: ITI IFM
Number: 3758
Creation-Date: 1991-06
Order-URL: http://www.nber.org/papers/w3758
File-URL: http://www.nber.org/papers/w3758.pdf
File-Format: application/pdf
Publication-Status: published as Canadian Journal of Economics, vol. 26, pp. 901-918-(November 1993)
Abstract: The evolution of inequality in permanent income is investigated during the course of a less developed country's transformation from a primarily agricultural to a primarily urban-industrial economy. The source of inequality is market luck in obtaining employment in the protected urban "formal sector" versus employment in the unprotected urban "informal sector." It is shown that with development the log variance measure of inequality in this country tends to follow an "inverted U": it rises when urbanization is low and consequent pressure on the land keeps rural incomes low, making agents willing to incur high risks of "underemployment" in the urban informal sector, and eventually falls after urbanization and consequently rural incomes has increased sufficiently to allow agents to make better than even bets in the industrial sector. These results in combination with new empirical evidence suggest that rather than being an unimportant artifact of the design of inequality indices, inverted-U behavior of inequality may be driven by the important social phenomenon of mass urban underemployment.
Handle: RePEc:nbr:nberwo:3758
Template-Type: ReDIF-Paper 1.0
Title: Minimum Wages in Puerto Rico: Textbook Case of a Wage Floor?
Author-Name: Alida Castillo Freeman
Author-Name: Richard B. Freeman
Author-Person: pfr23
Note: LS
Number: 3759
Creation-Date: 1991-06
Order-URL: http://www.nber.org/papers/w3759
File-URL: http://www.nber.org/papers/w3759.pdf
File-Format: application/pdf
Abstract: This paper uses time series and cross-industry data on employment and wages in Puerto Rico to assess the effects of applying the U.S. minimum wage to the Puerto Rican labor market. We find that the U.S. minimum has a massive effect on the earnings distribution in Puerto Rico and that it has substantially lowered employment and altered the allocation of labor across industries. The reduction in employment is due to the fact that the minimum has a high level relative to average earnings or productivity, not to an especially high estimated elasticity of employment to the minimum. We claim that the results support the textbook model of the minimum wage more strongly than studies of the minimum in the U.S. because in Puerto Rico the U.S. minimum has "real bite."
Handle: RePEc:nbr:nberwo:3759
Template-Type: ReDIF-Paper 1.0
Title: What Moves the Stock and Bond Markets? A Variance Decomposition for Long-Term Asset Returns
Author-Name: John Y. Campbell
Author-Person: pca54
Author-Name: John Ammer
Note: ME
Number: 3760
Creation-Date: 1991-06
Order-URL: http://www.nber.org/papers/w3760
File-URL: http://www.nber.org/papers/w3760.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Finance, vol 48, March 1993, p.3-37
Abstract: This paper uses a log-linear asset pricing framework and a vector autoregressive model to break down movements in stock and bond returns into changes in expectations of future stock dividends, inflation, short-term real interest rates, and excess returns on stocks and bonds. In monthly postwar U.S. data, excess stock returns are found to be driven largely by news about future excess stock returns, while excess 10-year bond returns are driven largely by news about future inflation. Real interest rate changes have little impact on either stock or 10-year bond returns, although they do affect the short-term nominal interest rate and the slope of the term structure. These findings help to explain why postwar excess stock and bond returns have been almost uncorrelated.
Handle: RePEc:nbr:nberwo:3760
Template-Type: ReDIF-Paper 1.0
Title: On the Labor Market Effects of Immigration and Trade
Author-Name: George J. Borjas
Author-Person: pbo44
Author-Name: Richard B. Freeman
Author-Person: pfr23
Author-Name: Lawrence F. Katz
Author-Person: pka266
Note: LS
Number: 3761
Creation-Date: 1991-06
Order-URL: http://www.nber.org/papers/w3761
File-URL: http://www.nber.org/papers/w3761.pdf
File-Format: application/pdf
Publication-Status: published as George J. Borjas and Richard B. Freeman, editors. Immigration and the Work Force: Economic Consequences for the United States and Source Areas. Chicago: The University of Chicago Press, September 1992.
Publication-Status: published as Borjas, George J., Richard B. Freeman and Lawrence F. Katz. "Searching For The Effect Of Immigration On The Labor Market," American Economic Review, 1996, v86(2,May), 246-251.
Publication-Status: published as On the Labor Market Effects of Immigration and Trade, George J. Borjas, Richard B. Freeman, Lawrence F. Katz. in Immigration and the Work Force: Economic Consequences for the United States and Source Areas, Borjas and Freeman. 1992
Abstract: In the 1980s, the wages and employment rates of less-skilled Americans fell relative to those of more-skilled workers. This paper examines the contribution of the continuing inflow of less-skilled immigrants and the increasing importance of imports in the U.S. economy to these trends. Our empirical evidence indicates that both trade and immigration augmented the nation's supply of less-skilled workers, particularly workers with less than a high school education. By 1988, trade and immigration increased the effective supply of high school dropouts by 28 percent for men and 31 percent for women. We estimate that from thirty to fifty percent of the approximately 10 percentage point decline in the relative weekly wage of high school dropouts between 1980 and 1988 can be attributed to the trade and immigration flows. In addition, our analysis suggests that from 15 to 25 percent of the 11 percentage point rise in the earnings of college graduates relative to high school graduates from 1980 to 1985 can be attributed to the massive increase in the trade deficit over the same period, but that the effects of trade on the college/high school wage differential diminished with improvements in the trade balance during the late 1980s.
Handle: RePEc:nbr:nberwo:3761
Template-Type: ReDIF-Paper 1.0
Title: A Comparison of the Behavior of Japanese and U.S. Inventories
Author-Name: Kenneth D. West
Author-Person: pwe16
Note: EFG
Number: 3762
Creation-Date: 1991-07
Order-URL: http://www.nber.org/papers/w3762
File-URL: http://www.nber.org/papers/w3762.pdf
File-Format: application/pdf
Publication-Status: published as International Journal of Production Economics Volume 26, pp.115-222 1992
Abstract: This paper compares the cyclical and secular behavior of Japanese and U.S. inventories at the aggregate and sectoral level, 1967-1987. While, as is well known, U.S. inventories are sharply procyclical, Japanese inventories are only mildly procyclical. In neither country do inventory and sales move together in the long run, in the sense that the two series do not seem to be cointegrated. In Japan, but not in the U.S., there is a secular decline in the inventory-sales ratio.
Handle: RePEc:nbr:nberwo:3762
Template-Type: ReDIF-Paper 1.0
Title: Sources of Cycles in Japan, 1975-1987
Author-Name: Kenneth D. West
Author-Person: pwe16
Note: EFG
Number: 3763
Creation-Date: 1991-07
Order-URL: http://www.nber.org/papers/w3763
File-URL: http://www.nber.org/papers/w3763.pdf
File-Format: application/pdf
Publication-Status: published as Journal of International and Japanese Economies Volume 6, pp.71-98 1992
Publication-Status: published as West, Kenneth D., 1992. "Sources of cycles in Japan, 1975-1987," Journal of the Japanese and International Economies, Elsevier, vol. 6(1), pages 71-98, March.
Abstract: A simple real model is used to decompose movements of aggregate inventories and output in Japan during 1975 to 1987 to three components, one due to cost shocks, one due to demand shocks, and one due to' shocks from abroad. Cost shocks are estimated to account for about one tenth of the movement in GNP, one half of the movement in inventories. Most of the remaining movement in GNP is due to demand shocks, in inventories to shocks from abroad. Confidence intervals around these point estimates are, however, very large.
Handle: RePEc:nbr:nberwo:3763
Template-Type: ReDIF-Paper 1.0
Title: Learning and Wage Dynamics
Author-Name: Henry S. Farber
Author-Name: Robert Gibbons
Author-Person: pgi283
Note: LS
Number: 3764
Creation-Date: 1991-07
Order-URL: http://www.nber.org/papers/w3764
File-URL: http://www.nber.org/papers/w3764.pdf
File-Format: application/pdf
Publication-Status: published as Quarterly Journal of Economics. Volume 111, issue 4, 1996 pp.1007-1047.
Abstract: We develop a dynamic model of learning and wage determination: education may convey initial information about ability, but subsequent performance observations also are informative. Although the role of schooling in the labor market's inference process declines as performance observations accumulate, the estimated effect of schooling on the level of wages is independent of labor-market experience. In addition: time-invariant variables correlated with ability but unobserved by employers are increasingly correlated with wages as experience increases; wage residuals are a martingale; and wage cuts -are not rare, even for workers who do not change jobs. We present evidence from the National Longitudinal Survey of Youth that is generally consistent with all four of the model's predictions. We conclude that a blend of the learning model with an on-the-job-training model is more plausible than either model alone.
Handle: RePEc:nbr:nberwo:3764
Template-Type: ReDIF-Paper 1.0
Title: Life Insurance Inadequacy - Evidence From a Sample of Older Widows
Author-Name: Alan J. Auerbach
Author-Person: pau33
Author-Name: Laurence Kotlikoff
Author-Person: pko44
Note: PE AG
Number: 3765
Creation-Date: 1991-07
Order-URL: http://www.nber.org/papers/w3765
File-URL: http://www.nber.org/papers/w3765.pdf
File-Format: application/pdf
Abstract: This paper studies the changes in income experienced by older women when their husbands die. The data used are the Retirement History Survey. The six waves of this survey provide information on roughly 1300 women who became widowed during the ten year period of the survey, 1960-1979. The findings indicate that about one third of new widows experience a substantial reduction (25 percent or greater) in their living standards when their husbands die. The reduction in living standard associated with the husband's death is more severe for younger widows and widows with greater income pre-widowhood. Couples could insure against severe reductions in income of widows by purchasing more life insurance. These findings lead, therefore, to the conclusion reached in previous studies by the authors and other researchers, namely that many couples fail to purchase enough life insurance to prevent a sharp drop in the wife's consumption if her husband dies. This conclusion raises the question of the role of the government in requiring the purchase of life insurance by couples, through the social security system's survivor insurance. The strong and uniform evidence on the pattern and level of life insurance purchases has implications for the scale of social security survivor benefits and the appropriate mix of total social security benefits between survivor and nonsurvivor benefits.
Handle: RePEc:nbr:nberwo:3765
Template-Type: ReDIF-Paper 1.0
Title: The Peculiar Scale Economies of Lotto
Author-Name: Philip J. Cook
Author-Person: pco30
Author-Name: Charles T. Clotfelter
Author-Person: pcl34
Note: PE
Number: 3766
Creation-Date: 1991-07
Order-URL: http://www.nber.org/papers/w3766
File-URL: http://www.nber.org/papers/w3766.pdf
File-Format: application/pdf
Publication-Status: published as American Economic Review, June 1993
Abstract: The best-selling lottery game in the United States is lotto, a parimutuel game of long odds and large jackpots. Unlike in the other popular lottery games (numbers and instant). there is a strong tendency for per-capita lotto sales to increase with the size of the population base. The fact that the jackpot also tends to increase with population size is not a complete explanation, since the probability of winning tends to be inversely proportional to state population. our explanation for why the games are more successful in large states is that players tend to judge the likelihood of winning based on the frequency with which someone wins; then a larger state can offer a game at longer odds but the same perceived probability of winning as a smaller state.
Handle: RePEc:nbr:nberwo:3766
Template-Type: ReDIF-Paper 1.0
Title: Foreign Direct Investment, Productive Capacity and Exchange Rate Regimes
Author-Name: Joshua Aizenman
Author-Person: pai8
Note: ITI IFM
Number: 3767
Creation-Date: 1991-07
Order-URL: http://www.nber.org/papers/w3767
File-URL: http://www.nber.org/papers/w3767.pdf
File-Format: application/pdf
Publication-Status: published as Economica, 1994, Vol. 61, pp. 407-434 "Monetary & Real Shocks, Productive C Rate Regimes"
Abstract: The purpose of this paper is to examine the implications of foreign direct investment and endogenous capacity choice on the welfare ranking of exchange rate regimes, and to analyze the linkages between volatility of shocks, the volume of trade and investment. We construct an intertemporal version of a monopolistic competitive framework, where producers may diversify internationally by foreign direct investment. Volatility is shown to induce both higher international trade in goods, as well as higher foreign direct investment, with the possibility of increasing the productive capacity in diversified industries. We apply the above framework to the welfare ranking of exchange rate regimes in the presence of nominal contracts. We show that the volatility of employment in the presence of real shocks is lower under a floating exchange rate regime, but that a by-product of the relative stability of employment is a lower expected GNP in a flexible exchange rate regime. Nominal shocks in a floating exchange rate regime are shown to generate international diversification, which leads to a higher capital cost of diversified industries. This effect implies a lower number of? independent producers and of varieties offered, ultimately leading to a lower expected utility of consumption. We show that attempts to reduce foreign direct investment by capital controls will tend to reduce welfare, without affecting our results regarding the ranking of exchange rate regimes. These observations lead us to conclude that volatility effects reduce the relative attractiveness of floating exchange rates. This conclusion applies to both real and nominal shocks.
Handle: RePEc:nbr:nberwo:3767
Template-Type: ReDIF-Paper 1.0
Title: The Search for R&D Spillovers
Author-Name: Zvi Griliches
Note: PR
Number: 3768
Creation-Date: 1991-07
Order-URL: http://www.nber.org/papers/w3768
File-URL: http://www.nber.org/papers/w3768.pdf
File-Format: application/pdf
Publication-Status: published as The Scandinavian Journal of Economics, Vol. 94, 1992 Supplement, pp. 29-47.
Publication-Status: published as The Search for R&D Spillovers, Zvi Griliches. in R&D and Productivity: The Econometric Evidence, Griliches. 1998
Abstract: R&D spillovers are, potentially, a major source of endogenous growth in various recent "New Growth Theory" models. This paper reviews the basic model of R&D spillovers and then focuses on the empirical evidence for their existence and magnitude. It reviews the older empirical literature with special attention to the econometric difficulties of actually coming up with convincing evidence on this topic. Taken individually,, many of the studies are flawed and subject to a variety of reservations, but the overall impression remains that R&D spillovers are both prevalent and important.
Handle: RePEc:nbr:nberwo:3768
Template-Type: ReDIF-Paper 1.0
Title: The "Gambler's Fallacy" in Lottery Play
Author-Name: Charles T. Clotfelter
Author-Person: pcl34
Author-Name: Philip J. Cook
Author-Person: pco30
Note: PE
Number: 3769
Creation-Date: 1991-07
Order-URL: http://www.nber.org/papers/w3769
File-URL: http://www.nber.org/papers/w3769.pdf
File-Format: application/pdf
Publication-Status: published as Management Science, December 1993
Abstract: The -gambler's fallacy- is the belief that the probability of an event is lowered when that event has recently occurred, even though the probability of the event is objectively known to be independent from one trial to the next. This paper provides evidence on the time pattern of lottery participation to see whether actual behavior is consistent with this fallacy. Using data from the Maryland daily numbers game, we find a clear and consistent tendency for the amount of money bet on a particular number to fall sharply immediately after it is drawn, and then gradually to recover to its former level over the course of several months. This pattern is consistent with the hypothesis that lottery players are in fact subject to the gambler?s fallacy.
Handle: RePEc:nbr:nberwo:3769
Template-Type: ReDIF-Paper 1.0
Title: An Altered U.S. Housing Finance System: Implications for Housing
Author-Name: Patric H. Hendershott
Note: PE
Number: 3770
Creation-Date: 1991-07
Order-URL: http://www.nber.org/papers/w3770
File-URL: http://www.nber.org/papers/w3770.pdf
File-Format: application/pdf
Publication-Status: published as J. Poterba, ed., The Economics of Housing in Japan and the United States, Chicago: University of Chicago Press, 1994, pp. 65-86.
Publication-Status: published as Housing Finance in the United States, Patric H. Hendershott. in Housing Markets in the United States and Japan, Noguchi and Poterba. 1994
Abstract: During the 1960s and 1970s, the U.S. government closely regulated the single-family housing finance system. The regulation manifested itself in a highly specialized system with four notable characteristics: portfolio restrictions against investments in corporate assets, tax inducements to invest in residential mortgages, prohibitions against investing in ARMS, and deposit rates ceilings. All were removed in the 1980s, and, not surprisingly, the housing finance system changed markedly. Between early 1982 and 1989, two-fifths of all new loans had adjustable, not fixed, rates, and savings and loans reduced their holdings of FRMs (both whole loans and mortgage pass-throughs) by 15 to 20 percent. Moreover, the fraction of conventional FRM originations that have been pooled into pass-throughs rose from less than one-twentieth before 1981 to over one-half after 1985. With the opportunity of borrowers to shift to lower coupon ARMs when rates rise and with the integration of the home mortgage market with capital markets generally, one would expect that the U.S. housing sector is now less sensitive to rising interest rates than it was in the 1960s and 1970s. Numerous studies support this expectation.
Handle: RePEc:nbr:nberwo:3770
Template-Type: ReDIF-Paper 1.0
Title: Measurement of Output and Quality Adjustment When Hedonics Cannot Be Used: An Illustration for the Day Care Industry
Author-Name: Swati Mukerjee
Author-Name: Ann Dryden Witte
Note: PR
Number: 3771
Creation-Date: 1991-07
Order-URL: http://www.nber.org/papers/w3771
File-URL: http://www.nber.org/papers/w3771.pdf
File-Format: application/pdf
Publication-Status: published as Output Measurement in the Service Sector, ed. Zvi Griliches. Chicago: University of Chicago Press, 1992, pp. 343-369
Publication-Status: published as Measurement of Output and Quality Adjustment in the Day-care Industry, Swati Mukerjee, Ann Dryden Witte. in Output Measurement in the Service Sectors, Griliches. 1992
Abstract: In this paper, we develop time series estimates of the output and quality of output for day care centers in the U.S. for the 1970s and 1980s. As far as we are aware this is the first time that a time series for day care output and quality has been published. Our results using both physical and dollar measures of output show very rapid growth in output, particularly during the 1980s. We find that both the real price of care in centers and the staff/child ratio in day care centers declined between 1974 and 1988. These declines may reflect either improved productivity or a decline in the quality of care provided by day care centers. Clearly, these declines merit further investigation. We illustrate a method that may be used to adjust physical measures of output for changes in quality when, as is true in the case of day care, no single market clearing price is available. The method involves the estimation of cost functions and the calculation of marginal costs for producing quality.
Handle: RePEc:nbr:nberwo:3771
Template-Type: ReDIF-Paper 1.0
Title: External Debt and Political Instability
Author-Name: Sule Ozler
Author-Name: Guido Tabellini
Author-Person: pta37
Note: ITI ME IFM
Number: 3772
Creation-Date: 1991-07
Order-URL: http://www.nber.org/papers/w3772
File-URL: http://www.nber.org/papers/w3772.pdf
File-Format: application/pdf
Abstract: This paper studies theoretically and empirically the role of domestic political incentives in the accumulation of large external debts by developing countries during 1972-81. The theoretical model characterizes two equilibrium regimes. In one regime the borrower is on its demand curve and changes in the loan size demand are accommodated by the lenders. In the other regime the borrower is credit rationed, and the loan size is determined by the perceived country risk. Higher political instability increases the equilibrium loan size in the first regime and decreases it in the second. Using out-of-sample of evidence, we identify the two regimes in the data. We then find that in the unconstrained regime political instability has a significant positive effect on the loan size, whereas it has no significant effect in the credit rationing regime. Hence the evidence indicates a positive effect of political instability on the demand for sovereign loans, as predicted by the theory.
Handle: RePEc:nbr:nberwo:3772
Template-Type: ReDIF-Paper 1.0
Title: Protecting Losers: Optimal Diversification, Insurance, and Trade Policy
Author-Name: S. Lael Brainard
Note: ITI IFM
Number: 3773
Creation-Date: 1991-07
Order-URL: http://www.nber.org/papers/w3773
File-URL: http://www.nber.org/papers/w3773.pdf
File-Format: application/pdf
Abstract: This paper derives a portfolio diversification rationale for a trade policy regime that insures returns to nondiversifiable human capital investment. In the absence of complete insurance markets for human capital, the decentralized equilibrium is characterized by excessive specialization. The socially optimal investment portfolio entails diversification for the reasons familiar from the CAPM. By credibly promising to protect losers ex post, the government can achieve the optimally diversified investment pattern. In contrast to previous results, two instruments are sufficient to achieve both efficient reallocation and full insurance when human capital is mobile at some cost, due to the endogeneity of the initial investment decision.
Handle: RePEc:nbr:nberwo:3773
Template-Type: ReDIF-Paper 1.0
Title: Do OSHA Inspections Reduce Injuries? A Panel Analysis
Author-Name: Wayne B. Gray
Author-Person: pgr111
Author-Name: John T. Scholz
Note: LS
Number: 3774
Creation-Date: 1991-07
Order-URL: http://www.nber.org/papers/w3774
File-URL: http://www.nber.org/papers/w3774.pdf
File-Format: application/pdf
Publication-Status: published as "Does Regulatory Enforcement Work? A Panel Analysis of OSHA Enforcement", Law and Society Review, vol. 27, no. 1, (June 1993) P. 177-213
Abstract: Using data on injuries and OSHA inspections for 6,842 large manufacturing plants between 1979 and 1985, we find evidence that OSHA inspections significantly reduce injuries. This effect comes exclusively from inspections that impose penalties, inspections which do not impose penalties appear to have no effect on injuries. Plants which are inspected (and penalized) in a given year experience a 22 percent decline in their injuries during the following few years. In our sample, total OSHA enforcement is predicted to have reduced injuries by about 2 percent. We take advantage of the panel nature of our data to test for a number of potential biases: autocorrelated injuries, plant-specific fixed-effects which are correlated with both inspections and injuries, and endogeneity of inspections (injuries causing inspections). These biases lead us to use the percentage change in injuries, rather than injury levels, as the dependent variable for our estimation. Our analysis shows that the estimated effect of inspections on the percentage change in injuries is not significantly affected by these biases, and thus seems to reflect a 'deterrence' effect of OSHA inspections on injuries.
Handle: RePEc:nbr:nberwo:3774
Template-Type: ReDIF-Paper 1.0
Title: Floating Exchange Rates in Peru, 1950-54
Author-Name: Richard K. Lyons
Author-Person: ply9
Note: ITI IFM
Number: 3775
Creation-Date: 1991-07
Order-URL: http://www.nber.org/papers/w3775
File-URL: http://www.nber.org/papers/w3775.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Development Economics, Vol. 36, No. 1, January 1992
Abstract: I test three potentially complementary models in an effort to capture the fundamentals that underlaid the market's determination of Peru's floating exchange rate through the period 1950-54: the first is an expectational purchasing power parity (PPP) model which maintains that asset market forces were driving the exchange rate to its perceived PPP level; the second is a flexible-price monetary model; and the third is a model along the lines described by Tsiang (1957) which emphasizes world prices for Peruvian exports as a fundamental determinant. I find that the expectational PPP model not only dominates the others, but also fits quite well.
Handle: RePEc:nbr:nberwo:3775
Template-Type: ReDIF-Paper 1.0
Title: Obstacles to Transforming Centrally-Planned Economies: The Role of Capital Markets
Author-Name: Guillermo A. Calvo
Author-Person: pca694
Author-Name: Jacob A. Frenkel
Note: ITI IFM
Number: 3776
Creation-Date: 1991-07
Order-URL: http://www.nber.org/papers/w3776
File-URL: http://www.nber.org/papers/w3776.pdf
File-Format: application/pdf
Publication-Status: published as Transition to a Market Economy in Central and Eastern Europe, proceedings of the OECD-World Bank Conference, Paris, 1992.
Publication-Status: published as Guillermo Calvo & Jacob A. Frenkel, 1991. "Obstacles to Transforming Centrally-Planned Economies: The Role of Capital Markets," IMF Working Papers, vol 91(66).
Abstract: This paper identifies obstacles hindering the transformation of centrally-planned economies (CPEs) into well-functioning market economies. The analysis is motivated by the recent experience with economic transformation and restructuring in Eastern Europe and the U.S.S.R. The economic system in CPEs is highly distorted. Prices do not represent real social costs, incentives systems are absent, losses of unprofitable state-owned enterprises are automatically financed, legislations vital for the functioning of markets are not in place, private ownership and property rights are underdeveloped, bankruptcy laws are absent, markets are missing, shortages prevail and, occasionally, inflation is high. The obstacles identified relate to (i) anticipatory dynamics, (ii) monetary overhang and the budget, and (iii) underdeveloped credit markets. It is demonstrated that these obstacles inhibit the effectiveness of price reform, monetary and credit policies, and trade liberalization. The analysis focuses on various ways to remove the obstacles. In this regard, a special examination is made of the implications of cleaning the balance sheets of enterprises and banks from nonperforming loans, as well as ways to enhance credibility. In the absence of such measures, privatization will be difficult since the necessary information about creditworthiness of firms is lacking. The paper concludes with a brief discussion of sequencing, safety nets. and their associated obstacles.
Handle: RePEc:nbr:nberwo:3776
Template-Type: ReDIF-Paper 1.0
Title: An Analysis of the Nature of Unemployment in Sri Lanka
Author-Name: William T. Dickens
Author-Name: Kevin Lang
Author-Person: pla83
Note: LS
Number: 3777
Creation-Date: 1991-07
Order-URL: http://www.nber.org/papers/w3777
File-URL: http://www.nber.org/papers/w3777.pdf
File-Format: application/pdf
Publication-Status: published as Dickens, William T. and Kevin Lang. "An Analysis Of The Nature Of Unemployment In Sri Landa," Journal of Development Studies, 1995, v31(4), 620-636.
Abstract: Sri Lanka has a significant chronic unemployment problem. Depending on time period and the definition of unemployment it varies from the low teens to over twenty percent. Nearly all of this unemployment is concentrated among young people who are looking for their first job. Unemployment duration is very long with typical spells lasting four years or more. Although past authors have blamed unemployment on over education, a closer examination shows that once sex, sector and age are controlled for the relation between education and unemployment disappears for urban youth and is significantly weakened for rural youth. We believe that unemployment is generated in part by queuing for high-wage government jobs. We suggest that one reason the unemployed do not take other employment while queuing may be a perceived or real government preference for hiring the unemployed. If our interpretation is correct, replacing government's hiring preference for the unemployed with a normal preference for workers who have demonstrated ability in previous work experience would reduce unemployment. A substantial fraction of the currently unemployed youth would begin actively seeking employment which would supply them with the requisite job experience to obtain government employment.
Handle: RePEc:nbr:nberwo:3777
Template-Type: ReDIF-Paper 1.0
Title: What Went Wrong? The Erosion of Relative Earnings and Employment Among Young Black Men in the 1980s
Author-Name: John Bound
Author-Person: pbo406
Author-Name: Richard B. Freeman
Author-Person: pfr23
Note: LS
Number: 3778
Creation-Date: 1991-07
Order-URL: http://www.nber.org/papers/w3778
File-URL: http://www.nber.org/papers/w3778.pdf
File-Format: application/pdf
Publication-Status: published as Quarterly Journal of Economics, 107: 201-232, February 1992
Abstract: This paper shows a widening in black-white earnings and employment gaps among young men from the mid-l970s through the 1980s that differs among subgroups. Earnings gaps increased most among college graduates and in the midwest while gaps in employment-population rates grew most among high school dropouts. We attribute the differential widening to distinct shifts in demand for subgroups due to changes in industry and regional employment, the falling real minimum wage and deunionisation, the growth of the relative supply of black to white workers that was marked among college graduates, and to increased crime, that was marked among high school dropouts. The differential factors affecting the groups highlights the economic diversity of black Americans.
Handle: RePEc:nbr:nberwo:3778
Template-Type: ReDIF-Paper 1.0
Title: International Fiscal Policy Coordination and Competition: An Exposition
Author-Name: Assaf Razin
Author-Person: pra388
Author-Name: Efraim Sadka
Author-Person: psa492
Note: ITI IFM
Number: 3779
Creation-Date: 1991-07
Order-URL: http://www.nber.org/papers/w3779
File-URL: http://www.nber.org/papers/w3779.pdf
File-Format: application/pdf
Abstract: The paper highlights key considerations necessary for the analysis of international tax competition and the desirability of international tax harmonization. The analysis of a Nash-Cournot international tax competition is carried out for (1) competing countries that cannot exercise significant market power in the world economy when setting tax rates, (2) competing countries that incorporate the indirect effect on world prices into the tax design and (3) competing governments that are unable to commit themselves to a preannounced path of tax for the entire future. The discussion is carried out by using basic principles of international taxation under full integration of goods and capital world markets.
Handle: RePEc:nbr:nberwo:3779
Template-Type: ReDIF-Paper 1.0
Title: How Valuable is Patent Protection? Estimates By Technology Field Using Patent Renewal Data
Author-Name: Mark Schankerman
Note: PR
Number: 3780
Creation-Date: 1991-07
Order-URL: http://www.nber.org/papers/w3780
File-URL: http://www.nber.org/papers/w3780.pdf
File-Format: application/pdf
Publication-Status: published as Rand Journal of Economics, Vol. 29, no. 1 (Spring 1998): 77-107.
Abstract: This paper presents quantitative estimates of the private value of property rights conferred by patent protection for different technology fields and countries of ownership. The measures are derived from parametric estimation of a model of patent renewal, using a new data set on patent renewals in France during the period 1969-1987. The results show that patent protection is a significant, but not the major, source of private returns to inventive activity and that its importance varies sharply across technology fields. The paper quantifies the equivalent subsidy to R&D generated by the patent system, characterizes variations in the value of patent rights across technology fields, countries of ownership and time, and explores the determinants of those differences.
Handle: RePEc:nbr:nberwo:3780
Template-Type: ReDIF-Paper 1.0
Title: How Much Do Taxes Discourage Incorporation.
Author-Name: Jeffrey K. MacKie-Mason
Author-Person: pma1
Author-Name: Roger H. Gordon
Author-Person: pgo95
Note: PE
Number: 3781
Creation-Date: 1991-07
Order-URL: http://www.nber.org/papers/w3781
File-URL: http://www.nber.org/papers/w3781.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Finance, vol.50, no.2, June 1997.
Abstract: One of the most basic distortions created by the double taxation of corporate income is the disincentive to incorporate. In this paper, we investigate the extent to which the aggregate allocation of assets and taxable income in the U.S. between corporate vs. noncorporate forms of organization during the period 1959-86 has responded to the size of the tax distortion discouraging firms from incorporating. In theory, profitable firms should shift out of the corporate sector when the tax distortion to incorporating is larger, and conversely for firms with tax losses. Our empirical results provide strong support for these theoretical forecasts, and hold consistently across a wide variety of specifications and measures of the tax variables. Measured effects are small, however, throwing doubt on the economic importance of tax-induced changes in organizational form.
Handle: RePEc:nbr:nberwo:3781
Template-Type: ReDIF-Paper 1.0
Title: Long-Term Contracting and Multiple-Price Systems
Author-Name: R. Glenn Hubbard
Author-Person: phu97
Author-Name: Robert J. Weiner
Note: IO
Number: 3782
Creation-Date: 1991-07
Order-URL: http://www.nber.org/papers/w3782
File-URL: http://www.nber.org/papers/w3782.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Business, April 1992, Vol. 65, pp. 177-198
Abstract: This paper examines product markets in which long-term contracts and spot transactions coexist. Such markets are characterized by "multiple-price systems," wherein adjustment to supply and demand shocks occurs through spot prices, while contract prices are fixed, or adjust slowly. We derive the existence of contracts, as well as the equilibrium fraction of spot trade, in the framework of an optimizing model, and analyze the effects of shocks on market equilibrium when some buyers and sellers are "locked in" contractually. The model is employed to interpret the change in the copper market from a multiple-price system to one characterized solely by spot trade.
Handle: RePEc:nbr:nberwo:3782
Template-Type: ReDIF-Paper 1.0
Title: The Australian Pharmaceutical Subsidy Gambit: Transmuting Deadweight Loss and Oligopoly Rents to Consumer Surplus
Author-Name: Mark Johnston
Author-Name: Richard Zeckhauser
Author-Person: pze7
Note: EH IO
Number: 3783
Creation-Date: 1991-07
Order-URL: http://www.nber.org/papers/w3783
File-URL: http://www.nber.org/papers/w3783.pdf
File-Format: application/pdf
Abstract: Australia pays less than other developed nations for her pharmaceuticals, about 45% as much as the United States. She achieves this result with an ingenious price-contingent subsidy scheme, which turns deadweight loss (due to pricing above marginal cost) into consumer surplus. Pharmaceutical companies are offered a per unit subsidy from the government for selling their product at marginal cost in the Australian market. The subsidy is calibrated to enable the companies to recover what they would otherwise receive in monopoly profits. When two or more firms possess market power for a particular therapeutic use, the subsidy scheme creates a game -- in effect a race -- to determine who joins first and reaps most of the benefits. Properly constructed, the game transfers significant oligopoly profits to the consumer. Australia's success -- she reaps benefits equal to 15% of its drug expenditures stems in part from her small size and geographic isolation. She can free ride on drug research, and can work her scheme almost without notice.
Handle: RePEc:nbr:nberwo:3783
Template-Type: ReDIF-Paper 1.0
Title: Fear of Flying? Economic Analysis of Airline Safety
Author-Name: Nancy L. Rose
Author-Person: pro786
Note: IO
Number: 3784
Creation-Date: 1991-07
Order-URL: http://www.nber.org/papers/w3784
File-URL: http://www.nber.org/papers/w3784.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Economic Perspectives, Spring 1992, pp. 75-94
Abstract: The safety of the commercial airline industry has attracted considerable public attention and debate since economic deregulation of the industry in 1978. These concerns have energized economic research on three aspects of airline safety. First, has the level of airline safety declined since deregulation? Research on this topic investigates whether heightened public concerns about air safety derive from objective increases in accident risks. Second. what accounts for differences in safety performance across carriers? This literature analyzes heterogeneity in carriers' safety records as a means of learning about factors that influence safety performance. Third, how do markets respond to airline accidents? This work explores the effectiveness of market incentives in constraining the safety provision of firms. This paper describes our progress in answering each of these queries.
Handle: RePEc:nbr:nberwo:3784
Template-Type: ReDIF-Paper 1.0
Title: Competition and Price Dispersion in the U.S. Airline Industry
Author-Name: Severin Borenstein
Author-Person: pbo78
Author-Name: Nancy L. Rose
Author-Person: pro786
Note: IO
Number: 3785
Creation-Date: 1991-07
Order-URL: http://www.nber.org/papers/w3785
File-URL: http://www.nber.org/papers/w3785.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Political Economy, August 1994, 102 (4): 653-683
Abstract: This papers analyzes dispersion in the prices that an airline charges to different customers on the same route. Such variation in airlines fares is substantial: the expected absolute difference in fares between two of an airline's passengers on a route averages thirty-six percent of the airline's average ticket price on the route. The pattern of price dispersion that we find does not seem to be explained solely by cost differences. Dispersion is higher on more competitive routes, possibly reflecting a pattern of discrimination against customers who are less willing to switch to alternative flights or airlines. We argue that the data support an explanation based on theories of price discrimination in monopolistically competitive industries.
Handle: RePEc:nbr:nberwo:3785
Template-Type: ReDIF-Paper 1.0
Title: The Theory of Allocation and Its Implications for Marketing and Industrial Structure
Author-Name: Dennis W. Carlton
Author-Person: pca14
Note: IO EFG
Number: 3786
Creation-Date: 1991-07
Order-URL: http://www.nber.org/papers/w3786
File-URL: http://www.nber.org/papers/w3786.pdf
File-Format: application/pdf
Publication-Status: published as "The Theory of Allocation and its Implications for Marketing and Industrial Structure: Why Rationing is Efficient. Journal of Law and Economics Vol. 34, October 1991.
Abstract: This paper identifies a cost of using the price system and from that develops a general theory of allocation. The theory explains why a buyer's stochastic purchasing behavior matters to a seller. This leads to a theory of optimal customer mix much akin to the theory of optimal portfolio composition. It is the job of a firm's marketing department to put together this optimal customer mix. A dynamic pattern of pricing related to Ramsey pricing emerges as the efficient pricing structure. Price no longer equals marginal cost and is no longer the sole mechanism used to allocate goods. It is optimal for long term relationships to emerge between buyers and sellers and for sellers to use their knowledge about buyers to ration goods during periods when demand is high. This rationing cam take the form of refusing to sell to new customers and putting established customers on quotas. The evidence shows that this form of rationing, though foreign to the thinking of most economists, characterizes several industries. The theory provides an important incentive for a firm to exist, namely to facilitate trade amongst its customers. The theory also provides a convincing explanation f or the hostility that new futures markets face from established firms in the industry and shows that several practices, like price differences amongst consumers and swapping product with rivals, can be the result of competition and not market power.
Handle: RePEc:nbr:nberwo:3786
Template-Type: ReDIF-Paper 1.0
Title: Growth in Cities
Author-Name: Edward L. Glaeser
Author-Person: pgl9
Author-Name: Hedi D. Kallal
Author-Name: Jose A. Scheinkman
Author-Person: psc26
Author-Name: Andrei Shleifer
Author-Person: psh93
Note: EFG
Number: 3787
Creation-Date: 1991-07
Order-URL: http://www.nber.org/papers/w3787
File-URL: http://www.nber.org/papers/w3787.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Political Economy, December 1992
Abstract: Recent theories of economic growth, including Romer (1986), Porter (1989) and Jacobs (1969), have stressed the role of technological spillovers in generating growth. Because such knowledge spillovers are particularly effective in cities, where communication between people is more extensive, data on the growth of industries in different cities allows us to test some of these theories. Using a new data set on the growth of large industries in 170 U.S. cities between 1956 and 1987, we find that local competition and urban variety, but not regional specialization, encourage employment growth in industries. The evidence suggests that important knowledge spillovers might be between, rather than within industries, consistent with the theories of Jacobs (1969).
Handle: RePEc:nbr:nberwo:3787
Template-Type: ReDIF-Paper 1.0
Title: Ethnic Capital and Intergenerational Mobility
Author-Name: George J. Borjas
Author-Person: pbo44
Note: LS
Number: 3788
Creation-Date: 1991-07
Order-URL: http://www.nber.org/papers/w3788
File-URL: http://www.nber.org/papers/w3788.pdf
File-Format: application/pdf
Publication-Status: published as Quarterly Journal of Economics, Vol. 107, no. 1 (1992): 123-150.
Abstract: This paper analyzes the extent to which ethnic skill differentials are transmitted across generations. I assume that ethnicity acts as an externality in the human capital accumulation process. The skills of the next generation depend on parental inputs and on the quality of the ethnic environment in which parents make their investments, or "ethnic capital." The empirical evidence reveals that the skills of today's generation depend not only on the skills of their parents, but also on the average skills of the ethnic group in the parent's generation.
Handle: RePEc:nbr:nberwo:3788
Template-Type: ReDIF-Paper 1.0
Title: Sex Discrimination by Sex: Voting in a Professional Society
Author-Name: Alan E. Dillingham
Author-Name: Marianne A. Ferber
Author-Name: Daniel S. Hamermesh
Author-Person: pha78
Note: LS
Number: 3789
Creation-Date: 1991-07
Order-URL: http://www.nber.org/papers/w3789
File-URL: http://www.nber.org/papers/w3789.pdf
File-Format: application/pdf
Publication-Status: published as Industrial and Labor Relations Review, Vol. 47, pp. 622-633 (July 1994).
Abstract: Economic theories of discrimination are usually based on tastes. The huge body of empirical studies, however, considers the discriminatory outcomes that are the reduced-form results of interactions between tastes and opportunity sets. None examines tastes for discrimination directly, or considers people's willingness to trade off other characteristics to indulge their tastes. We study these trade-offs using a set of data on votes for officers in a professional association. The evidence shows that female voters are much more likely to vote for female than for male candidates, and that other affinities between them and a candidate have little effect on their choices. Male voters are slightly more likely to vote for female candidates, but their choices are easily altered by other affinities to a candidate.
Handle: RePEc:nbr:nberwo:3789
Template-Type: ReDIF-Paper 1.0
Title: Characterizing Predictable Components in Excess Returns on Equity and Foreign Exchange Markets
Author-Name: Geert Bekaert
Author-Person: pbe52
Author-Name: Robert J. Hodrick
Author-Person: pho115
Note: ITI ME IFM
Number: 3790
Creation-Date: 1991-07
Order-URL: http://www.nber.org/papers/w3790
File-URL: http://www.nber.org/papers/w3790.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Finance, Vol. 47, No. 2 (June 1992): 467-509.
Abstract: The paper characterizes predictable components in excess rates of returns on major equity and foreign exchange markets using lagged excess returns, dividend yields, and forward premiums as instruments. Vector autoregressive techniques demonstrate one-step-ahead predictability and provide implied long-horizon statistics. We estimate latent variable models as constrained counterparts to the VARs. The predictability of returns is related to asset pricing models by examining the volatility bounds on intertemporal marginal rates of substitution.
Handle: RePEc:nbr:nberwo:3790
Template-Type: ReDIF-Paper 1.0
Title: Pervasive Shortages Under Socialism
Author-Name: Andrei Shleifer
Author-Person: psh93
Author-Name: Robert Vishny
Author-Person: pvi218
Number: 3791
Creation-Date: 1991-07
Order-URL: http://www.nber.org/papers/w3791
File-URL: http://www.nber.org/papers/w3791.pdf
File-Format: application/pdf
Publication-Status: published as RAND Journal of Economics, 1992, vol. 23, issue 2, pages 237-246
Abstract: We present a new theory of pervasive shortages under socialism, based on the assumption that the planners are self-interested. Because the planners -- meaning bureaucrats in the ministries and managers of firms -- cannot keep the official profits that firms earn, it is in their interest to create shortages of output and to collect bribes from the rationed consumers. Unlike official profits, bribes are not turned over to the state, and so shortages enable the key decision makers who collect them to profit personally. The theory suggests that an increase in the official price of a good might reduce output. The theory also suggests that market socialism is bound to fail even without computational complexities facing the planners.
Handle: RePEc:nbr:nberwo:3791
Template-Type: ReDIF-Paper 1.0
Title: Optimal Incentive Contracts in the Presence of Career Concerns: Theory and Evidence
Author-Name: Robert Gibbons
Author-Person: pgi283
Author-Name: Kevin J. Murphy
Author-Person: pmu108
Note: LS
Number: 3792
Creation-Date: 1991-07
Order-URL: http://www.nber.org/papers/w3792
File-URL: http://www.nber.org/papers/w3792.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Political Economy, Vol. 100, No. 3, pp. 468-505, (June 1992).
Abstract: This paper studies career concerns -- concerns about the effects of current performance on future compensation -- and describes how optimal incentive contracts are affected when career concerns are taken into account. Career concerns arise frequently: they occur whenever the market uses a worker's current output to update its belief about the worker's ability and competition then forces future wages (or wage contracts) to reflect these updated beliefs. Career concerns are stronger when a worker is further from retirement, because a longer prospective career increases the return to changing the market's belief. In the presence of career concerns, the optimal compensation contract optimizes total incentives -- the combination of the implicit incentives from career concerns and the explicit incentives from the compensation contract. Thus, the explicit incentives from the optimal compensation contract should be strongest when a worker is close to retirement. We find empirical support for this prediction in the relation between chief-executive compensation and stock-market performance.
Handle: RePEc:nbr:nberwo:3792
Template-Type: ReDIF-Paper 1.0
Title: Are Economists' Traditional Trade Policy Views Still Valid?
Author-Name: Robert E. Baldwin
Note: ITI IFM
Number: 3793
Creation-Date: 1991-07
Order-URL: http://www.nber.org/papers/w3793
File-URL: http://www.nber.org/papers/w3793.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Economic Literature (June 1992): 804-829.
Abstract: Recent analysis of trade policies under imperfectly competitive market conditions as well as in situations where trade in high-technology products is important have raised doubts whether economists should continue their traditional opposition to trade taxes and subsidies. This paper evaluates the new theoretical arguments for interventionist trade policies by comparing them with the traditional arguments for and against free trade, investigating the empirical evidence supporting the conditions assumed in the new models, appraising the realism of the behavior assumptions of these models and the sensitivity of their conclusions to changes in these assumptions, and considering the political economy implications of these conclusions. The general conclusion is that there are serious practical difficulties with the interventionist arguments of the 'new' trade theorists, as they themselves recognize, just as there are with such traditional arguments for trade intervention as the terms-of-trade case for protection. However, the new industrial organization approach to trade theory has already provided valuable insights into trade behavior in international markets and promises to provide many more as more realistic behavior models are developed.
Handle: RePEc:nbr:nberwo:3793
Template-Type: ReDIF-Paper 1.0
Title: Corporate Restructuring and Investment Horizons
Author-Name: Bronwyn H. Hall
Author-Person: pha54
Note: ME
Number: 3794
Creation-Date: 1991-07
Order-URL: http://www.nber.org/papers/w3794
File-URL: http://www.nber.org/papers/w3794.pdf
File-Format: application/pdf
Publication-Status: published as Business History Review, vol 68, Spring 1994, pp 110-143
Abstract: The recent wave of corporate restructuring in the United States has been accused of shortening the investment horizons of U.S. managers. This paper surveys the empirical and case study evidence on restructuring and investment behavior and reaches the following conclusions 1) A large fraction of the restructurings were motivated by synergistic or other efficiency-enhancing reasons and have little to do with investment horizons. 2) However, massive shifts toward debt in the capital structure of manufacturing firms. often induced by hostile takeover threats, are accompanied by reduced investment of all kinds, particularly in a few industries which are characterized by "stable' technology and cost-based innovative strategies. 3) The evidence is consistent with optimizing behavior on the part of firms faced with a lower relative price of debt to equity and a higher overall cost of capital during the nineteen-eighties, but there all still doubts about whether the U.S. market for corporate control elicits the correct level of long run investment. Thus the paper concludes with a discussion of the evidence on cross-country differences in the financing of investment and the market for corporate control and suggestions for future research in this area.
Handle: RePEc:nbr:nberwo:3794
Template-Type: ReDIF-Paper 1.0
Title: Assessing Target Zone Credibility: Mean Reversion and Devaluation Expectations in the ERM 1979-1992
Author-Name: Lars E.O. Svensson
Author-Person: psv2
Note: ITI IFM
Number: 3795
Creation-Date: 1991-07
Order-URL: http://www.nber.org/papers/w3795
File-URL: http://www.nber.org/papers/w3795.pdf
File-Format: application/pdf
Publication-Status: published as European Economic Review, Vol. 37, p. 763-793 (1993)
Abstract: The paper presents estimates of devaluation expectations for six EMS currencies relative to the Deutsche mark, for the period March 1979-May 1990. The estimation method is simple and operational, and consistently generates sensible results. The estimates are constructed by the adjusting interest rate differentials by subtracting estimated expected rates of depreciation within the exchange rate band. The adjustment is nontrivial because exchange rates within ERM bands display mean reversion rather than random walk (unit root) behavior. The adjustment is essential since expected rates of depreciation within the band are usually of about the same magnitude as interest rate differentials.
Handle: RePEc:nbr:nberwo:3795
Template-Type: ReDIF-Paper 1.0
Title: Vanishing Tax on Capital Income in the Open Economy
Author-Name: Assaf Razin
Author-Person: pra388
Author-Name: Efraim Sadka
Author-Person: psa492
Note: ITI PE IFM
Number: 3796
Creation-Date: 1991-08
Order-URL: http://www.nber.org/papers/w3796
File-URL: http://www.nber.org/papers/w3796.pdf
File-Format: application/pdf
Publication-Status: published as "The Status of Capital Income Taxation in the Open Economy," Finanz Archiv, vol. 52, pp. 21-32, (April 1995).
Abstract: The increased integration of the world capital market implies that the supply of capital becomes more elastic, and therefore potentially a less efficient base for taxation. In general, the optimal taxation of capital income is subject to two conflicting forces. On the one hand the return on existing capital is a pure rent which is efficient to fully tax away. On the other hand taxing the returns on investment in new capital would retard growth, thus generating inefficiencies. Capturing these considerations, the paper carries out a simple optimal tax analysis for an open economy, which is fully integrated in the world capital markets. The analysis identifies well defined circumstances in which the capital income tax vanishes.
Handle: RePEc:nbr:nberwo:3796
Template-Type: ReDIF-Paper 1.0
Title: Incomplete Appropriability of R&D and the Role of Strategies and Cultural Factors in International Trade: A Japanese Case
Author-Name: Ryuzo Sato
Author-Name: Rama Ramachandran
Author-Name: Shunichi Tsutsui
Note: ITI IFM
Number: 3797
Creation-Date: 1991-08
Order-URL: http://www.nber.org/papers/w3797
File-URL: http://www.nber.org/papers/w3797.pdf
File-Format: application/pdf
Abstract: One of the proudest achievements of classical and neoclassical economics is the derivation of the superiority of free trade. This result is obtained by assuming constant returns to scale, perfect competition and absence of externalities. The recent realization that the incomplete appropriability of R&D is a main source of externalities and hence the effect of R&D on national welfare is potentially subject to strategic manipulations necessitates a careful examination of these assumptions. This paper discusses R&D and diffusion of technology in international trade from two different perspectives. In Section II, we consider the role of cultural, social and historical factors in the appropriation of technology by reviewing how Japan has appropriated foreign technology. In Section III, we survey three strategic trade models to obtain some insights into the role of R&D and diffusion of technology in the context of imperfect competition. The issues we discuss include the effectiveness of R&D polices by a national government and the impact of R&D policies and diffusion of technology on the incentive to do R&D and on the outcome of trade.
Handle: RePEc:nbr:nberwo:3797
Template-Type: ReDIF-Paper 1.0
Title: Information Handling and Firm Performance: Evidence from Reverse LBOs
Author-Name: Francois Degeorge
Author-Person: pde130
Author-Name: Richard Zeckhauser
Author-Person: pze7
Note: ME
Number: 3798
Creation-Date: 1991-08
Order-URL: http://www.nber.org/papers/w3798
File-URL: http://www.nber.org/papers/w3798.pdf
File-Format: application/pdf
Publication-Status: published as "The Reverse LBO Decision and Firm Performance: Theory and Evidence," Journal of Finance, vol 48, no 4, September 1993, pp 1323-1348
Abstract: We investigate the transition from private to public ownership of companies that had previously been subject to leveraged buyouts. As they go to the public markets for equity, such firms face an information asymmetry problem. Behavioral effects are also likely to be at work. We show that the combination of informational and behavioral effects will cause firms to handle information in particular ways, leading to an equilibrium pattern in which disappointing performance after the initial public offering should be expected. We find empirical support for this theory by studying 62 reverse LBOs that went public between 1983 and 1987. There is strong evidence that the performance of the reverse LBOs before going public overestimates their likely performance after the initial public offering. The market appears to anticipate this pattern.
Handle: RePEc:nbr:nberwo:3798
Template-Type: ReDIF-Paper 1.0
Title: A Theory of War Finance
Author-Name: Herschel I. Grossman
Author-Name: Taejoon Han
Note: ME
Number: 3799
Creation-Date: 1991-08
Order-URL: http://www.nber.org/papers/w3799
File-URL: http://www.nber.org/papers/w3799.pdf
File-Format: application/pdf
Publication-Status: published as Defence Economics, Vol. 4, pp. 33-44, (1993).
Abstract: This paper analyzes the financial and war-spending policies of a state that faces a war in which defeat would result in the loss of sovereign power and in which the material consequences, conditional on avoiding defeat, are stochastic. The analysis takes explicit account of the historical experiences of lenders, who face debt repudiation if the state to whom they have lent is defeated and who also face partial default if the material consequences of the war are unfavorable for the debtor state, even if it avoids defeat. In this analysis, the state uses war debt to smooth expected consumption intertemporally in response to temporary war spending, and the state also uses contingent debt servicing to insure realized consumption against the risk associated with the material consequences of the war.
Handle: RePEc:nbr:nberwo:3799
Template-Type: ReDIF-Paper 1.0
Title: Labor Productivity and Market Competition in Japan
Author-Name: Tetsuji Yamada
Author-Name: Tadashi Yamada
Author-Name: Guorn Liu
Note: LS
Number: 3800
Creation-Date: 1991-08
Order-URL: http://www.nber.org/papers/w3800
File-URL: http://www.nber.org/papers/w3800.pdf
File-Format: application/pdf
Publication-Status: published as "Productivity of Japanese Manufacturing Industries and their Market Competition", in Japan's Economic Challenge, Joint Economic Committee Congress of the United States: U.S. Federal Government, October 1990,p. 89-101
Abstract: The study focuses on the influence of labor, capital, R&D, technological knowledge, and other factors influencing labor productivity in different manufacturing industries. The study also examines the competitiveness of these manufacturing industries in the Japanese market. The results indicate that labor productivity is high relative to capital productivity in most of the Japanese manufacturing industries. Our results show that the quality of capital (e.g. advanced technology) is generally more important to increasing productivity than the quantity of capital. These findings would imply that workers in Japanese manufacturing industries are using capital of high quality, not of large quantity. Along these lines Japanese firms seem therefore to be trying to assess how to make production more efficient and how to improve the quality of products. The results of this study also show that R&D in Japan is significantly important for aiming not only at the improvement of product technology in the food, spinning, textile, paper products, electrical machinery and equipment, and communication equipment industries, but also at that of process technology in the chemicals, drugs and medicines, petroleum products, machinery, motor vehicles, and transportation equipment industries. The study finds that, while the high turnover rate of technology unfavorably affects electrical machinery, electrical equipment, communications equipment, chemicals, drugs and medicines, and petroleum products industries, the rest of the manufacturing industries enjoy a productive stock of technological knowledge. Despite the ?fact that Japanese manufacturing industries face stiff competition in domestic product markets, the industries may not be as price competitive in the world market as considered.
Handle: RePEc:nbr:nberwo:3800
Template-Type: ReDIF-Paper 1.0
Title: Crime Rates Versus Labor Market Conditions; Theory and Time-Series Evidence
Author-Name: Tadashi Yamada
Author-Name: Tetsuji Yamada
Author-Name: Johan M. Kang
Note: LS
Number: 3801
Creation-Date: 1991-08
Order-URL: http://www.nber.org/papers/w3801
File-URL: http://www.nber.org/papers/w3801.pdf
File-Format: application/pdf
Publication-Status: published in Economic Studies Quarterly, Vol. 44, no. 3, September 1993,pp. 250-262
Abstract: The aim of this paper is to examine the impact of labor market conditions, represented by male civilian unemployment rates, on seven major categories of crime. We propose a theoretical model from which the positive macro relationship between the unemployment rate and the crime rate is explicitly derived. The solution of the proposed model shows the concurrent counter-cyclical movements of the unemployment and crime rates, which is found to be consistent with the U.S. time series data from the first quarter of 1970 to the fourth quarter of 1983. Thus, we propose a view that an increase in the unemployment rate triggers a subsequent increase in the crime rate. Further, we find that the unemployment rate is statistically exogenous in the VAR model, which indicates a fact that there lie the economic forces and motivations behind the positive relationship between the unemployment rate and the crime rate.
Handle: RePEc:nbr:nberwo:3801
Template-Type: ReDIF-Paper 1.0
Title: The Joint Consumption/Asset Demand Decision: A Case Study in Robust Estimation
Author-Name: Marjorie A. Flavin
Note: EFG
Number: 3802
Creation-Date: 1991-08
Order-URL: http://www.nber.org/papers/w3802
File-URL: http://www.nber.org/papers/w3802.pdf
File-Format: application/pdf
Abstract: The paper uses a previously unexploited data set -- the Michigan Survey of Consumer Finances -- to ask whether the finding that consumption tracks current income more closely than is consistent with the permanent income hypothesis can be attributed solely or partially to borrowing constraints. Using household data on income and asset stocks, the paper studies the saving side of the consumption/saving decision, and thus provides inferences on a comprehensive concept of consumption. To limit the influence of outliers, the paper uses a robust instrumental variables estimator, and argues that achieving robustness with respect to leverage points is actually simpler, both conceptually and computationally, in an instrumental variables context than in the OLS context. The results indicate that households do use asset stocks to smooth their consumption, although this smoothing is far from complete. However, there is no evidence that the excess sensitivity of consumption to current income is caused by borrowing constraints. Compared to the conventional results, the robust instrumental variables estimates are more stable across different subsamples, more consistent with the theoretical specification of the model, and indicate that some of the most striking findings in the conventional results were attributable to a single, highly unusual observation.
Handle: RePEc:nbr:nberwo:3802
Template-Type: ReDIF-Paper 1.0
Title: Pricing, Patent Loss and the Market For Pharmaceuticals
Author-Name: Richard G. Frank
Author-Name: David S. Salkever
Author-Person: psa1313
Note: EH
Number: 3803
Creation-Date: 1991-08
Order-URL: http://www.nber.org/papers/w3803
File-URL: http://www.nber.org/papers/w3803.pdf
File-Format: application/pdf
Publication-Status: published as Southern Economic Journal, Vol. 59, No. 2, pp. 165-179 (October 1992).
Abstract: Empirical studies suggest that entry of generic competitors results in minimal decreases or even increases in brand-name drug prices as well as sharp declines in brand-name advertising. This paper examines circumstances under which this empirical pattern could be observed. The analysis focuses on models where the demand for brand-name pharmaceuticals is divided into two segments, only one of which is cross-price-sensitive. Brand-name firms are assumed to set price and advertising in a Stackelberg context; they allow for responses by generic producers but the latter take decisions by brand-name f inns as given. Brand-name price and advertising responses to entry are shown to depend upon the properties of the reduced-form brand-name demand function. Conditions for positive price responses and negative advertising responses are derived. We also examine the implications for brand-name price levels, and for the brand-name price response to entry, of health sector trends (such as increasing HMO enrollments) that may have the effect of expanding the size of the cross-price-sensitive segment of the market. The paper concludes with a review of recent empirical research and suggestions for future work on the effects of generic entry.
Handle: RePEc:nbr:nberwo:3803
Template-Type: ReDIF-Paper 1.0
Title: The Nonequivalence of High School Equivalents
Author-Name: Stephen V. Cameron
Author-Name: James J. Heckman
Note: LS
Number: 3804
Creation-Date: 1991-08
Order-URL: http://www.nber.org/papers/w3804
File-URL: http://www.nber.org/papers/w3804.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Labor Economics, Vol. 11, no. 1 (January 1993): 1-47.
Abstract: This paper analyzes the causes and consequences of the growing proportion of high-school-certified persons who achieve that status by exam certification rather than through high school graduation. Exam-certified high school equivalents are statistically indistinguishable from high school dropouts. Both dropouts and exam-certified equivalents have comparably poor wages, earnings, hours of work, unemployment experiences and job tenure. This is so whether or not ability measures are used to control for differences. Whatever differences are found among exam-certified equivalents, high school dropouts and high school graduates are accounted for by their years of schooling completed. There is no cheap substitute for schooling. The only payoff to exam certification arises from its value in opening post-secondary schooling and training opportunities. However, exam-certified equivalents receive lower returns to most forms of post-secondary education and training. We also discuss the political economy of the recent rapid growth of exam certification. There has been growth in direct government subsidies to adult basic education programs that feature exam certification as an output. In addition, there has been growth in government subsidies to post-secondary schooling programs that require certification in order to qualify for benefits. These sources account for the rapid growth in the use of exam certification in the face of the low economic returns to it.
Handle: RePEc:nbr:nberwo:3804
Template-Type: ReDIF-Paper 1.0
Title: International Economic Transactions: Issues in Measurement and Empirical Research
Author-Name: Peter Hooper
Author-Name: J. David Richardson
Note: ITI IFM
Number: 3805
Creation-Date: 1991-08
Order-URL: http://www.nber.org/papers/w3805
File-URL: http://www.nber.org/papers/w3805.pdf
File-Format: application/pdf
Publication-Status: published as Peter Hooper and J. David Richardson eds., International Economic Trans-actions: Issues in Measurement and Empirical Research, University of Chicago Press, 1991, CRIW Series #55
Publication-Status: published as Introduction to "International Economic Transactions: Issues in Measurement and Empirical Research", Peter Hooper, J. David Richardson. in International Economic Transactions: Issues in Measurement and Empirical Research, Hooper and Richardson. 1991
Abstract: This paper summarizes a forthcoming book that describes issues and recent innovations in the measurement of international transactions. A number of distinguished authors assess data measuring trade in merchandise, services, and foreign-direct investment claims. Others assess international prices and data measuring comparisons of inputs and outputs internationally. (International financial data are not assessed.) The chapters in many cases tabulate the data and illustrate their application to recent research questions. U.S. international data are emphasized, but those of other countries are frequently highlighted as well. Growing international interdependence and structural and technological change raise a number of important theoretical and measurement issues that are explored here with regard, for example, to computer prices, productivity, international convergence of income, service provision from overseas affiliates, and proper valuation of direct investment stakes.
Handle: RePEc:nbr:nberwo:3805
Template-Type: ReDIF-Paper 1.0
Title: Exchange Rate Expectations and the Risk Premium: Tests For a Cross- Section of 17 Currencies
Author-Name: Jeffrey Frankel
Author-Person: pfr12
Author-Name: Menzie Chinn
Author-Person: pch129
Note: ITI IFM
Number: 3806
Creation-Date: 1991-08
Order-URL: http://www.nber.org/papers/w3806
File-URL: http://www.nber.org/papers/w3806.pdf
File-Format: application/pdf
Publication-Status: published as Review of International Economics, 1: no. 2, June 1993, 136-144
Abstract: Survey data on a broad cross section of 17 currencies are used to determine whether the forward discount moves primarily in response to changes in expectations of depreciation, or in the risk premium. We find that changes in expected depreciation are quantitatively significant. However we also find evidence, in contrast to earlier studies involving only four or five major currencies, that variation in the risk premium constitutes a large part of variation in the forward discount as well.
Handle: RePEc:nbr:nberwo:3806
Template-Type: ReDIF-Paper 1.0
Title: Patterns in Exchange Rate Forecasts for 25 Currencies
Author-Name: Menzie Chinn
Author-Person: pch129
Author-Name: Jeffrey Frankel
Author-Person: pfr12
Note: ITI IFM
Number: 3807
Creation-Date: 1991-08
Order-URL: http://www.nber.org/papers/w3807
File-URL: http://www.nber.org/papers/w3807.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Money, Credit, and Banking. vol. 26, no. 4, Nov. 1994.pp. 754-770
Abstract: We investigate the properties of exchange rate forecasts with a data set encompassing a broad cross section of currencies. The key finding is that expectations appear to be biased in our sample. This result is robust to the possibility of random measurement error in the survey measures. Investors would be better off placing less weight on their forecasts or the forward rate, and more on the current spot rate.
Handle: RePEc:nbr:nberwo:3807
Template-Type: ReDIF-Paper 1.0
Title: The Effects of Product Market Competition on Collective Bargaining Agreements: The Case of Foreign Competition in Canada
Author-Name: John M. Abowd
Author-Person: pab175
Author-Name: Thomas Lemieux
Author-Person: ple92
Note: LS
Number: 3808
Creation-Date: 1991-08
Order-URL: http://www.nber.org/papers/w3808
File-URL: http://www.nber.org/papers/w3808.pdf
File-Format: application/pdf
Publication-Status: published as Quarterly Journal of Economics, vol. 108, no. 4, pp. 983-1014, (November 1993)
Abstract: In this paper we study the connections between product .market conditions. negotiated wage settlements. and union employment in the presence of foreign competition shocks. We exploit the fact that in a small open economy such as Canada the price of imports and exports should represent pure demand shocks. We specify wage and employment determination equations for a sample of collective bargaining agreements from 1965 to 1983. Our estimation strategy consists of specifying the wage as a function of firm-specific value added per worker instrumented with the price of imports and the price of exports in the industry. The OLS specification is rejected in favor of the instrumental variables specification using standard specification tests. The instrumental variables estimates imply that a 1% change in value-added per worker increases the negotiated wage settlements by 0.25%. Similarly, we specify union employment as a function of firm-specific sales instrumented by the price of imports and exports in the industry. The instrumental variables estimates are imprecise and the specification test fails to reject the OLS specification. The OLS estimates imply that a 1% change in firm-specific sales increases employment by 0.19%. We use our estimates to trace the effects of foreign competition on the industry and firm-level sales and value-added measures.
Handle: RePEc:nbr:nberwo:3808
Template-Type: ReDIF-Paper 1.0
Title: Empirical Evidence on European Dual Exchange Rates and Its Relevance For Latin America
Author-Name: Nancy P. Marion
Author-Person: pma1464
Note: ITI IFM
Number: 3809
Creation-Date: 1991-08
Order-URL: http://www.nber.org/papers/w3809
File-URL: http://www.nber.org/papers/w3809.pdf
File-Format: application/pdf
Publication-Status: published as "Dual exchange rates in Europe and Latin America" The World Bank Economic Review, Vol 8, No 2, 1994 pp. 213-245
Abstract: This paper uncovers some important empirical regularities for the European dual exchange markets of the early 1970s, examines some of the stylized facts about the Latin American dual-rate regimes and assesses whether there are strong parallels between the two. It concludes that one should be cautious about applying the lessons from the European experience to the Latin American ones.
Handle: RePEc:nbr:nberwo:3809
Template-Type: ReDIF-Paper 1.0
Title: Short and Long Run Externalities
Author-Name: Eric J. Bartelsman
Author-Person: pba253
Author-Name: Ricardo J. Caballero
Author-Person: pca44
Author-Name: Richard K. Lyons
Author-Person: ply9
Note: ITI EFG IFM
Number: 3810
Creation-Date: 1991-08
Order-URL: http://www.nber.org/papers/w3810
File-URL: http://www.nber.org/papers/w3810.pdf
File-Format: application/pdf
Publication-Status: published as "Customer and Supplier Driven Externalities" American Economic Review, Sept 1994, vol 84, No 4, pp 1075-1084
Abstract: In this paper we build upon previous work on external economies in manufacturing [Caballero and Lyons (1989, 1990)] by providing new evidence helpful for discriminating between different types of externalities. We investigate four-digit level input-output relationships and find that, over shorter horizons, the linkage between an industry and its customers is the most important factor in the transmission of externalities. This suggests that transactions externalities accruing primarily to the seller, and/or activity-driven demand externalities are significant for explaining the short-run behavior of measured total factor productivity. Over longer horizons. on the other hand, it is the activity level of suppliers that is more important. This suggests that external effects are also operating through intermediate goods linkages.
Handle: RePEc:nbr:nberwo:3810
Template-Type: ReDIF-Paper 1.0
Title: The Real Exchange Rate, Exports, and Manufacturing Profits: A Theoreti- cal Framework With Some Empirical Support
Author-Name: Richard H. Clarida
Author-Person: pcl69
Note: ITI IFM
Number: 3811
Creation-Date: 1991-08
Order-URL: http://www.nber.org/papers/w3811
File-URL: http://www.nber.org/papers/w3811.pdf
File-Format: application/pdf
Publication-Status: published as IJFE, Vol. 2, no. 3 (July 1997): 177-187.
Abstract: This paper investigates the relationship between manufacturing profits, exports, and the real exchange rate. Using Harston's (1990) model of pricing-to-market, we derive a co-integrated log-linear profits equation that restricts the long-run relationship among real U.S. manufacturing profits, domestic sales, the real exchange rate, real unit costs, the U.S. relative price of output, and foreign sales. We show that the elasticity of real profits with respect to the real exchange rate is bounded below by the product of (i) 1 minus the long-run pass-through coefficient and (ii) the ratio of export revenues to total profits. Our empirical findings suggest that, even after taking into account output, costs, and relative prices, real exchange rate fluctuations have a sizable and statistically significant influence on real U.S. manufacturing profits. The framework developed in this paper appears to be of some value in directing attention towards a heretofore underappreciated channel through which real exchange rate changes can potentially influence national savings.
Handle: RePEc:nbr:nberwo:3811
Template-Type: ReDIF-Paper 1.0
Title: Co-Integration, Aggregate Consumption, and the Demand For Imports: A Structural Econometric Investigation
Author-Name: Richard H. Clarida
Author-Person: pcl69
Note: ITI IFM
Number: 3812
Creation-Date: 1991-08
Order-URL: http://www.nber.org/papers/w3812
File-URL: http://www.nber.org/papers/w3812.pdf
File-Format: application/pdf
Publication-Status: published as The American Economic Review, Vol. 84 (March 1994): 298-308.
Abstract: This paper uses a two-good version of Hall's (1978) representative agent, permanent income model to derive a structural import demand equation for nondurable consumer goods. Under the identification restriction that taste shocks are stationary, the model is shown to imply that log imports, log domestic goods, and the log relative price of imports are co-integrated. The data decisively reject the null hypothesis that imports, the relative price of imports, and the consumption of home goods are not co-integrated. We employ the non-linear least squares technique recently proposed by Phillips and Loretan (1990> to estimate the parameters of the import demand equation. The long-run price elasticity of import demand is estimated to be -0.95. The elasticity of import demand with respect to a permanent increase in real spending is estimated to be 2.20. These estimates fall within the range reported in studies by Helkie and Hooper (1986), Cline (1989), and the many studies surveyed by Goldstein and Kahn (1985) The message of this paper is that, at least for non-durable consumer goods, it is possible to interpret the traditional import demand equation as a co-integrating regression, and to interpret the price and expenditure elasticities estimated from such a trade equation as a co-integrating vector. Estimates of the co-integrating vector can be used to recover estimates of the utility parameters of the representative household. The similarity between the OLS and Phillips-Loretan estimates of the parameters suggests that the simultaneous equation bias is not large.
Handle: RePEc:nbr:nberwo:3812
Template-Type: ReDIF-Paper 1.0
Title: Endogenous Comparative Advantage, Government, and the Pattern of Trade
Author-Name: Richard H. Clarida
Author-Person: pcl69
Author-Name: Ronald Findlay
Note: ITI IFM
Number: 3813
Creation-Date: 1991-08
Order-URL: http://www.nber.org/papers/w3813
File-URL: http://www.nber.org/papers/w3813.pdf
File-Format: application/pdf
Publication-Status: published as Clarida, Richard H. and Ronald Findlay. "Government, Trade, And Comparative Advantage," American Economic Review, 1992, v82(2), 122-127.
Abstract: This paper explores the relationship between government policy and comparative advantage in a neoclassical model of international trade. A specification of the Ricardo-Viner model with public goods and public inputs is presented that is used to study the role that government policy can play in the determination and promotion of comparative advantage and in the maximization of the gains that may be obtained from international trade. The model is also used to study the influence that international trade can exert on the scale and scope of government activity. The paper endeavors to reconcile a positive theory of trade and government with the apparent shift in measured productivity that often follows an opening to trade. The paper concludes by interpreting the model in the context of recent policy discussions of such issues as structural impediments, competitiveness, and the role of trade policy.
Handle: RePEc:nbr:nberwo:3813
Template-Type: ReDIF-Paper 1.0
Title: Entry, Dumping, and Shakeout
Author-Name: Richard H. Clarida
Author-Person: pcl69
Note: ITI IFM
Number: 3814
Creation-Date: 1991-08
Order-URL: http://www.nber.org/papers/w3814
File-URL: http://www.nber.org/papers/w3814.pdf
File-Format: application/pdf
Publication-Status: published as American Economic Review, Vol. 83 (March 1993): 180-203.
Abstract: This paper investigates the relationship between entry, demand, and dumping in the context of a two country Ricardian model of international trade. Dumping - the export of goods at a price below average cost - can arise in the free trade equilibrium if the two countries differ in their initial stock of technological knowledge. As in Jovanovic (1982), I assume that firms in one of the two countries can only acquire knowledge about the technology for producing one of the goods by actually producing that good. Because all firms are ex ante identical in one of the countries, and ex post efficient firms earn positive rents in equilibrium, competition for these rents can result in entry to the point that the equilibrium price is driven below average cost. If world demand is high enough, entry among ex ante identical firms can push down the world price below the opportunity cost of production of new entrants in one country, and that country can in fact initially export the dumped good in equilibrium. Interestingly, and in contrast to models of dumping in cyclical downturns, dumping will not occur with endogenous entry if world demand is too low. Despite the fact that high world demand induces so much entry that price is driven below opportunity cost, welfare in both the dumping (exporting) country and the importing country improve in the free trade dumping equilibrium relative to autarky.
Handle: RePEc:nbr:nberwo:3814
Template-Type: ReDIF-Paper 1.0
Title: Productivity in the Transportation Sector
Author-Name: Robert J. Gordon
Author-Person: pgo50
Note: PR
Number: 3815
Creation-Date: 1991-08
Order-URL: http://www.nber.org/papers/w3815
File-URL: http://www.nber.org/papers/w3815.pdf
File-Format: application/pdf
Publication-Status: published as Productivity in the Transportation Sector, Robert J. Gordon. in Output Measurement in the Service Sectors, Griliches. 1992
Abstract: This is a comprehensive study of measurement and substantive issues that arise in determining the rate of multi factor productivity (MFP) growth in the transportation industry over the postwar period, 1948-87. Official data on output and employment are provided by two government agencies and conflict markedly for railroads, airlines, and trucking. This paper identifies the source of the conflicts and selects the best of the government indexes for further study, It concludes that improved data reduce the magnitude of the post-1973 productivity slowdown in transportation MFP growth from a previously reported 2.5 percent per annum to just 0.5 percent. The effect of deregulation has been mixed; MFP growth accelerated markedly for railroads when 1978-87 is compared to the pre-1978 period, but slowed sharply for airlines and trucking. New results on output quality are provided for airlines, particularly for the period of deregulation. Contrary to the standard view, deregulation has not substituted circuitous routings through hubs for nonstop flights available previously; instead the establishment of new hubs has greatly increased the number of nonstop routings available, and remarkably few nonstop routes have been discontinued. An estimate is provided of the value of time saved by the improved routings, and of the offsetting time cost of extended scheduled flight times resulting from increased congestion. Such estimates of the value of time are swamped by the huge contribution to welfare provided by the manufacturers of aircraft and engines; the time saving from the "invention of air travel" for 1989 is valued at 400 percent of domestic airline revenue and 3.5 percent of GNP. Alternative measures of capital input, based on new quality-adjusted equipment deflators, are provided for airlines, railroads, and trucking. These uniformly increase faster in the earlier postwar years than in the last decade and consequently imply a smaller decline in MFP growth than in official data sources. However, new estimates of the input of government expenditures on airports, air traffic control, and highways, do not change appreciably the pattern of postwar MFP growth in transportation.
Handle: RePEc:nbr:nberwo:3815
Template-Type: ReDIF-Paper 1.0
Title: Stabilization and Liberalization Policies in Central and Eastern Europe: Lessons From Latin America
Author-Name: Sebastian Edwards
Author-Person: ped3
Note: ITI IFM
Number: 3816
Creation-Date: 1991-08
Order-URL: http://www.nber.org/papers/w3816
File-URL: http://www.nber.org/papers/w3816.pdf
File-Format: application/pdf
Abstract: This paper discusses some economic problems faced by the Eastern European nations in light of recent Latin American experiences. The paper first argues that in spite of some important cultural, political and institutional differences, there are indeed some similarities between Eastern European and Latin American economic problems. The discussion concentrates on four specific areas: (1) monetary overhang and repressed inflation; (2) fiscal imbalances and inflationary pressures; (3) deindexation and inflationary inertia; and (4) the use of the exchange rate as a nominal anchor. It is argued that in Chile the reliance on a price jump to solve the money overhang problem of 1973 created high inflationary expectations, increasing the degree of inertia of inflation. It is also pointed out that the Latin American experience tells a serious cautionary tale regarding the use of nominal exchange rate anchors. More often than not these types of policies have resulted in overvaluation, losses in international competitiveness and eventual external sector crises. A comparison of the Chilean and Mexican stabilization programs suggest that the use of exchange rate anchors will be more effective (and more credible) if the fixing of the exchange rate is accompanied by other policies geared at breaking inertia. Among these policies the most important one is the abandonment of wage rate indexation practices.
Handle: RePEc:nbr:nberwo:3816
Template-Type: ReDIF-Paper 1.0
Title: The Great Compression: The Wage Structure in the United States at Mid- Century
Author-Name: Claudia Goldin
Author-Person: pgo601
Author-Name: Robert A. Margo
Author-Person: pma319
Note: LS
Number: 3817
Creation-Date: 1991-08
Order-URL: http://www.nber.org/papers/w3817
File-URL: http://www.nber.org/papers/w3817.pdf
File-Format: application/pdf
Publication-Status: published as Goldin, Claudia and Robert A. Margo. "The Great Compression: The U.S. Wage Structure at Mid-Century." Quarterly Journal of Economics, February 1992, vol cvii, pp. 1-34
Abstract: The structure of wages narrowed considerably during the 1940's, increased slightly during the 1950's and 1960's, and then expanded greatly after 1970. The era of wage stretching of the past two decades has been a current focus, but we return attention here to the decade that was witness to an extraordinary compression in the wage structure. Wages narrowed by education, job experience, region, and occupation, and compression occurred within these cells as well. For white men, the 90-10 differential in the log of wages was 1.414 in 1940 but 1.060 in 1950. By 1985 it has risen back to its 1940 level. Thus the recent widening of the wage structure has returned to it a dispersion characteristic of fifty years ago. We explore various explanations for the rapid compression in the wage structure during the 1940's and for its maintenance during the subsequent decade or more. We first assess the hypothesis that the Great Depression left the wage structure in 1939 more unequal than in the late 1920's, but we find evidence to the contrary. World War II and the National War Labor Board share some of the credit for the Great Compression. But much belongs to a rapid increase in the demand for unskilled labor at a time when educated labor was greatly increasing in number. These same factors caused the wage structure to remain compressed until its expansion during the past two decades.
Handle: RePEc:nbr:nberwo:3817
Template-Type: ReDIF-Paper 1.0
Title: The Significance of Technical Trading-Rule Profits in the Foreign Exchange Market: A Bootstrap Approach
Author-Name: Richard M. Levich
Author-Name: Lee R. Thomas
Note: ITI IFM
Number: 3818
Creation-Date: 1991-08
Order-URL: http://www.nber.org/papers/w3818
File-URL: http://www.nber.org/papers/w3818.pdf
File-Format: application/pdf
Publication-Status: published as Journal of International Money and Finance, Vol. 12, no. 5, October 1993p. 451-474
Abstract: In this paper, we present new evidence on the profitability and statistical significance of technical trading rules in the foreign exchange market. We utilize a new data base, currency futures contracts for the period 1976-1990, and we implement a new testing procedure based on bootstrap methodology. Using this approach, we generate thousands of new exchange rate series constructed by random reordering of each original series. We then measure the profitability of the technical rules for each new series. The significance of the profits in the original series is assessed by comparison to the empirical distribution of results derived from the thousands of randomly generated series. Overall, our results suggest that simple technical trading rules have very often led to profits that are highly unusual. Splitting the entire 15-year sample period into three 5-year periods reveals that on average the profitability of some trading rules declined in the 1986-1990 period although profits remained positive (on average) and significant in many cases.
Handle: RePEc:nbr:nberwo:3818
Template-Type: ReDIF-Paper 1.0
Title: The European Monetary System: Credible at Last?
Author-Name: Jeffrey Frankel
Author-Person: pfr12
Author-Name: Steven Phillips
Note: ITI IFM
Number: 3819
Creation-Date: 1991-08
Order-URL: http://www.nber.org/papers/w3819
File-URL: http://www.nber.org/papers/w3819.pdf
File-Format: application/pdf
Publication-Status: published as Oxford Economic Papers: 44, 1992, 791-816
Abstract: We update tests of the credibility of the EMS exchange rate target zones. Our main methodological innovation is to use a survey of exchange rate forecasts, as well as interest differentials, in measuring exchange rate expectations. We investigate the hypothesis -- suggested by the apparent stabilization of the EMS and by recent institutional developments -- that the EMS target zones have experienced an increase in credibility since their 1987 realignment. The evidence tends to support this hypothesis for most currencies. We also examine the empirical failure of standard target zone models, but find no evidence that it can be attributed to mismeasurement of expectations. Finally, we consider an alternative credibility measure which captures the importance of possible realignments in overall expectations of exchange rate changes.
Handle: RePEc:nbr:nberwo:3819
Template-Type: ReDIF-Paper 1.0
Title: Optimal Investment Strategies for University Endowment Funds
Author-Name: Robert C. Merton
Author-Person: pme203
Note: ME
Number: 3820
Creation-Date: 1991-08
Order-URL: http://www.nber.org/papers/w3820
File-URL: http://www.nber.org/papers/w3820.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Economic Dynamics and Control Bodie, Meron and Samuelson eds., Vol. 16, 1992 pp. 427-449
Publication-Status: published as Studies of Supply and Demand in Higher Education, Clotfelter, C., and M. Rothschild, eds., Chicago: University of Chicago Press, 1993, pp. 211-236. Continuous-Time Finance, Chapter 21.
Publication-Status: published as Optimal Investment Strategies for University Endowment Funds, Robert C. Merton. in Studies of Supply and Demand in Higher Education, Clotfelter and Rothschild. 1993
Abstract: A common approach to the management of endowment is to treat it as if it were the only asset of the university. This approach leads to prescriptions for optimal investment and expenditure policies that are essentially the same across universities. Indeed, the resulting optimal portfolio strategies are focused almost exclusively on providing an efficient tradeoff between risk and expected return, a generic objective that is just as applicable to individuals and non-academic institutions as it is to universities. In contrast, the model developed here provides intertemporally optimal investment and expenditure rules for endowment that take account of the university's overall objectives and total resources. The explicit inclusion of other university assets in addition to endowment leads to optimal endowment portfolios that are not efficient in the sense of the risk-return tradeoff. Moreover, two universities with similar objectives and endowments can have very different optimal portfolios and expenditure patterns if their non-endowment sources of cash flow are different. The model also takes account of the uncertainty surrounding the costs of the various activities such as education, research, and knowledge storage that define the purpose of the university. As a result, the analysis reveals a perhaps somewhat latent role for endowment: namely, hedging against unanticipated changes in those costs.
Handle: RePEc:nbr:nberwo:3820
Template-Type: ReDIF-Paper 1.0
Title: Rules, Coordination and Manipulability Among Arbitrators
Author-Name: Janet Currie
Author-Person: pcu13
Note: LS
Number: 3821
Creation-Date: 1991-08
Order-URL: http://www.nber.org/papers/w3821
File-URL: http://www.nber.org/papers/w3821.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Labor Economics, January 1994
Abstract: This paper provides evidence that the variance of arbitrated wage settlements is systematically lower than the variance of wage settlements negotiated without arbitration using a panel of contracts between teachers and school boards in the Canadian province of British Columbia. This finding is interpreted as evidence that arbitrators coordinate their decisions. However, coordination on a rule leaves arbitrators as a group vulnerable to manipulation by coalitions of employers or employees that understand the rule. Because successful manipulation of arbitrators undermines the credibility of the institution, arbitrators as a group have incentives to change their rules from time to time. Evidence is presented that in BC, school boards were more successful than teachers at manipulating arbitrators, and that arbitrators responded by changing their rule.
Handle: RePEc:nbr:nberwo:3821
Template-Type: ReDIF-Paper 1.0
Title: Optimal Law Enforcement with Self-Reporting of Behavior
Author-Name: Louis Kaplow
Author-Person: pka44
Author-Name: Steven Shavell
Author-Person: psh42
Note: LE
Number: 3822
Creation-Date: 1991-08
Order-URL: http://www.nber.org/papers/w3822
File-URL: http://www.nber.org/papers/w3822.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Political Economy, Vol. 102, no. 3, pp. 583-606, (June 1994).
Abstract: Self-reporting -- the reporting by parties of their own behavior to an enforcement authority -- is a commonly observed aspect of law enforcement, as in the context of environmental and safety regulation. We add self-reporting to the model of the control of harmful externalities through probabilistic law enforcement. Optimal self-reporting schemes are characterized and are shown to offer two advantages over schemes without self-reporting: enforcement resources are saved because individuals who are led to report harmful acts need not be identified; risk is reduced because individuals bear certain sanctions when they report their behavior, rather than face uncertain sanctions.
Handle: RePEc:nbr:nberwo:3822
Template-Type: ReDIF-Paper 1.0
Title: An Aggregate Demand - Aggregate Supply Analysis of Japanese Monetary Policy, 1973-1990
Author-Name: Kenneth D. West
Author-Person: pwe16
Note: ME
Number: 3823
Creation-Date: 1991-08
Order-URL: http://www.nber.org/papers/w3823
File-URL: http://www.nber.org/papers/w3823.pdf
File-Format: application/pdf
Publication-Status: published as Japanese Monetary Policyedited by Kenneth J. Singleton University of Chicago Press; 1993, pp. 161-189
Abstract: An aggregate demand - aggregate supply framework is used to analyze the effects of Japanese monetary policy, 1973:1-1990:8. It is found that money supply shocks contribute relatively little to output variability over the sample as a whole. Nor do these shocks seem to be particularly marked during business cycle contractions. The effects of monetary policy on prices and output appear to be quite similar to those of a constant money growth rule.
Handle: RePEc:nbr:nberwo:3823
Template-Type: ReDIF-Paper 1.0
Title: Money, Output and Prices: Evidence from A New Monetary Aggregate
Author-Name: Julio J. Rotemberg
Author-Person: pro30
Author-Name: John C. Driscoll
Author-Person: pdr1
Author-Name: James M. Poterba
Author-Person: ppo19
Note: ME
Number: 3824
Creation-Date: 1991-08
Order-URL: http://www.nber.org/papers/w3824
File-URL: http://www.nber.org/papers/w3824.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Business and Economic Statistics, 13 (January 1995), pp. 67-83.
Abstract: This paper develops a new utility-based monetary aggregate which we label the currency equivalent aggregate. This aggregate equals the stock of currency that would be required for households to obtain the same liquidity services that they get from their entire collection of monetary assets. We compare the ability of the new aggregate and conventional aggregates, such as Ml and M2, and other indicators of monetary policy to forecast real activity. The CE aggregate has more predictive power for output and prices than standard aggregates, and the time path of the estimated output response is more consistent with broad classes of theoretical models.
Handle: RePEc:nbr:nberwo:3824
Template-Type: ReDIF-Paper 1.0
Title: Multinational Firms, Technology Diffusion and Trade
Author-Name: Wilfred J. Ethier
Author-Name: James R. Markusen
Author-Person: pma528
Note: ITI IFM
Number: 3825
Creation-Date: 1991-08
Order-URL: http://www.nber.org/papers/w3825
File-URL: http://www.nber.org/papers/w3825.pdf
File-Format: application/pdf
Publication-Status: published as Journal of International Economics, vol.41, 1996, pp. 1-28.
Abstract: Empirical evidence indicates a close association between multinational firms and knowledge capital, a public good within the firm. We model a firm which wishes to exploit its knowledge capital abroad, but whose workers learn all the knowledge necessary for production and can defect and produce the good themselves. The home firm must then choose between costly exporting and the possible dissipation of its knowledge capital by producing abroad. The paper examines the choice between exporting, licensing, and acquiring a subsidiary in this environment. We analyze the cost and technology parameters that support the alternative modes of serving the foreign market, and we describe the international equilibrium that jointly determines the pattern of specialization and the market mode.
Handle: RePEc:nbr:nberwo:3825
Template-Type: ReDIF-Paper 1.0
Title: How Much Has De-Unionisation Contributed to the Rise in Male Earnings Inequality?
Author-Name: Richard B. Freeman
Author-Person: pfr23
Note: LS
Number: 3826
Creation-Date: 1991-08
Order-URL: http://www.nber.org/papers/w3826
File-URL: http://www.nber.org/papers/w3826.pdf
File-Format: application/pdf
Publication-Status: published as Danziger, Sheldon and Peter Gottschalk (eds.) Uneven Tides. NY: Sage Press, 1992,
Abstract: This paper estimates the effect of changing union density on earnings differentials and inequality among male workers in the U.S. and on industry earnings differentials among OECD countries. For the U.S. the evidence indicates that the fall in union density contributed to the 1980s increase in earnings inequality. Cross section-based estimates of union wage effects suggest that 40-50% of the rise in the white collar premium. 15-40% of the rise in the college premium. and 20% of the rise in the standard deviation of In earnings for all men are attributable to the fall in union density. Longitudinal-based estimates of union wage effects suggest that deunionization contributed less to the rise in differentials. Still. the dispersion of earnings grew as much among organized workers as among otherwise comparable nonunion workers, so that overall dispersion would have risen substantially even if the entire work force had been organized. Deunionization was thus a factor in the rise in inequality but not the factor. The cross-country comparisons show that earnings distributions are more compact among union workers than among nonunion workers in OECD countries with different union densities, types of union movements, and with very different union/nonunion wage differentials, making the relation between unionism and dispersion a general outcome of unionism. not something specific to U.S. institutions. In addition, they indicate that earnings differentials by industry are smaller and increased less in the 1980s in highly unionized countries than in less unionized countries, suggesting that strong national union movements can partially offset market pressures for rising inequality.
Handle: RePEc:nbr:nberwo:3826
Template-Type: ReDIF-Paper 1.0
Title: Skill Differentials in Canada in an Era of Rising Labor Market Inequality
Author-Name: Richard B. Freeman
Author-Person: pfr23
Author-Name: Karen Needels
Note: LS
Number: 3827
Creation-Date: 1991-09
Order-URL: http://www.nber.org/papers/w3827
File-URL: http://www.nber.org/papers/w3827.pdf
File-Format: application/pdf
Publication-Status: published as Small Differences That Matter: Labor Markets and Income Maintenance in Canada and the United States, edited by David Card and Richard Freeman, pp.45-6 8, Chicago: University of Chicago Press, 1993.
Publication-Status: published as Skill Differentials in Canada in an Era of Rising Labor Market Inequality, Richard B. Freeman, Karen Needels. in Small Differences That Matter: Labor Markets and Income Maintenance in Canada and the United States, Card and Freeman. 1993
Abstract: This paper examines educational earnings differentials in Canada in the 1980s and compares changes in differentials to those in the United States. Our major finding is that the college/high school differential increased much less in Canada than in the United States. We also find that within educational groups the distribution of earnings widened, gender pay gaps narrowed, and age pay gaps increased in Canada as in the United States. The greater growth of the college graduate proportion of the work force in Canada than in the United States is one important reason why differentials rose more modestly in Canada than in the United States. The greater strength of Canadian unions in wage-setting, and the faster growth of real national output, and better trade balance in Canada may also have contributed to the lesser rise in differentials. Because Canada and the United States have so many characteristics in common, we interpret our results as indicating that the massive rise of skill differentials in the United States was not the result of some inexorable shift in the economic structure of advanced capitalist countries, but rather reflected specific developments in the U.S. labor market and the way in which the country's decentralised wage-setting system adjusted to these developments.
Handle: RePEc:nbr:nberwo:3827
Template-Type: ReDIF-Paper 1.0
Title: Investment in Capital Assets and Economic Performance: The U.S. Chemicals and Primary Metals Industries in Transition
Author-Name: Catherine J. Morrison
Note: PR
Number: 3828
Creation-Date: 1991-09
Order-URL: http://www.nber.org/papers/w3828
File-URL: http://www.nber.org/papers/w3828.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Business & Economic Statistics, Vol. 11, no. 1 (January 1993): 45-60.
Abstract: The effects of market and technological conditions on the investment and markup behavior of firms, and their resulting impacts on economic performance, are closely interrelated and complex. In this paper determinants of and linkages among these are explored for two industries with very different performance records and development patterns over the past three decades -the chemicals and primary metals industries. The analysis is carried out using a production theory model that permits explicit assessment of the motivations underlying firm decisions, based on BLS data from 1955-86. General capital (K) investments are distinguished from investments in innovative or high tech capital such as office and communications equipment (0) and technical and scientific apparatus (S). Investment behavior and thus capacity utilization are explicitly modeled as responses to adjustment costs for capital assets. This approach facilitates the measurement of technological and behavioral factors underlying investment, input demand and pricing decisions. This in turn allows investment patterns and their determinants across capital assets to be interpreted, and their linkages with productive and financial performance to be identified.
Handle: RePEc:nbr:nberwo:3828
Template-Type: ReDIF-Paper 1.0
Title: What Ended the Great Depression?
Author-Name: Christina D. Romer
Author-Person: pro407
Note: EFG ME
Number: 3829
Creation-Date: 1991-09
Order-URL: http://www.nber.org/papers/w3829
File-URL: http://www.nber.org/papers/w3829.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Economic History, Vol 52, December 1992
Abstract: This paper examines the role of aggregate demand stimulus in ending the Great Depression. A simple calculation indicates that nearly all of the observed recovery of the U.S. economy prior to 1942 was due to monetary expansion. Huge gold inflows in the mid- and late-1930s swelled the U.S. money stock and appear to have stimulated the economy by lowering real interest rates and encouraging investment spending and purchases of durable goods. The finding that monetary developments were crucial to the recovery implies that self-correction played little role in the growth of real output between 1933 and 1942.
Handle: RePEc:nbr:nberwo:3829
Template-Type: ReDIF-Paper 1.0
Title: Macroeconomic Policy and Elections in OECD Democracies
Author-Name: Alberto Alesina
Author-Person: pal207
Author-Name: Gerald D. Cohen
Author-Name: Nouriel Roubini
Author-Person: pro145
Note: ME
Number: 3830
Creation-Date: 1991-09
Order-URL: http://www.nber.org/papers/w3830
File-URL: http://www.nber.org/papers/w3830.pdf
File-Format: application/pdf
Publication-Status: published as Economics and Politics, 4, pp.1-30 March 1992
Publication-Status: published as in Political Economy, Growth and Business Cycles, Alex Cukierman, Zvi Hercovitz, and Leonardo Leiderman (eds.), MIT Press, 1992.
Publication-Status: published as Alberto Alesina & Gerald D. Cohen & Nouriel Roubini, 1992. "MACROECONOMIC POLICY AND ELECTIONS IN OECD DEMOCRACIES," Economics and Politics, vol 4(1), pages 1-30.
Abstract: The purpose of this paper is to test for evidence of opportunistic "political business cycles" in a large sample of 18 OECD economies. Our results can be summarized as follows: 1) We find very little evidence of pre-electoral effects of economic outcomes, in particular, on GDP growth and unemployment; 2) We see some evidence of "political monetary cycles." that is, expansionary monetary policy in election years; 3) We also observe indications of "political budget cycles," or "loose" fiscal policy prior to elections; 4) Inflation exhibits a postelectoral jump, which could be explained by either the preelectoral "loose" monetary and fiscal policies and/or by an opportunistic timing of increases in publicly controlled prices, or indirect taxes.
Handle: RePEc:nbr:nberwo:3830
Template-Type: ReDIF-Paper 1.0
Title: Alcohol Control Policies and Motor Vehicle Fatalities
Author-Name: Frank J. Chaloupka
Author-Person: pch236
Author-Name: Henry Saffer
Author-Person: psa935
Author-Name: Michael Grossman
Author-Person: pgr107
Note: EH
Number: 3831
Creation-Date: 1991-09
Order-URL: http://www.nber.org/papers/w3831
File-URL: http://www.nber.org/papers/w3831.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Legal Studies, Vol. XXII, pp. 161-186 (January 1993).
Abstract: The purpose of this study is to estimate the effects of drunk driving deterrents and other alcohol related policies on drunk driving. The data set employed is an annual time-series of state cross-sections for the 48 contiguous states of the U.S. from 1982 through 1988. Total and alterative alcohol involved motor vehicle fatality rates, for the general population and for 18 to 20 year olds, are used as measures of drunk driving. The results indicate that the moat effective policies are increased beer taxes and mandatory administrative license actions. Maintaining the beer tax at its real 1951 value would have reduced fatalities by 11.5 percent annually, on average, during the sample period. A mandatory administrative license sanction of one year would have reduced fatalities by 9 percent. The next most effective policies are a 21 year old legal drinking age, preliminary breath test and dram shop laws and relatively large mandatory fines. These policies each reduce total fatalities by about 5 to 6 percent. No plea bargaining provisions and mandatory license sanctions upon conviction are also found to have some deterrent effect. Other drunk driving laws tested include mandatory jail sentences and community service options, illegal per se laws, and open container laws. None of these were found to have a deterrent effect on drunk driving.
Handle: RePEc:nbr:nberwo:3831
Template-Type: ReDIF-Paper 1.0
Title: Does Participation in Transfer Programs During Pregnancy Improve Birth Weight?
Author-Name: Janet Currie
Author-Person: pcu13
Author-Name: Nancy Cole
Note: EH LS
Number: 3832
Creation-Date: 1991-09
Order-URL: http://www.nber.org/papers/w3832
File-URL: http://www.nber.org/papers/w3832.pdf
File-Format: application/pdf
Publication-Status: published as American Economic Review, Sept. 1993
Abstract: A primary goal of transfer programs to the non-aged, non-disabled poor in the United States is to improve the well-being of children in poor families. Thus it is surprising that most of the considerable research which has been devoted to the study of transfer programs focuses on the incentive effects of the programs for parents rather than on the question of whether parental participation in such programs measurably benefits children. This paper begins to fill this gap in the literature by examining the relationship between a mother's participation during pregnancy in Aid to Families with Dependent Children, the Food Stamp Program, or housing assistance, and one of the least controversial measures of child welfare: the birth weight. We do not find any statistically significant relationship between a mother's participation in these programs during pregnancy and the birth weight of her child. However, it should be kept in mind that birth weight is only one measure of child welfare and that these entitlement programs may well have positive impacts on the health and development of children once they are born.
Handle: RePEc:nbr:nberwo:3832
Template-Type: ReDIF-Paper 1.0
Title: The Informativeness of Prices: Search With Learning and Cost Uncertainty
Author-Name: Roland Benabou
Author-Person: pbe27
Author-Name: Robert Gertner
Note: EFG
Number: 3833
Creation-Date: 1991-09
Order-URL: http://www.nber.org/papers/w3833
File-URL: http://www.nber.org/papers/w3833.pdf
File-Format: application/pdf
Publication-Status: published as "Search with Learning from Prices: Does Increased Inflationary Uncertainty Lead to High Markups?", Review of Economic Studies, 60, (1993), p. 65-95
Abstract: Aggregate cost uncertainty, arising from real shocks or unanticipated inflation, reduces the informativeness of prices by scrambling relative and aggregate variations. But when agents can acquire additional information, such increased noise may in fact lead them to become better informed, and price competition will intensify. We examine these issues in a model of search with learning, where consumers search optimally from an unknown price distribution while firms price optimally given consumers' search rules. We show that the decisive factor in whether inflation variability increases or reduces the incentive to search, and thereby market efficiency, is the size of informational costs.
Handle: RePEc:nbr:nberwo:3833
Template-Type: ReDIF-Paper 1.0
Title: Risk-Sharing, Altruism, and the Factor Structure of Consumption
Author-Name: Fumio Hayashi
Author-Person: pha83
Author-Name: Joseph Altonji
Author-Person: pal266
Author-Name: Laurence Kotlikoff
Author-Person: pko44
Note: EFG
Number: 3834
Creation-Date: 1991-09
Order-URL: http://www.nber.org/papers/w3834
File-URL: http://www.nber.org/papers/w3834.pdf
File-Format: application/pdf
Publication-Status: published as new title, "Risk-Sharing Between and Within Families," Econometrica, March 1996
Abstract: We consider four models of consumption that differ with respect to efficient risk-sharing and altruism. They range from complete markets with altruism to family risk-sharing. We use a matched sample of parents and independent children available from the Panel Study of Income Dynamics to discriminate between the four models. Our testing procedure is designed to deal with the set of observed independent children being endogenously selected. The combined hypothesis of complete markets and altruism can be decisively rejected, while we fail to reject altruism and hence family risk-sharing for a subset of families.
Handle: RePEc:nbr:nberwo:3834
Template-Type: ReDIF-Paper 1.0
Title: Do Tax-Exempt Bonds Really Subsidize Municipal Capital?
Author-Name: Roger H. Gordon
Author-Person: pgo95
Author-Name: Gilbert E. Metcalf
Note: PE
Number: 3835
Creation-Date: 1991-09
Order-URL: http://www.nber.org/papers/w3835
File-URL: http://www.nber.org/papers/w3835.pdf
File-Format: application/pdf
Publication-Status: published as National Tax Journal, Volume XLIV, No. 4, Part 1, December 1991. Cambridge: The MIT Press. Available through NBER.
Abstract: We argue that the tax-exempt status of municipal bonds provides little or no subsidy to capital investment by communities. Instead, the tax exemption simply provides arbitrage opportunities to high and low tax bracket individuals while leaving individuals in intermediate tax brackets essentially unaffected. We also argue that the revenue cost of the tax exemption is much less than traditionally thought due to the portfolio rebalancing that would occur if the tax exemption were eliminated. Finally, we note that the only way to prevent all municipal arbitrage possibilities would be to pass through municipal interest income and payments to residents for tax purposes.
Handle: RePEc:nbr:nberwo:3835
Template-Type: ReDIF-Paper 1.0
Title: Measuring Depreciation For Japan: Rejoinder to Dekle and Summers
Author-Name: Fumio Hayashi
Author-Person: pha83
Note: PR
Number: 3836
Creation-Date: 1991-09
Order-URL: http://www.nber.org/papers/w3836
File-URL: http://www.nber.org/papers/w3836.pdf
File-Format: application/pdf
Publication-Status: published as "Rejoinder to Dekle and Summers." Bank of Japan Monetary and Economic Studies, 9(2): 79-89, September 1991.
Abstract: Recently, my claim that depreciation reported in the Japanese national accounts is underestimated by a substantial margin has been challenged by Dekle and Summers (NBER Working Paper No. 3690), on the ground that the implied depreciation rate (ratio of depreciation to the capital stock) is implausibly high. I argue in this rejoinder that Japan's high depreciation rate can be attributable to two factors. First, the depreciation rate for owner-occupied housing is much higher in Japan. Second, equipment capital (a component of the denominator in the depreciation rate) in the Japanese national accounts seems underestimated. Therefore, my estimate of the level of depreciation for Japan does not seem exaggerated.
Handle: RePEc:nbr:nberwo:3836
Template-Type: ReDIF-Paper 1.0
Title: Education and Unemployment of Women
Author-Name: Jacob Mincer
Note: LS
Number: 3837
Creation-Date: 1991-09
Order-URL: http://www.nber.org/papers/w3837
File-URL: http://www.nber.org/papers/w3837.pdf
File-Format: application/pdf
Publication-Status: published as Studies in Labor Supply, Elger publishing 1993
Abstract: The more education, the less unemployment of women; this relationship is as strong as it is in the male labor force. The channel through which this relation arises is also the same, namely, labor turnover, almost half of which involves unemployment. However, the relation between education and turnover is mediated largely by educational differences in on-the-job training among men, while educational differences in labor force attachment are the main source of turnover differences among women. This is because levels of educational differences in on-the-job (in-house) training are small among women, while nonparticipation in the labor market and educational differences in it are quite small among men. Educational differences in the duration of unemployment are negligible among women, though they are observable, if small, among men. Recent growth in women's work attachment has reduced their inter-labor force turnover and their unemployment rate to the point of eliminating the sex differential. On-the-job training of women appears to have increased, though it still remains skimpy.
Handle: RePEc:nbr:nberwo:3837
Template-Type: ReDIF-Paper 1.0
Title: Education and Unemployment
Author-Name: Jacob Mincer
Note: LS
Number: 3838
Creation-Date: 1991-09
Order-URL: http://www.nber.org/papers/w3838
File-URL: http://www.nber.org/papers/w3838.pdf
File-Format: application/pdf
Publication-Status: published as Studies in Human Capital, Elgar Publishers, 1993
Abstract: A major benefit of education is the lower risk of unemployment at higher educational levels. In PSID (Panel Study of Income Dynamics) data on the male labor force1 the reduction of the incidence of unemployment is found to be far more important than the reduced duration of unemployment in creating the educational differentials in unemployment rates. In turn, the lesser unemployment incidence of the more educated workers is, in about equal measure, due to their greater attachment to the firms employing them, and to the lesser risk of becoming unemployed when separated from the firm. The lesser frequency of job turnover of more educated workers, which creates fewer episodes of unemployment, is in large part attributable to more on-the-job training. In explaining the lesser conditional unemployment of educated workers and the somewhat shorter duration of their unemployment, indirect evidence is provided that (1) costs of on-the-job search for new employment relative to costs of searching while unemployed are lower for more educated workers; (2) that these workers are also more efficient in acquiring and processing job search information; and (3) that firms and workers search more intensively to fill more skilled vacancies.
Handle: RePEc:nbr:nberwo:3838
Template-Type: ReDIF-Paper 1.0
Title: Tax Exporting, Federal Deductibility, and State Tax Structure
Author-Name: Gilbert E. Metcalf
Note: PE
Number: 3839
Creation-Date: 1991-09
Order-URL: http://www.nber.org/papers/w3839
File-URL: http://www.nber.org/papers/w3839.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Policy Analysis & Management, vol. 12, no. 1, Winter 1993, pp. 109-126
Abstract: This paper studies the interaction between the federal and state tax systems during the 1980s and in particular considers how the Tax Reform Act of 1986 affected state tax structure. Using a panel data set on state governments over a nine year period, I estimate tax share equations for six categories of taxes. I find that the state personal income tax is sensitive to changes in its tax price but find a much smaller sensitivity to changes in tax prices for the general sales tax. I then consider various reasons for why the sales tax does not exhibit a sensitivity to changes in tax price and consider the implications of these results for policy makers.
Handle: RePEc:nbr:nberwo:3839
Template-Type: ReDIF-Paper 1.0
Title: Designing a Central Bank for Europe: A Cautionary Tale From the Early Years of the Federal Reserve System
Author-Name: Barry Eichengreen
Author-Person: pei2
Note: ME
Number: 3840
Creation-Date: 1991-09
Order-URL: http://www.nber.org/papers/w3840
File-URL: http://www.nber.org/papers/w3840.pdf
File-Format: application/pdf
Publication-Status: published as Establishing a Central Bank Matthew Canzoner; et al eds., Cambridge University Press: Cambridge, 1992
Abstract: Important questions concerning the structure and operation of a European central bank remain to be answered. Although there exists no precedent for the process of institution-building in which the European Community is currently engaged, the founding and early operation of the Federal Reserve System in the United States provides a suggestive parallel. It suggests that Stage 2 of the Delors Plan contains potential sources of instability. It suggests attempting a direct transition from Stage 1 (national monetary autonomy) to Stage 3 (centralization of authority). It suggests the need for more thought about voting and mediation procedures to be used to reconcile and aggregate national interests.
Handle: RePEc:nbr:nberwo:3840
Template-Type: ReDIF-Paper 1.0
Title: Rail Costs and Capital Adjustments in a Quasi-Regulated Environment
Author-Name: Ann F. Friedlaender
Author-Name: Ernst R. Berndt
Author-Name: Judy Shaw-Er Wang Chiang
Author-Name: Mark Showalter
Author-Person: psh136
Author-Name: Christopher A. Vellturo
Note: PR
Number: 3841
Creation-Date: 1991-09
Order-URL: http://www.nber.org/papers/w3841
File-URL: http://www.nber.org/papers/w3841.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Transport Economics and Policy, vol. 27, no.2 May 1993, pp. 131- 152
Abstract: This paper reports on results obtained from the estimation of a rail cost function using a pooled-time series, cross section of Class I railroads for the period 1974-1986. An analysis is performed of short-run and long-run returns to scale, the extent of capital disequilibrium, and adjustments to way and structures capital in the heavily regulated and quasi-regulated environments before and after the passage of the Staggers Act in 1980. In general, it is found that there is considerable overcapitalization in the rail industry and that this has persisted in spite of the regulatory freedom provided by the Staggers Act.
Handle: RePEc:nbr:nberwo:3841
Template-Type: ReDIF-Paper 1.0
Title: Measuring the Contribution of Public Infrastructure Capital in Sweden
Author-Name: Ernst R. Berndt
Author-Name: Bengt Hansson
Note: PR
Number: 3842
Creation-Date: 1991-09
Order-URL: http://www.nber.org/papers/w3842
File-URL: http://www.nber.org/papers/w3842.pdf
File-Format: application/pdf
Publication-Status: published as Scandanavian Journal of Economics Volume 94, Supplement 1992, pp. 151-168
Abstract: Our purpose in this paper is to examine how one might evaluate and measure the contribution of public infrastructure capital on private sector output and productivity growth in Sweden. We do this by specifying and implementing empirically a number of alternative econometric models, using annual data for Sweden from 1960 to 1988. Using a dual cost function approach, we find that increases in public infrastructure capital, ceteris paribus, reduce private sector costs. We compute that amount of public infrastructure capital that would rationalize the cost savings incurred by the private business and manufacturing sectors, and find that the amount that can be rationalized in this manner is less than what was in fact available in 1988, but that the extent of excess public infrastructure capital has been falling in the 1980's.
Handle: RePEc:nbr:nberwo:3842
Template-Type: ReDIF-Paper 1.0
Title: Changing Social Security Survivorship Benefits and the Poverty of Widows
Author-Name: Michael D. Hurd
Author-Person: phu137
Author-Name: David A. Wise
Author-Person: pwi45
Note: AG
Number: 3843
Creation-Date: 1991-09
Order-URL: http://www.nber.org/papers/w3843
File-URL: http://www.nber.org/papers/w3843.pdf
File-Format: application/pdf
Publication-Status: published as The Economic Effects of Aging in the United States and Japan, Michael D. Hurd and Naohiro Yashiro, eds., pp. 319-332, (Chicago: University of Chicago Press, 1997).
Publication-Status: published as Changing Social Security Survivorship Benefits and the Poverty of Widows, Michael D. Hurd, David A. Wise. in The Economic Effects of Aging in the United States and Japan, Hurd and Yashiro. 1996
Abstract: The paper considers the effect on widows' poverty of changes in Social Security survivorship benefits, by a reduction in couples' benefits so that total Social Security cost is unchanged. A twenty percent increase in survivorship benefits, for example, would reduce the 1989 poverty rate of widows aged 65 to 69 by about twenty-four percent, from 0.25 to 0.19. The poverty rate of couples would be increased by about thirty-three percent, from about 0.06 to about 0.08.
Handle: RePEc:nbr:nberwo:3843
Template-Type: ReDIF-Paper 1.0
Title: Trigger Points and Budget Cuts: Explaining the Effects of Fiscal Austerity
Author-Name: Giuseppe Bertola
Author-Person: pbe54
Author-Name: Allan Drazen
Author-Person: pdr25
Note: EFG
Number: 3844
Creation-Date: 1991-09
Order-URL: http://www.nber.org/papers/w3844
File-URL: http://www.nber.org/papers/w3844.pdf
File-Format: application/pdf
Publication-Status: published as American Economic Review, vol. 83, no. 9, pp. 11-26 March 1993
Abstract: We propose and solve an optimizing model which explains counterintuitive effects of fiscal policy in terms of expectations. If government spending follows an upward-trending stochastic process which the public believes may fall sharply when it reaches specific "target points," then optimizing consumption behavior and simple budget constraint arithmetic imply a nonlinear relationship between private consumption and government spending. This theoretical relation is consistent with the experience of several countries.
Handle: RePEc:nbr:nberwo:3844
Template-Type: ReDIF-Paper 1.0
Title: Trade Adjustment Assistance and Pareto Gains From Trade
Author-Name: Robert C. Feenstra
Author-Person: pfe116
Author-Name: Tracy R. Lewis
Note: ITI IFM
Number: 3845
Creation-Date: 1991-09
Order-URL: http://www.nber.org/papers/w3845
File-URL: http://www.nber.org/papers/w3845.pdf
File-Format: application/pdf
Publication-Status: published as Journal of International Economics, vo. 36, no. 3/4, May 1994, pp. 201
Abstract: In a model where all factors of production are imperfectly mobile, we argue that the Dixit-Norman scheme of commodity taxes may not lead to strict Pareto gains from trade. Rather, this scheme must be augmented by policies which give factors an incentive to move: hence, the role for trade adjustment assistance (TAA). We demonstrate that by knowledge of the distribution of adjustment costs across individuals, the government can offer a single TAA subsidy to all individuals willing to move between industries, and maintain a non-negative budget. The TAA subsidy, combined with the Dixit-Norman pattern of commodity taxes, can lead to Pareto gains from trade under the conditions we identify.
Handle: RePEc:nbr:nberwo:3845
Template-Type: ReDIF-Paper 1.0
Title: Do Institutional Investors Destabilize Stock Prices? Evidence on Herding and Feedback Trading
Author-Name: Josef Lakonishok
Author-Name: Andrei Shleifer
Author-Person: psh93
Author-Name: Robert W. Vishny
Author-Person: pvi218
Note: ME
Number: 3846
Creation-Date: 1991-09
Order-URL: http://www.nber.org/papers/w3846
File-URL: http://www.nber.org/papers/w3846.pdf
File-Format: application/pdf
Publication-Status: published as "The Impact of Institutional Investors on Stock Prices", Journal of Financial Economics, August 1992, vol 32, no. 1, pp 23-43
Abstract: This paper uses a new data set of quarterly portfolio holdings of 769 all-equity pension funds between 1985 and 1989 to evaluate the potential effect of their trading on stock prices. We address two aspects of trading by money managers: herding, which refers to buying (selling) the same stocks as other managers buy (sell) at the same time; and positive-feedback trading, which refers to buying winners and selling losers. These two aspects of trading are commonly a part of the argument that institutions destabilize stock prices. At the level of individual stocks at quarterly frequencies, we find no evidence of substantial herding or positive-feedback trading by pension fund managers, except in small stocks. Also, there is no strong cross-sectional correlation between changes in pension funds' holdings of a stock and its abnormal return.
Handle: RePEc:nbr:nberwo:3846
Template-Type: ReDIF-Paper 1.0
Title: The Optimal Two-Bracket Linear Income Tax
Author-Name: Joel Slemrod
Author-Person: psl10
Author-Name: Shlomo Yitzhaki
Author-Person: pyi12
Author-Name: Joram Mayshar
Author-Person: pma2277
Note: PE
Number: 3847
Creation-Date: 1991-09
Order-URL: http://www.nber.org/papers/w3847
File-URL: http://www.nber.org/papers/w3847.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Public Economics, Vol. 53, no. 2 (February 1994): 269-290.
Abstract: We investigate the optimal rate structure of an income tax system that is constrained to have only two brackets, plus a demogrant. We find that, in a two-class economy, Pareto efficient tax schedules feature at least one marginal tax rate equal to zero, and that the marginal tax rate may be increasing or declining. We next use numerical optimization techniques to study the optimal structure of such a tax system in a multi-person model that is a stylized version of an actual economy. We discover that in all cases the tax rate in the second (higher) bracket is less than the tax rate that applies to the first bracket but that progressivity, in the sense of a uniformly rising average tax rate, generally obtains. Compared to the optimal one-bracket (linear) tax system, both the highest and lowest income individuals are better off, while a middle range of taxpayers is worse off.
Handle: RePEc:nbr:nberwo:3847
Template-Type: ReDIF-Paper 1.0
Title: Policy Uncertainty, Persistence and Growth
Author-Name: Joshua Aizenman
Author-Person: pai8
Author-Name: Nancy Marion
Author-Person: pma1464
Note: ITI IFM
Number: 3848
Creation-Date: 1991-09
Order-URL: http://www.nber.org/papers/w3848
File-URL: http://www.nber.org/papers/w3848.pdf
File-Format: application/pdf
Publication-Status: published as Review of International Economics, June 1993
Abstract: This paper explores links between policy uncertainty and growth. It provides evidence on the correlation between policy uncertainty and per capita real GDP for 46 developing countries over the 1970-85 period. Cross-section regressions on growth suggest that after accounting for standard variables from the endogenous growth literature, policy uncertainty and growth are correlated. The importance of the correlation and even its sign depend on the particular policy and on the geographical region examined. One channel through which policy uncertainty may affect growth is the investment channel. Using an endogenous growth model where domestic investment is characterized by irreversibilities and policy fluctuates between a high and lowtax regime, we show that the gap between the two regimes and the persistence of a regime jointly determine the pattern of investment and growth. Policy uncertainty in the absence of persistence does not affect long run growth.
Handle: RePEc:nbr:nberwo:3848
Template-Type: ReDIF-Paper 1.0
Title: World Interest Rates and Investment
Author-Name: Robert J. Barro
Author-Person: pba251
Note: EFG ME
Number: 3849
Creation-Date: 1991-09
Order-URL: http://www.nber.org/papers/w3849
File-URL: http://www.nber.org/papers/w3849.pdf
File-Format: application/pdf
Publication-Status: published as Barro, Robert J, 1992. " World Interest Rates and Investment," Scandinavian Journal of Economics, Blackwell Publishing, vol. 94(2), pages 323-42.
Abstract: In a world of integrated capital markets, the price of credit — which I measure by short-term expected real interest rates — is determined to equate the world aggregate of investment demand to the world aggregate of desired national saving. I implement this approach empirically by approximating the world by aggregates for ten major developed countries. For the period since 1959, the common component of expected real interest rates for these countries relates especially to developments on world stock and oil markets and secondarily, to world monetary and fiscal policies.
Handle: RePEc:nbr:nberwo:3849
Template-Type: ReDIF-Paper 1.0
Title: The Effects of Child Health on Marital Status
Author-Name: Hope Corman
Author-Name: Robert Kaestner
Author-Person: pka42
Note: EH
Number: 3850
Creation-Date: 1991-09
Order-URL: http://www.nber.org/papers/w3850
File-URL: http://www.nber.org/papers/w3850.pdf
File-Format: application/pdf
Publication-Status: published as Demography, Volume 29, No. 3,Vol. 29, Aug., 1992 pp.389-408
Abstract: The purpose of this paper is to provide evidence on the effect of child health on marital stability and family structure within an economic framework. We use the 1988 National Health Interview Survey's Child Health Supplement, with a sample of about 9,000 families to test whether having an unhealthy child decreases the mother's chance of being married, and whether it increases her chance of living in an extended family. Using two different measures of child health, we find that having an unhealthy child does decrease the mother's likelihood of being married. Our results are strongest for white women who were married at the time of the child's birth and for black women who were unmarried at that time. These results imply that children in poor health will, more likely, face obstacles beyond their illness, since they will also be more likely to suffer consequences of poverty and poor schooling outcomes which results when raised in a female headed household. The only mitigating factor is that, for white children, they will be more likely than healthy children to living in an extended family.
Handle: RePEc:nbr:nberwo:3850
Template-Type: ReDIF-Paper 1.0
Title: Factor Shares and Savings in Endogenous Growth
Author-Name: Giuseppe Bertola
Author-Person: pbe54
Note: EFG
Number: 3851
Creation-Date: 1991-09
Order-URL: http://www.nber.org/papers/w3851
File-URL: http://www.nber.org/papers/w3851.pdf
File-Format: application/pdf
Publication-Status: published as American Economic Review, vol. 83, no. 5, December 1993
Abstract: This paper studies the distributive effects of growth when different agents' income is drawn from accumulated and non-accumulated factors of production in different proportions, notes that political interactions may contribute to determine factor shares and growth when income sources are heterogeneous, and suggests that distributional issues should be taken into account both when formulating growth-oriented policy prescriptions and when interpreting the wide dispersion of growth rates across economies and over time.
Handle: RePEc:nbr:nberwo:3851
Template-Type: ReDIF-Paper 1.0
Title: Halting Inflation in Italy and France After World War II
Author-Name: Alessandra Casella
Author-Person: pca496
Author-Name: Barry Eichengreen
Author-Person: pei2
Note: ITI IFM
Number: 3852
Creation-Date: 1991-09
Order-URL: http://www.nber.org/papers/w3852
File-URL: http://www.nber.org/papers/w3852.pdf
File-Format: application/pdf
Publication-Status: published as Monetary Regimes in Transition Michael Bordo and Forrest Capie eds., Cambridge University Press: Cambridge , 1992
Abstract: In the aftermath of World War II, Italy and France experienced high inflation. The two countries enacted remarkably similar economic policy measures, but stabilization came at different times: for Italy at the end of 1947, for France a year later. Traditional explanations for the regained price stability cannot account for the difference in timing. In this paper, we use the international comparison to shed light on the nature of the inflationary process and on the cause of its decline. We conclude that inflation was symptomatic of an unresolved distributional conflict, and carne to an end when one political group, in both countries the Left, accepted its defeat. The Marshall plan helped to bring the stabilization about by reducing the costs to the group offering concessions. We argue that the French delay in stabilizing can be imputed to differences in the political climate and to the ambitious program of public investment.
Handle: RePEc:nbr:nberwo:3852
Template-Type: ReDIF-Paper 1.0
Title: The University in the Marketplace: Some Insights and Some Puzzles
Author-Name: Michael Rothschild
Author-Person: pro48
Author-Name: Lawrence J. White
Author-Person: pwh49
Note: PE
Number: 3853
Creation-Date: 1991-09
Order-URL: http://www.nber.org/papers/w3853
File-URL: http://www.nber.org/papers/w3853.pdf
File-Format: application/pdf
Publication-Status: published as Studies of Supply and Demand in HIgher Education Edited by Charles T. Clotfelter and Michael Rothschild The University of Chicago Press: 1993, pp. 11-37
Publication-Status: published as The University in the Marketplace: Some Insights and Some Puzzles, Michael Rothschild, Lawrence J. White. in Studies of Supply and Demand in Higher Education, Clotfelter and Rothschild. 1993
Abstract: Higher education has many of the attributes of a competitive industry. Many enterprises compete for inputs and sell similar outputs to a great variety of buyers. The competitive perspective has not been much used in the analysis of higher education. In this paper we find such a point of view yields both insights and puzzles. The familiar "stand alone" test from industrial organization casts doubt on the claim that undergraduate education subsidizes graduate education in the large research university; since institutions that sell both graduate and undergraduate education survive in competition with institutions that sell only undergraduate education, the claim of cross subsidization is hard to maintain. We note that the analysis of the use of prices to regulate admission to universities is complex because students are both inputs and outputs of the educational process. We note, but do not explain, some conspicuous failures of universities to use incentives and prices. Perhaps most interesting are the failures of research universities to reward excellent teaching (which has a clear" market value) and the failure of elite institutions, particularly professional schools, to exploit their preeminent market positions by charging a tuition which begins to capture the rents that graduation confers.
Handle: RePEc:nbr:nberwo:3853
Template-Type: ReDIF-Paper 1.0
Title: Changes in the Cyclical Sensitivity of Wages in the United States, 1891-1987
Author-Name: Steven G. Allen
Author-Person: pal6
Note: LS
Number: 3854
Creation-Date: 1991-09
Order-URL: http://www.nber.org/papers/w3854
File-URL: http://www.nber.org/papers/w3854.pdf
File-Format: application/pdf
Publication-Status: published as American Economic Review, March 1992, Volume 82, No. 1, pp. 122-140
Abstract: The conventional wisdom that nominal wages became less sensitive to the business cycle and more autocorrelated after World War II is reexamined here by considering whether these properties are artifacts of the methods used to construct prewar wage series. A replication based on these methods is more cyclically sensitive and exhibits less autocorrelation than the postwar data. Aggregation using variable instead of fixed employment weights also greatly exaggerates the cyclicality of prewar wages. These biases imply that wages are just as sensitive to the cycle today as 100 years ago, perhaps even more so.
Handle: RePEc:nbr:nberwo:3854
Template-Type: ReDIF-Paper 1.0
Title: Fiscal Federalism and Optimum Currency Areas: Evidence for Europe From the United States
Author-Name: Xavier Sala-i-Martin
Author-Person: psa510
Author-Name: Jeffrey Sachs
Note: ITI IFM
Number: 3855
Creation-Date: 1991-10
Order-URL: http://www.nber.org/papers/w3855
File-URL: http://www.nber.org/papers/w3855.pdf
File-Format: application/pdf
Publication-Status: published as De Grauwe, Paul (ed.) The political economy of monetary union, Elgar Reference Collection. International Library of Critical Writings in Economics, vol. 134. Cheltenham, U.K. and Northampton, MA: Elgar, 2001.
Abstract: The main goal of this paper is to estimate to what extent the federal government of the United States insures member states against regional income shocks. We find that a one dollar reduction in a region's per capita personal income triggers a decrease in federal taxes of about 34 cents and an increase in federal transfers of about 6 cents. Hence, the final reduction in disposable per capita income is on the order of 60 cents. That is, between one third and one half of the initial shock is absorbed by the federal government. The much larger reaction of taxes than transfers to these regional imbalances reflects the fact that the main mechanism at work is the federal income tax system which in turn means that the stabilization process is automatic rather than specifically designed each time there is a cyclical movement in income. Some economists may want to argue that this regional insurance scheme provided by the federal government is an important reason why the system of fixed exchange rates that exists within the United States today has survived without major problems. Under this view, the creation of a European Central Bank that issues unified European currency without the simultaneous introduction (or expansion) of a fiscal federalist system could put the project at risk. Rough calculations of the impact of the existing European tax system on regional income suggests that a one dollar shock to regional GDP will reduce tax payments to the EEC government by half a cent!. Hence, the current European tax system has a long way to go before it reaches the 34 cents of the U.S. Federal Government.
Handle: RePEc:nbr:nberwo:3855
Template-Type: ReDIF-Paper 1.0
Title: Another Look at the Evidence on Money-Income Causality
Author-Name: Benjamin M. Friedman
Author-Name: Kenneth N. Kuttner
Author-Person: pku75
Note: ME
Number: 3856
Creation-Date: 1991-10
Order-URL: http://www.nber.org/papers/w3856
File-URL: http://www.nber.org/papers/w3856.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Econometrics, Volume 57, Issues 1-3, pp. 189-203, (May-June 1993)
Abstract: Stock and Watson's widely noted finding that money has statistically significant marginal predictive power with respect to real output (as measured by industrial production), even in a sample extending through 1985 and even in the presence of a short-term interest rate, is not robust to two plausible changes. First, extending the sample through 1990 renders money insignificant within Stock and Watson's chosen specification. Second, using the commercial paper rate in place of the Treasury bill rate renders money insignificant even in the sample ending in 1985. A positive finding is that the difference between the commercial paper rate and the Treasury bill rate does have highly significant predictive value for real output, even in the presence of money, regardless of sample. Alternative results based on forecast error variance decomposition in a vector autoregression setting confirm these findings by indicating a small and generally insignificant effect of money, and a large, highly significant effect of the paper-bill spread, on real output.
Handle: RePEc:nbr:nberwo:3856
Template-Type: ReDIF-Paper 1.0
Title: Unobserved Ability, Efficiency Wages, and Interindustry Wage Differentials
Author-Name: McKinley Blackburn
Author-Person: pbl77
Author-Name: David Neumark
Author-Person: pne16
Note: LS
Number: 3857
Creation-Date: 1991-10
Order-URL: http://www.nber.org/papers/w3857
File-URL: http://www.nber.org/papers/w3857.pdf
File-Format: application/pdf
Publication-Status: published as Quarterly Journal of Economics. Volume 107, Issue 4, November 1992, pp. 1421-36
Abstract: Interindustry wage differentials in wage regressions estimated for individuals have been interpreted as evidence consistent with efficiency wage models. A principal competing explanation is that these differentials are generated by differences across workers in unobserved ability. This paper tests the unobserved ability hypothesis .by incorporating test scores into standard wage regressions as error-ridden indicators of unobserved ability. The results indicate that differences in unobserved ability explain relatively little of interindustry or interoccupation wage differentials.
Handle: RePEc:nbr:nberwo:3857
Template-Type: ReDIF-Paper 1.0
Title: How Computers Have Changed the Wage Structure: Evidence From Microdata, 1984-1989
Author-Name: Alan B. Krueger
Author-Person: pkr63
Note: LS
Number: 3858
Creation-Date: 1991-10
Order-URL: http://www.nber.org/papers/w3858
File-URL: http://www.nber.org/papers/w3858.pdf
File-Format: application/pdf
Publication-Status: published as The Quarterly Journal of Economics, 108, no. 1, February 1993, pp. 33-61
Abstract: This paper examines whether employees who use a computer at work earn a higher wage rate than otherwise similar workers who do not use a computer at work. The analysis primarily relies on data from the Current Population Survey and the High School and Beyond Survey. A variety of statistical models are estimated to try to correct for unobserved variables that might be correlated with both job-related computer use and earnings. The estimates suggest that workers who use computers on their job earn roughly a 10 to 15 percent higher wage rate. In addition, the estimates suggest that the expansion in computer use in the l980s can account for between one-third and one-half of the observed increase in the rate of return to education, Finally, occupations that experienced greater growth in computer use between 1984 and 1989 also experienced above average wage growth.
Handle: RePEc:nbr:nberwo:3858
Template-Type: ReDIF-Paper 1.0
Title: Evidence on Employment Effects of Minimum Wages and Subminimum Wage Provisions From Panel Data on State Minimum Wage Laws
Author-Name: David Neumark
Author-Person: pne16
Author-Name: William Wascher
Note: LS
Number: 3859
Creation-Date: 1991-10
Order-URL: http://www.nber.org/papers/w3859
File-URL: http://www.nber.org/papers/w3859.pdf
File-Format: application/pdf
Publication-Status: published as Neumark, David and Wascher, William (2004) "Minimum Wages, Labor Market Institutions, and Youth Employment: A Cross-National Analysis," Industrial & Labor Relations Review, Vol. 57, No. 2, article 4. p. 55-81
Abstract: We construct a panel data set on state-level minimum wage laws and economic conditions to reevaluate existing evidence on minimum wage effects on employment, most of which comes from time-series data. Our estimates of the elasticities of teen and young-adult employment-to-population ratios fall primarily in the range -0.1 to -0.2, similar to the consensus range of estimates from time-series studies. We also find evidence that youth subminimum wage provisions enacted by state legislatures have moderated the disemployment effects of minimum wages.
Handle: RePEc:nbr:nberwo:3859
Template-Type: ReDIF-Paper 1.0
Title: The European Central Bank: Reshaping Monetary Politics in Europe
Author-Name: Alberto Alesina
Author-Person: pal207
Author-Name: Vittorio Grilli
Note: ITI ME IFM
Number: 3860
Creation-Date: 1991-10
Order-URL: http://www.nber.org/papers/w3860
File-URL: http://www.nber.org/papers/w3860.pdf
File-Format: application/pdf
Publication-Status: published as in Canzoneri, M., V. Grilli and P. Masson (eds.) "Establishing a Central Bank: Issues in Europe and Lessons from the U.S." Cambridge University Press, 1992. pages 49-76
Abstract: This paper studies how the creation of a European Central Bank (ECB) will change the political economy of monetary policy in Europe. The twelve governors of the national Central Banks of the EEC have recently proposed a statute for the ECB which delineates its institutional structure. In this paper, we discuss the likely consequences of this statute on the conduct of monetary policy at the European level, particularly from the point of view of the trade-off between inflation and stabilization. We analyze the role of political independence of the ECB and the effect of voting rules for the appointments of the ECB board members on policy choices.
Handle: RePEc:nbr:nberwo:3860
Template-Type: ReDIF-Paper 1.0
Title: On Biases in the Measurement of Foreign Exchange Risk Premiums
Author-Name: Geert Bekaert
Author-Person: pbe52
Author-Name: Robert J. Hodrick
Author-Person: pho115
Note: ITI AP IFM
Number: 3861
Creation-Date: 1991-10
Order-URL: http://www.nber.org/papers/w3861
File-URL: http://www.nber.org/papers/w3861.pdf
File-Format: application/pdf
Publication-Status: published as Journal of International Money and Finance, Vol.12, no.2 (April 1993): 115-138.
Abstract: The hypothesis that the forward rate is an unbiased predictor of the future spot rate has been consistently rejected in recent empirical studies. This paper examines several sources of measurement error and misspecification that might induce biases in such studies. Although previous inferences are shown to be robust to a failure to construct true returns and to omitted variable bias arising from conditional heteroskedasticity in spot rates, we show that the parameters were not stable over the 1975-1989 sample period. Estimation that allows for endogenous regime shifts in the parameters demonstrates that deviations from unbiasedness were more severe in the 1980's.
Handle: RePEc:nbr:nberwo:3861
Template-Type: ReDIF-Paper 1.0
Title: Stock Price Manipulation, Market Microstructure and Asymmetric Information
Author-Name: Franklin Allen
Author-Person: pal67
Author-Name: Gary Gorton
Author-Person: pgo458
Note: AP
Number: 3862
Creation-Date: 1991-10
Order-URL: http://www.nber.org/papers/w3862
File-URL: http://www.nber.org/papers/w3862.pdf
File-Format: application/pdf
Publication-Status: published as European Economic Review, Vol. 36, nos. 2/3 (April 1992): 624-630.
Publication-Status: published as Franklin Allen, Stephen Morris and Andrew Postlewaite, "Finite Bubbles with Short Sale Constraints and Asymmetric Information," Journal of Economic Theory, Vol. 61, no. 2 (December 1993): 206-229.
Abstract: In recent years, there has been a large literature on how stock exchange specialists set prices when there are investors who know more about the stock than they do. An important assumption in this literature is that there are *liquidity traders* who are equally likely to buy or sell for exogenous reasons. It is plausible that some buyers have cash needs and are forced to sell their stock. However, buyers will usually be able to choose the time at which they trade. It will be optimal for them to minimize the probability of trading with informed investors by choosing an appropriate time to trade and clustering at that time. This asymmetry means that when liquidity buyers are not clustering, purchases are more likely to be by an informed trader than sales so the price movement resulting from a purchase is larger than for a sale. As a result, profitable manipulation by uninformed investors may occur. A model where the specialist takes account of the possibility of manipulation in equilibrium is presented.
Handle: RePEc:nbr:nberwo:3862
Template-Type: ReDIF-Paper 1.0
Title: What is a Business Cycle?
Author-Name: Victor Zarnowitz
Note: EFG
Number: 3863
Creation-Date: 1991-10
Order-URL: http://www.nber.org/papers/w3863
File-URL: http://www.nber.org/papers/w3863.pdf
File-Format: application/pdf
Publication-Status: published as The Business Cycle: Theories and Evidence, edited by Michael T. Belongia and Michelle R. Garfinkel, pp. 3-72. Boston, MA: Kluwer Academic Publishers, 1992.
Abstract: This paper considers the question in its title from several angles. Part 1 looks at economic history and the development of thinking about business cycles - the popular meaning and economists' definitions and ideas. Part 2 reviews the lessons from business cycle chronologies and duration data, the concepts of periodicity of cycles and phases, and the apparent moderation of macroeconomic fluctuations in the second half of the 20th century. Part 3 compares the recent business cycles and growth cycles for several major industrialized, market-oriented countries. Part 4 discusses the role of endogenous cyclical variables, the outside shocks of various types, the systematic timing sequences, and the regularities of cyclical comovements and amplitudes. Understanding business cycles is aided by each of these models of analysis. Business cycles have varied greatly over the past 200 years in length, spread, and size. At the same time, they are distinguished by their recurrence, persistence, and pervasiveness. They make up a class of varied, complex, and evolving phenomena of both history and economic dynamics. Theories or models that try to reduce them to a single causal mechanism or shock are unlikely to succeed.
Handle: RePEc:nbr:nberwo:3863
Template-Type: ReDIF-Paper 1.0
Title: Flexibility, Investment, and Growth
Author-Name: Giuseppe Bertola
Author-Person: pbe54
Note: EFG
Number: 3864
Creation-Date: 1991-10
Order-URL: http://www.nber.org/papers/w3864
File-URL: http://www.nber.org/papers/w3864.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Monetary Economics, vol 34, 1994, pp 215-238
Abstract: This paper proposes a model of diversifiable uncertainty, irreversible investment decisions, and endogenous growth. The detailed microeconomic structure of the model makes it possible to study the general equilibrium effects of obstacles to labor mobility. Labor mobility costs reduce private returns to investment, imply a slower rate of endogenous growth, and unambiguously lower a representative agent's welfare. If external effects are disregarded, restricted labor mobility may be consistent with higher wage levels in full employment equilibrium: this may help explain why labor's political representatives often tend to decrease labor mobility in reality, rather than to enhance it. The lower growth rate of "disembodied" productivity, however, implies slower wage growth in equilibrium, with negative welfare effects even for agents who own only labor.
Handle: RePEc:nbr:nberwo:3864
Template-Type: ReDIF-Paper 1.0
Title: Irreversibility and Aggregate Investment
Author-Name: Giuseppe Bertola
Author-Person: pbe54
Author-Name: Ricardo J. Caballero
Author-Person: pca44
Note: EFG
Number: 3865
Creation-Date: 1991-10
Order-URL: http://www.nber.org/papers/w3865
File-URL: http://www.nber.org/papers/w3865.pdf
File-Format: application/pdf
Publication-Status: published as Review of Economic Studies, vol 61, no 2, pp 223-246, April 1994
Abstract: Investment is often irreversible, in that installed capital has little or no value unless used in production. In the presence of ongoing uncertainty, an individual firm's irreversible investment policy optimally alternates short bursts of positive gross investment to periods of inaction, when the installed capital stock is allowed to depreciate. The behavior of aggregate investment series is characterized by sluggish, continuous adjustment instead. We argue in this paper that aggregate dynamics should be interpreted in terms of unsynchronized irreversible investment decisions by heterogenous firms, rather than in terms of ad-hoc adjustment cost functions in a representative-agent framework. We propose a closed-form solution for a realistic model of sequential irreversible investment, characterize the aggregate implications of microeconomic irreversibility and idiosyncratic uncertainty, and interpret U.S. data in light of the theoretical results.
Handle: RePEc:nbr:nberwo:3865
Template-Type: ReDIF-Paper 1.0
Title: Labor Turnover Costs and Average Labor Demand
Author-Name: Giuseppe Bertola
Author-Person: pbe54
Note: EFG
Number: 3866
Creation-Date: 1991-10
Order-URL: http://www.nber.org/papers/w3866
File-URL: http://www.nber.org/papers/w3866.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Labor Economics Volume 10, No. 4, October 1992, pp. 380-388
Abstract: This paper studies simple partial equilibrium models of dynamic labor demand, under certainty. Labor turnover costs may or may not decrease the firm's average labor demand, depending on the form of the revenue function, on the rates of discount and of labor attrition, and on the relative size of hiring and firing costs. With strictly positive discount and labor attrition rates, the firm's optimal policy is partially myopic, and firing costs may well increase average employment even when hiring costs reduce it.
Handle: RePEc:nbr:nberwo:3866
Template-Type: ReDIF-Paper 1.0
Title: Has Macro-Forecasting Failed?
Author-Name: Victor Zarnowitz
Note: EFG
Number: 3867
Creation-Date: 1991-10
Order-URL: http://www.nber.org/papers/w3867
File-URL: http://www.nber.org/papers/w3867.pdf
File-Format: application/pdf
Abstract: The answer to this question depends on the treatment of logically and empirically prior questions about (1) what the forecasts are and why they are needed, and (2) what can reasonably be expected of them. Further, what forecasters can and should do cannot be established without studying the record and assessing the probable future of their endeavors. Accordingly, the basic approach taken in this paper is to ask of the assembled data what professional standards have economists engaged in macro-forecasting been able to attain and maintain in competing with each other and alternative methods. There is much disenchantment with economic forecasting. The difficult question is how much of it is due to unacceptably poor performance and how much to unrealistically high prior expectations. My argument is that the latter is a major factor. In times of continuing expansion with restrained inflation, as in the 1960s, macro-forecasts looked good and economists were held in high repute. Later when inflation accelerated, serious recessions reappeared, and long-term growth of productivity and total output slackened, the errors of macroeconomic models and forecasts, and the old and new controversies among the economists, received increased public attention. The reputation of the profession suffered, and the interest of academic economists in forecasting, never very strong, weakened still more. Yet the performance of professional economic forecasters, when assessed proper relative terms, has been considerably better in recent times than in the earlier post-World War II period. What happened is that the improvements fell short of enabling the forecasters to cope with the new problems they faced.
Handle: RePEc:nbr:nberwo:3867
Template-Type: ReDIF-Paper 1.0
Title: Private Versus Socially Optimal Provision of Ex Ante Legal Advice
Author-Name: Louis Kaplow
Author-Person: pka44
Author-Name: Steven Shavell
Author-Person: psh42
Note: LE
Number: 3868
Creation-Date: 1991-10
Order-URL: http://www.nber.org/papers/w3868
File-URL: http://www.nber.org/papers/w3868.pdf
File-Format: application/pdf
Publication-Status: published as The Journal of Law, Economics, & Organization, Vol. 8, No. 2, pp. 306-320,(1992).
Abstract: This article considers whether the demand for legal advice about potential liability for future acts is socially excessive. using the standard model of accidents, we find that the answer depends on the type of advice and the form of liability. When advice provides information about properly determined liability, the demand for advice is socially optimal under strict liability but is socially excessive under the negligence rule. When advice identifies errors the legal system is expected to make, the demand for advice is socially excessive under both liability rules.
Handle: RePEc:nbr:nberwo:3868
Template-Type: ReDIF-Paper 1.0
Title: Endogenous Macroeconomic Growth Theory
Author-Name: Elhanan Helpman
Author-Person: phe205
Note: EFG
Number: 3869
Creation-Date: 1991-10
Order-URL: http://www.nber.org/papers/w3869
File-URL: http://www.nber.org/papers/w3869.pdf
File-Format: application/pdf
Publication-Status: published as European Economic Review 36, pp. 237-267 (1992).
Abstract: The paper focuses on the innovation-based approach to endogenous growth. It begins by spelling out conditions for sustained long-run growth in neoclassical economies and uses these conditions as a standard of comparison for the conditions required to sustain long-run growth in economies with product innovation. It presents two models of product innovation that can sustain growth in the long run. The models share the same fundamental mechanism of economic growth. They are used to derive a variety of implications relating structural features to long-run growth rates and they are then applied to a number of policy issues. The usefulness of the approach represented by these models is examined by considering a number of issues, such as unemployment and trade relations.
Handle: RePEc:nbr:nberwo:3869
Template-Type: ReDIF-Paper 1.0
Title: Patent Races, Product Standards, and International Competition
Author-Name: Richard A. Jensen
Author-Name: Marie Thursby
Author-Person: pth283
Note: ITI IFM
Number: 3870
Creation-Date: 1991-10
Order-URL: http://www.nber.org/papers/w3870
File-URL: http://www.nber.org/papers/w3870.pdf
File-Format: application/pdf
Publication-Status: published as International Economic Review, Volume 37, #1, pp. 21-49, February 1996
Abstract: We examine anticipatory product standards intended to improve the strategic position of firms in an international patent race where firms do R&D to develop products that are close substitutes. The effects of a standard are shown to depend on the way the standard is specified, which firm develops which product, and on the order in which products are discovered. Simple standards are, in general, time inconsistent because of consumer losses that occur when products ruled out by the standard are discovered before the product set as the standard. A state contingent standard is shown to be time consistent when compulsory licensing by the foreign firm is introduced.
Handle: RePEc:nbr:nberwo:3870
Template-Type: ReDIF-Paper 1.0
Title: Younger Households Saving: Evidence From Japan and Italy
Author-Name: Albert Ando
Author-Name: Luigi Guiso
Author-Person: pgu58
Author-Name: Daniele Terlizzese
Author-Person: pte106
Author-Name: Daniel Dorsainvil
Note: ITI IFM
Number: 3871
Creation-Date: 1991-10
Order-URL: http://www.nber.org/papers/w3871
File-URL: http://www.nber.org/papers/w3871.pdf
File-Format: application/pdf
Publication-Status: published as Scandinavian Journal of Economics, Vol. 2, (1991).
Abstract: Both young and old consumers appear to dissave too little for their behaviour to be consistent with a strict life cycle model. We concentrate on young households and document their behaviour drawing from Italian and Japanese data. We also provide a theoretical set-up which can account for the observed fact without relying on assumptions about the working of credit markets or the degree of foresight of consumers.
Handle: RePEc:nbr:nberwo:3871
Template-Type: ReDIF-Paper 1.0
Title: Hospital Costs and the Cost of Empty Hospital Beds
Author-Name: Martin Gaynor
Author-Person: pga1
Author-Name: Gerard F. Anderson
Note: EH
Number: 3872
Creation-Date: 1991-10
Order-URL: http://www.nber.org/papers/w3872
File-URL: http://www.nber.org/papers/w3872.pdf
File-Format: application/pdf
Publication-Status: Published as "Uncertain Demand, the Structure of Hospital Costs, and the Cost of Empty Hospital Beds", Journal of Health Economics, Vol. 14, no. 3 (1995): 291-317.
Abstract: The cost of excess capacity in the hospital industry has reemerged as an important policy issue. Utilized capacity in the hospital industry, as measured by the inpatient hospital bed occupancy rate, has declined over the past 10 years and now stands at approximately 65 percent. Congress and the Administration are concerned that the costs associated with empty beds represent wasteful expense and have proposed an adjustment to Medicare payment rates which will penalize hospitals with low occupancy rates. Hospitals, on the other hand, have indicated that the costs of empty hospital beds are low and that reimbursement adjustments are unnecessary. In order to provide more current and representative estimates of the cost of an empty hospital bed we estimate the cost function model of Friedman and Pauly using data from a national sample of 5315 hospitals for the years 1963-1987. We find that empty beds account for approximately 18 percent of total costs, or $546 per admission (1987 dollars) . The estimate (in 1987 dollars) of the coat of an empty hospital bed is approximately $36,000.
Handle: RePEc:nbr:nberwo:3872
Template-Type: ReDIF-Paper 1.0
Title: Asset Pricing and Intrinsic Values: A Review Essay
Author-Name: Bruce N. Lehmann
Note: AP
Number: 3873
Creation-Date: 1991-10
Order-URL: http://www.nber.org/papers/w3873
File-URL: http://www.nber.org/papers/w3873.pdf
File-Format: application/pdf
Publication-Status: published as Lehmann, Bruce N., 1991. "Asset pricing and intrinsic values : A review essay," Journal of Monetary Economics, Elsevier, vol. 28(3), pages 485-500, December.
Abstract: The efficient markets hypothesis has dominated modern research on asset prices. Asset prices and their intrinsic values differ in inefficient financial markets but difficulties in the measurement of intrinsic value greatly complicate market efficiency tests. Reflections on the measurement of intrinsic value provide insight into the interpretation of existing evidence and suggestions for generating new evidence on market efficiency. This review essay on the state of knowledge about market efficiency focuses on "A Reappraisal of the Efficiency of Financial Markets", analyzing the research areas from this perspective: (1) short-run stock return predictability; (2) asset pricing anomalies; and (3) excess volatility and present value relations.
Handle: RePEc:nbr:nberwo:3873
Template-Type: ReDIF-Paper 1.0
Title: Housing and Saving in the United States
Author-Name: Jonathan Skinner
Author-Person: psk23
Note: PE
Number: 3874
Creation-Date: 1991-10
Order-URL: http://www.nber.org/papers/w3874
File-URL: http://www.nber.org/papers/w3874.pdf
File-Format: application/pdf
Publication-Status: published as Housing Markets in the United States and Japan, Yukio Noguchi and James M. Poterba, University of Chicago Press, Chicago, 1994
Publication-Status: published as Housing and Saving in the United States, Jonathan S. Skinner. in Housing Markets in the United States and Japan, Noguchi and Poterba. 1994
Abstract: The efficient markets hypothesis has dominated modern research on asset prices. Asset prices and their intrinsic values differ in inefficient financial markets but difficulties in the measurement of intrinsic value greatly complicate market efficiency tests. Reflections on the measurement of intrinsic value provide insight into the interpretation of existing evidence and suggestions for generating new evidence on market efficiency. This review essay on the state of knowledge about market efficiency focuses on "A Reappraisal of the Efficiency of Financial Markets", analyzing the research areas from this perspective: (1) short-run stock return predictability; (2) asset pricing anomalies; and (3) excess volatility and present value relations.
Handle: RePEc:nbr:nberwo:3874
Template-Type: ReDIF-Paper 1.0
Title: Crime and the Employment of Disadvantaged Youths
Author-Name: Richard B. Freeman
Author-Person: pfr23
Note: LS
Number: 3875
Creation-Date: 1991-10
Order-URL: http://www.nber.org/papers/w3875
File-URL: http://www.nber.org/papers/w3875.pdf
File-Format: application/pdf
Publication-Status: published as Peterson, George and Wayne Vroman (eds.) Urban Labor Markets and Job Opportunity. Washington, DC: Urban Institute Press, 1992.
Abstract: This paper examines the magnitude of criminal activity among disadvantaged youths in the 1980s. It shows that a large proportion of youths who dropped out of high school, particularly black school dropouts, developed criminal records in the decade; and that those who were incarcerated in 1980 or earlier were much less likely to hold jobs than other youths over the entire decade. The magnitudes of incarceration, probation, and parole among black dropouts, in particular, suggest that crime has become an intrinsic part of the youth unemployment and poverty problem, rather than deviant behavior on the margin. Limited evidence on the returns to crime suggest that with the decline in earnings and employment for less educated young men, crime offers an increasingly attractive alternative.
Handle: RePEc:nbr:nberwo:3875
Template-Type: ReDIF-Paper 1.0
Title: Financial Repression and Economic Growth
Author-Name: Nouriel Roubini
Author-Person: pro145
Author-Name: Xavier Sala-i-Martin
Author-Person: psa510
Note: EFG
Number: 3876
Creation-Date: 1991-10
Order-URL: http://www.nber.org/papers/w3876
File-URL: http://www.nber.org/papers/w3876.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Development Economics, 1992.
Abstract: We survey the literatures that study the relation between the trade regime and growth and financial development, financial repression, and growth. We analyze the relation between the trade regime, the degree of financial development and the growth performance of a large cross section of countries. The systematic finding is that there is a negative relation between trade distortions and growth. We also present some variables that capture the degree to which the financial sector is distorted. We find that financial repression has negative consequences for growth. We also find that inflation- is negatively related to growth. We interpret this relation, however, as symptomatic rather than causal. We show that once we hold constant measures of the trade regime and financial repression, the regional dummies for Latin America are no longer significant. Thus, the poor performance of the Latin American countries over the last few decades is related to the trade and financial policies pursued by their governments.
Handle: RePEc:nbr:nberwo:3876
Template-Type: ReDIF-Paper 1.0
Title: The Consequences of Minimum Wage Laws: Some New Theoretical Ideas
Author-Name: James B. Rebitzer
Author-Person: pre77
Author-Name: Lowell J. Taylor
Author-Person: pta912
Note: LS
Number: 3877
Creation-Date: 1991-10
Order-URL: http://www.nber.org/papers/w3877
File-URL: http://www.nber.org/papers/w3877.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Public Economics, Vol. 56, no. 2 (1995): 245-255.
Abstract: Economists generally agree that the immediate and direct effect of a binding minimum wage law is to move firms backward along the demand curve for low skill workers. However, this prediction of worker displacement depends critically on a model of firm behavior that abstracts from problems of work incentives. In this paper we re-examine the theoretical basis for the consensus view of minimum wage laws. The central finding is that when firms use the threat of dismissal to elicit high levels of work effort, an increase in the minimum wage may have the immediate and direct effect of increasing the level of employment in low wage jobs. The formal logic of our model is similar to that found in the model of labor demand under monopsony. However, unlike the monopsony model, the positive employment effect of the minimum wage emerges in a labor market comprised of a large number of firms competing for the labor services of identical workers.
Handle: RePEc:nbr:nberwo:3877
Template-Type: ReDIF-Paper 1.0
Title: Why Were Poverty Rates So High in the 1980s?
Author-Name: Rebecca M. Blank
Author-Person: pbl56
Note: LS
Number: 3878
Creation-Date: 1991-10
Order-URL: http://www.nber.org/papers/w3878
File-URL: http://www.nber.org/papers/w3878.pdf
File-Format: application/pdf
Publication-Status: published as Papadimitrious, Dimitri B. and Edward N. Wolff (eds.) Poverty and Prosperity in the US in the Late Twentieth Century. London: Macmillan Press, 1993.
Abstract: This paper explores the relationship between the macroeconomy and the poverty rate. The first section provides evidence that poverty was far less responsive to macroeconomic growth in the 1980s than it had been in earlier decades. The section explores and rejects four reasons for this: It is not due to the exclusion of in-kind income from the data, to the regional location of the poor, to the public assistance changes of the early 1980s, or to the changing demographic composition of the poor. Instead, it is almost entirely due to declines in real wages that occur among low-wage workers over the 1980s. In fact, employment and weeks of work per year within low-income households expands more rapidly in the 1980s than in the 1960s. This is almost entirely offset, however, by declines in weekly earnings at the bottom of the income distribution. The result is that economic growth has been a far less effective anti-poverty tool over the past decade.
Handle: RePEc:nbr:nberwo:3878
Template-Type: ReDIF-Paper 1.0
Title: Why Does the Paper-Bill Spread Predict Real Economic Activity?
Author-Name: Benjamin M. Friedman
Author-Name: Kenneth N. Kuttner
Author-Person: pku75
Note: ME
Number: 3879
Creation-Date: 1991-10
Order-URL: http://www.nber.org/papers/w3879
File-URL: http://www.nber.org/papers/w3879.pdf
File-Format: application/pdf
Publication-Status: published as Business Cycles, Indicators and Forecasting, Edited by James Stock and Mark Watson, Studies in Business Cycles Vol. 28, Chicago: University of Chicago Press, 1993
Publication-Status: published as Why Does the Paper-Bill Spread Predict Real Economic Activity?, Benjamin M. Friedman, Kenneth Kuttner. in Business Cycles, Indicators, and Forecasting, Stock and Watson. 1993
Abstract: Evidence based on the past three decades of U.S. experience shows that the difference between the interest rates on commercial paper and Treasury bills has consistently borne a systematic relationship to subsequent fluctuations of nonfinancial economic activity. This interest rate spread typically widens in advance of recessions, and narrows again before recoveries. The relationship remains valid even after allowance for other financial variables that previous researchers have often advanced as potential business cycle predictors. This paper provides support for each of three different explanations for this predictive power of the paper?bill spread. First, changing perceptions of default risk exert a clearly recognizable influence on the spread. This influence is all the more discernable after allowance for effects associated with the changing volume of paper issuance when investors view commercial paper and Treasury bills as imperfect portfolio substitutes -- a key assumption for which the evidence introduced here provides support. Second, again under conditions of imperfect substitutability, a widening paper-bill spread is also a symptom of the contraction in bank lending due to tighter monetary policy. Third, there is also evidence of a further role for independent changes in the behavior of borrowers in the commercial paper market due to their changing cash requirements over the course of the business cycle.
Handle: RePEc:nbr:nberwo:3879
Template-Type: ReDIF-Paper 1.0
Title: Are Real House Prices Likely to Decline by 47 Percent?
Author-Name: Patric H. Hendershott
Note: ME
Number: 3880
Creation-Date: 1991-10
Order-URL: http://www.nber.org/papers/w3880
File-URL: http://www.nber.org/papers/w3880.pdf
File-Format: application/pdf
Publication-Status: published as Regional Science and Urban Economics, January 1992, pp. 553-563
Abstract: Mankiw and Weil have estimated a demographically-driven real house price equation on annual data from the 1947-87 period and used it to forecast real house prices over the 1988-2007 period. The result is their infamous 47 percent real decline. Their equation really only fits data from the 1950s and 1960s. Not only is the post 1970 fit poor, but the cumulative in-sample forecast for the 1970-87 period is off by a factor of four. While real house prices seem more likely to decline than increase over the next two decades, the most likely decline is 10 to 15 percent, not 47 percent.
Handle: RePEc:nbr:nberwo:3880
Template-Type: ReDIF-Paper 1.0
Title: From Sharp Stabilization to Growth: On the Political Economy of Israel's Transition
Author-Name: Michael Bruno
Note: ITI IFM
Number: 3881
Creation-Date: 1991-10
Order-URL: http://www.nber.org/papers/w3881
File-URL: http://www.nber.org/papers/w3881.pdf
File-Format: application/pdf
Publication-Status: published as European Economic Review, Vol. 36, nos. 2/3 (1992): 310-319.
Abstract: The paper considers the interplay of the design and execution of stabilization policy and structural reform with the role of various agents and pressure groups in a democracy. The context is the political economy of Israel's transition from a successful stabilization to a renewed growth process whose sustainability is yet to be attained. Particular emphasis is put on the role of Central Bank independence, the fight over the budget and over the role of the exchange rate in the aftermath of a sharp stabilization, and the process of financial and capital market reform. The analysis was done from the point of view and temporary role of an academic as a policy-maker, in this case as the Governor of the Central Bank and Senior Advisor to the government.
Handle: RePEc:nbr:nberwo:3881
Template-Type: ReDIF-Paper 1.0
Title: Pension Substitution in the 1980s: Why the Shift Toward Defined Contribution Pension Plans?
Author-Name: Douglas L. Kruse
Author-Person: pkr335
Note: LS
Number: 3882
Creation-Date: 1991-10
Order-URL: http://www.nber.org/papers/w3882
File-URL: http://www.nber.org/papers/w3882.pdf
File-Format: application/pdf
Publication-Status: published as Industrial Relations, Vol. 34, no. 2 (April 1995): 218-241.
Abstract: The relative decline of defined benefit (DB) pension plans, and growth of defined contribution (DC) plans, has been often noted but not extensively explored. This paper reports on the construction of a new longitudinal company-based dataset on pension plans for the years 1980-86 (including all U.S. companies with large plans, and a 10% sample of companies with small plans, within this period). Among the findings are that the decline in DB coverage is primarily due to fewer participants in companies maintaining such plans, while very little of the growth in DC coverage is due to companies terminating DB plans. Also, multinomial logit analysis of manufacturing company choices indicates that the higher administrative costs of DB plans play a statistically significant, but small, role in their decline, while new pension adopters in less stable industries are more likely to choose DC plans.
Handle: RePEc:nbr:nberwo:3882
Template-Type: ReDIF-Paper 1.0
Title: Do Labor Markets Provide Enough Short Hour Jobs? An Analysis of Work Hours and Work Incentives
Author-Name: James B. Rebitzer
Author-Person: pre77
Author-Name: Lowell J. Taylor
Author-Person: pta912
Note: LS
Number: 3883
Creation-Date: 1991-10
Order-URL: http://www.nber.org/papers/w3883
File-URL: http://www.nber.org/papers/w3883.pdf
File-Format: application/pdf
Publication-Status: published as Economic Inquiry, Vol. 33, no. 2 (1995): 257-273.
Abstract: This paper examines the role that work incentives play in the determination of work hours. Following previous research by Lang (1989), we use a conventional efficiency wage model to analyze how firms respond to worker preferences regarding wage-hours packages. We find that when workers are homogeneous, the role of worker preferences in determining work hours is similar to the simple neoclassical model of labor supply. For instance, if worker preferences shift in favor of shorter hours, firms will respond by offering jobs entailing shorter hours. When workers have heterogeneous preferences, however, employers will want to use a worker's hours preferences as a signal for the responsiveness of the worker to the work incentives used by the firm, and workers in turn may not reveal their hours preferences. Our key finding in this instance is that the labor market equilibrium may be characterized by a sub-optimal number of short-hour jobs. This shortage of short-hour jobs is likely to be found in high wage labor markets.
Handle: RePEc:nbr:nberwo:3883
Template-Type: ReDIF-Paper 1.0
Title: National Health Insurance Revisited
Author-Name: Victor R. Fuchs
Author-Person: pfu157
Note: EH
Number: 3884
Creation-Date: 1991-10
Order-URL: http://www.nber.org/papers/w3884
File-URL: http://www.nber.org/papers/w3884.pdf
File-Format: application/pdf
Publication-Status: published as Health Affairs, Volume 10, No. 4, pp. 10-17, winter 1991
Abstract: This paper explains why one in seven Americans has no health insurance, and compares the casualty and the social insurance models of health insurance. The paper discusses the relationship among national health insurance (NHI) , the cost of care, and the health of the population, and it considers the prospects for NHI in the United States in the short and the long run. Four explanations for the absence of NHI in the United States distrust of government, heterogeneity of the population, a robust voluntary sector, and lack of noblesse oblige -- are evaluated in the light of recent political, social, and economic trends.
Handle: RePEc:nbr:nberwo:3884
Template-Type: ReDIF-Paper 1.0
Title: The Reincarnation of Keynesian Economics
Author-Name: N. Gregory Mankiw
Note: ME EFG
Number: 3885
Creation-Date: 1991-10
Order-URL: http://www.nber.org/papers/w3885
File-URL: http://www.nber.org/papers/w3885.pdf
File-Format: application/pdf
Publication-Status: published as European Economic Review, Vol. 36, pp. 559-565, (1992).
Abstract: This paper discusses the reemergence of Keynesian economics during the past decade. It highlights the substantial differences between new Keynesian economics and the convictions of early Keynesians. In particular, it points out that new Keynesians have adopted many views that were once considered "monetarist" or "classical." It concludes that the term "Keynesian" may have outlived its usefulness.
Handle: RePEc:nbr:nberwo:3885
Template-Type: ReDIF-Paper 1.0
Title: Leapfrogging: A Theory of Cycles in National Technological Leadership
Author-Name: Elise Brezis
Author-Person: pbr174
Author-Name: Paul Krugman
Author-Person: pkr10
Author-Name: Daniel Tsiddon
Author-Person: pts32
Note: ITI IFM
Number: 3886
Creation-Date: 1991-10
Order-URL: http://www.nber.org/papers/w3886
File-URL: http://www.nber.org/papers/w3886.pdf
File-Format: application/pdf
Publication-Status: published as American Economic Review, Vol. 83 (1993).
Abstract: Much recent work has suggested that endogenous technological change tends to reinforce the position of the leading nations. Yet from time to time this leadership role shifts. We suggest a mechanism that explains this pattern of -leapfrogging- as a response to occasional major changes in technology. When such a change occurs, leading nations may have no incentive to adopt the new ideas; given their extensive experience with older technologies, the new ideas do not initially seem to be an improvement. Lagging nations, however, have less experience; the new techniques offer them an opportunity to use their lower wages, to break into the market. If the new techniques eventually prove to be more productive than the old, there is a reversal of leadership.
Handle: RePEc:nbr:nberwo:3886
Template-Type: ReDIF-Paper 1.0
Title: The Effects of Public Infrastructure and R&D Capital on the Cost Structure and Performance of U.S. Manufacturing Industries
Author-Name: M. Ishaq Nadiri
Author-Name: Theofanis P. Mamuneas
Author-Person: pma43
Note: PR
Number: 3887
Creation-Date: 1991-10
Order-URL: http://www.nber.org/papers/w3887
File-URL: http://www.nber.org/papers/w3887.pdf
File-Format: application/pdf
Publication-Status: published as Review of Economics and Statistics, vol. 76, no. 1 (1994): 22-37.
Abstract: In this paper the authors examine the effects of publicly financed infrastructure and R&D capitals on the cost structure and productivity performance of twelve two-digit U.S. manufacturing industries. The results suggest that there are significant productive effects from these two types of capital. Their effects on the cost structure vary across industries and their contributions to growth of labor productivity vary over time as well. Not only is the cost function shifted downward in each industry, generating productivity inducement, but the factor demand in each industry is also affected by the two types of public capitals, suggesting bias effects. The authors also calculate the marginal benefits of these services in each industry and estimate the 'social' rates of return to these capitals for the industries in their sample.
Handle: RePEc:nbr:nberwo:3887
Template-Type: ReDIF-Paper 1.0
Title: An Ordered Probit Analysis of Transaction Stock Prices
Author-Name: Jerry A. Hausman
Author-Person: pha893
Author-Name: Andrew W. Lo
Author-Person: plo171
Author-Name: A. Craig MacKinlay
Note: AP
Number: 3888
Creation-Date: 1991-10
Order-URL: http://www.nber.org/papers/w3888
File-URL: http://www.nber.org/papers/w3888.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Financial Economics, Volume 31, No.2, pp.319-379, 1992
Abstract: We estimate the conditional distribution of trade-to-trade price changes using ordered probit, a statistical model for discrete random variables. Such an approach takes into account the fact that transaction price changes occur in discrete increments, typically eighths of a dollar, and occur at irregularly spaced time intervals. Unlike existing continuous-time/discrete-state models of discrete transaction prices, ordered probit can capture the effects of other economic variables on price changes, such as volume, past price changes, and the time between trades. Using 1988 transactions data for over 100 randomly chosen U.S. stocks, we estimate the ordered probit model via maximum likelihood and use the parameter estimates to measure several transaction-related quantities, such as the price impact of trades of a given size, the tendency towards price reversals from one transaction to the next, and the empirical significance of price discreteness.
Handle: RePEc:nbr:nberwo:3888
Template-Type: ReDIF-Paper 1.0
Title: Private Beliefs and Information Externalities in the Foreign Exchange Market
Author-Name: Richard K. Lyons
Author-Person: ply9
Note: ITI IFM
Number: 3889
Creation-Date: 1991-10
Order-URL: http://www.nber.org/papers/w3889
File-URL: http://www.nber.org/papers/w3889.pdf
File-Format: application/pdf
Publication-Status: published as Journal of International Economics, new title," A Simultaneous Trade Model of the Foreign Exchange Hot Potato", February 1997vol. 36.
Abstract: An information externality exists in the foreign exchange market due to the fact that traders play two partially conflicting roles: (i) each is a speculator and (ii) each is an information clearinghouse in that each intermediates own-customer orders which convey information. Profit maximization induces traders to underweight fundamental information in making their trades, reducing the degree to which prices reveal information at any given time. In the model, agents update diverse beliefs over time, with transactions-mediated tatonnement. The explicit role for transactions provides a framework for interpreting the relationship between the diversity of beliefs, trading volume, and price adjustment.
Handle: RePEc:nbr:nberwo:3889
Template-Type: ReDIF-Paper 1.0
Title: Labor Demand: What Do We Know? What Don't We Know?
Author-Name: Daniel S. Hamermesh
Author-Person: pha78
Note: LS
Number: 3890
Creation-Date: 1991-11
Order-URL: http://www.nber.org/papers/w3890
File-URL: http://www.nber.org/papers/w3890.pdf
File-Format: application/pdf
Publication-Status: published as "Labor Demand: Status & Prospects" in E.K. Grant et al, eds., Aspects of Labor Market Behavior, University of Toronto Press, 1995.
Abstract: This study reviews empirical research on the demand for labor. The static analysis discusses the production parameters describing homogeneous labor and labor disaggregated along various criteria; the distinction between workers and hours; the importance of job dynamics; and the nature of a variety of policies that affect the long-run demand for labor. Issues in the dynamics of demand for workers and hours, including speeds of adjustment for homogeneous and heterogeneous labor, asymmetries, and the nature of adjustment costs are presented. The paper emphasizes how the paucity of appropriate data has limited our ability to obtain reliable estimates of the underlying concepts.
Handle: RePEc:nbr:nberwo:3890
Template-Type: ReDIF-Paper 1.0
Title: The Role of Federal Taxation in the Supply of Municipal Bonds: Evidence From Municipal Governments
Author-Name: Gilbert E. Metcalf
Note: PE
Number: 3891
Creation-Date: 1991-11
Order-URL: http://www.nber.org/papers/w3891
File-URL: http://www.nber.org/papers/w3891.pdf
File-Format: application/pdf
Publication-Status: published as National Tax Journal, Volume XLIV, No. 4, Part 1: December, 1991. Cambridge: The MIT Press. Available through NBER.
Abstract: This paper considers ways in which federal tax policy affects municipal asset and debt holdings. The tax treatment of municipal bonds and income creates an arbitrage opportunity for communities to issue tax exempt debt and invest in financial assets. I present evidence that suggests the rules in effect prior to 1986 to prevent this activity were not effective. I then develop and estimate a model of municipal bond supply. I find a semi-elasticity of 1.23 of long term debt with respect to the spread between the after tax rate of return and the municipal borrowing rate.
Handle: RePEc:nbr:nberwo:3891
Template-Type: ReDIF-Paper 1.0
Title: Monetary Policy, Business Cycles and the Behavior of Small Manufacturing Firms
Author-Name: Mark Gertler
Author-Person: pge11
Author-Name: Simon Gilchrist
Author-Person: pgi28
Note: ME
Number: 3892
Creation-Date: 1991-11
Order-URL: http://www.nber.org/papers/w3892
File-URL: http://www.nber.org/papers/w3892.pdf
File-Format: application/pdf
Publication-Status: published as Gertler, Mark & Gilchrist, Simon, 1994. "Monetary Policy, Business Cycles, and the Behavior of Small Manufacturing Firms," The Quarterly Journal of Economics, MIT Press, vol. 109(2), pages 309-40, May
Abstract: We present evidence on the cyclical behavior of small versus large manufacturing firms, and on the response of the two classes of firms to monetary policy. Our goal is to take a step toward quantifying the role of credit market imperfections in the business cycle and in the monetary transmission mechanism. We find that, following tight money, small firms sales decline at a faster pace than large firm sales for a period of more than two years. Further, bank lending to small firms contracts, while it actually rises for large firms. Monetary policy indicators tied to the performance of banking, such as M2, have relatively greater predictive power for small firms than for large. Finally, small firms are more sensitive than are large to lagged movements in GNP. Considering that small firms overall are a non-trivial component of the economy, we interpret these results as suggestive of the macroeconomic relevance of credit market imperfections.
Handle: RePEc:nbr:nberwo:3892
Template-Type: ReDIF-Paper 1.0
Title: Productivity Gains From the Implementation of Employee Training Programs
Author-Name: Ann P. Bartel
Note: LS
Number: 3893
Creation-Date: 1991-11
Order-URL: http://www.nber.org/papers/w3893
File-URL: http://www.nber.org/papers/w3893.pdf
File-Format: application/pdf
Publication-Status: published as Industrial Relations, vol. 33, no. 4 October 1994
Abstract: This paper utilizes data on the personnel policies and economic characteristics of businesses in the manufacturing sector to study the relationship between employee training and labor productivity. The major finding is that businesses that were operating below their expected labor productivity levels in 1983 implemented new employee training programs after 1983 which resulted in significantly larger increases in labor productivity growth between 1983 and 1986. This higher rate of productivity growth was sufficient to bring these businesses up to the labor productivity levels of comparable businesses by 1986. The positive effects of training implementation on productivity growth were shown to be inconsistent with a "Hawthorne Effect" interpretation because the implementation of new personnel policies other than training did not have significant effects on productivity growth.
Handle: RePEc:nbr:nberwo:3893
Template-Type: ReDIF-Paper 1.0
Title: Continuous Versus Episodic Change: The Impact of Civil Rights Policy on the Economic Status of Blacks
Author-Name: John J. Donohue III
Author-Person: pdo40
Author-Name: James Heckman
Note: LS
Number: 3894
Creation-Date: 1991-11
Order-URL: http://www.nber.org/papers/w3894
File-URL: http://www.nber.org/papers/w3894.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Economic Literature, vol.XXIX, pp.1603-1643, (Dec.1991)
Abstract: This paper examines the available evidence on the causes of black economic advance in order to assess the contribution of federal policy. Over the period 1920-1990, there were only two periods of relative black economic improvement -- during the 1940s and in the decade following the passage of the Civil Rights Act of 1964, the voting Rights Act of 1965, and the institution of the government contracts compliance program. Black migration from the South, a traditional source of economic gains for blacks, almost stopped at about this same time, and recent evidence on the impact of black schooling gains indicates that educational gains cannot explain the magnitude of black economic progress beginning in the mid-1960s.
Handle: RePEc:nbr:nberwo:3894
Template-Type: ReDIF-Paper 1.0
Title: Taxation and Foreign Direct Investment in the United States: A Reconsideration of the Evidence
Author-Name: Alan J. Auerbach
Author-Person: pau33
Author-Name: Kevin Hassett
Author-Person: pha378
Note: PE
Number: 3895
Creation-Date: 1991-11
Order-URL: http://www.nber.org/papers/w3895
File-URL: http://www.nber.org/papers/w3895.pdf
File-Format: application/pdf
Publication-Status: published as Studies in International Taxation, Giovannini, Alberto, R. Glenn Hubbardand Joel Slemrod, eds., Chicago: The University of Chicago Press, May 1993, pp. 114-144.
Publication-Status: published as Taxation and Foreign Direct Investment in the United States: A Reconsideration of the Evidence, Alan J. Auerbach, Kevin Hassett, Joel Slemrod. in Studies in International Taxation, Giovannini, Hubbard, and Slemrod. 1993
Abstract: Foreign direct investment in the United States boomed in the late 1980s. Some have attributed this rise to the Tax Reform Act of 1986, which by discouraging investment by domestic firms may have provided opportunities for foreign firms not as strongly affected by the U.S. tax changes. We challenge this view on theoretical and empirical grounds, finding that: (1) While the argument applies to new capital investment, the boom was primarily in mergers and acquisitions; (2) While the argument holds primarily for investment in equipment, there was no shift toward the acquisition of equipment-intensive firms, and (3) The FDI boom in the U.S. was really part of a worldwide FDI boom ? the U.S. share of outbound FDI from other countries did not increase during the period 1987-9.
Handle: RePEc:nbr:nberwo:3895
Template-Type: ReDIF-Paper 1.0
Title: Moderate Inflation
Author-Name: Rudiger Dornbusch
Author-Name: Stanley Fischer
Note: EFG
Number: 3896
Creation-Date: 1991-11
Order-URL: http://www.nber.org/papers/w3896
File-URL: http://www.nber.org/papers/w3896.pdf
File-Format: application/pdf
Publication-Status: published as The World Bank Economic Review, Vol. 7, No. 1, pp. 1-44 (January 1993).
Abstract: Inflation persists at moderate rates of 15-30 percent in all the countries that successfully reduced triple digit inflations in the 1980s. Several other countries, for example Colombia, have experienced moderate inflation for prolonged periods. In this paper we first set out theories of persistent inflation, which can be classified into those emphasizing seigniorage as a source of government finance and those that emphasize the costs of ending inflation. We then examine the sources and persistence of moderate inflation episodes. Most were triggered by commodity price shocks; they were brief; and very few ended in higher inflation. We then present case studies of eight countries, including three that now suffer from moderate inflation, and four that successfully moved down to single digit inflation rates. We examine the roles of seigniorage, indexation and disindexation, the exchange rate commitment, and monetary and fiscal policy. The evidence suggests that seigniorage plays at most a modest role in the persistence of moderate inflations, and that such inflations can be reduced only at a substantial short-term cost to growth.
Handle: RePEc:nbr:nberwo:3896
Template-Type: ReDIF-Paper 1.0
Title: Does Employer Monopsony Power Increase Occupational Accidents? The Case of Kentucky Coal Mines
Author-Name: Shulamit Kahn
Author-Person: pka260
Note: LS
Number: 3897
Creation-Date: 1991-11
Order-URL: http://www.nber.org/papers/w3897
File-URL: http://www.nber.org/papers/w3897.pdf
File-Format: application/pdf
Abstract: A popular argument for safety regulations is that workers accept dangerous jobs because they have "no choice," or, in other words, because they have few or no alternative employment opportunities. This argument is considered in a game-theoretic framework. Because simultaneous-entry models do not yield pure-strategy equilibria, this paper develops a sequential-entry model to analyze the effect of additional firms on occupational safety. Within the context of the particular functional specification modeled, additional firms (except for the second entrant) lower average accident rates and thus increase occupational safety, consistent with the popular argument. However, with other functional specifications, the model could yield different results. As a result, the paper continues with an empirical investigation of the effect of monopsony power for a particular labor market -- nonunionized Kentucky coal mines in the later 70s -- a labor market which is likely to be particularly susceptible to monopsony. The empirical work shows that areas with many choices of alternative employers within easy driving distance do have lower accident rates. For this labor market, at least, when more alternative choices in the same occupation are offered, average occupational safety levels increase. Policies that improve occupational mobility and the competitiveness of labor markets, therefore, may simultaneously improve occupational safety.
Handle: RePEc:nbr:nberwo:3897
Template-Type: ReDIF-Paper 1.0
Title: Pension Funding in the Public Sector
Author-Name: Olivia S. Mitchell
Author-Person: pmi73
Author-Name: Robert S. Smith
Note: LS AG
Number: 3898
Creation-Date: 1991-11
Order-URL: http://www.nber.org/papers/w3898
File-URL: http://www.nber.org/papers/w3898.pdf
File-Format: application/pdf
Publication-Status: published as Review of Economics and Statistics, May 1994, pp. 278-290.
Abstract: This paper explores the determinants of pension funding in the public sector. We formulate and test several hypotheses about the determinants of public employer pension funding practices, using a new data set describing financial and other characteristics of state, local, and teacher plans. The data show that, on average, public sector pension plans were relatively well-funded during the late 1980s. There were, however, wide variations in funding practices in our sample. Our analysis of these variations suggests that past funding practice tends to be perpetuated, that unionized employers are less likely to fully fund future pension obligations, and that funding is sensitive to fiscal pressure.
Handle: RePEc:nbr:nberwo:3898
Template-Type: ReDIF-Paper 1.0
Title: The Marshall Plan: History's Most Successful Structural Adjustment Program
Author-Name: J. Bradford De Long
Author-Name: Barry Eichengreen
Author-Person: pei2
Note: ITI IFM
Number: 3899
Creation-Date: 1991-11
Order-URL: http://www.nber.org/papers/w3899
File-URL: http://www.nber.org/papers/w3899.pdf
File-Format: application/pdf
Publication-Status: published as in Rudiger Dornbusch, et. al. (eds.) Post-World Warr II Economic Reconstru-ction and its Lessons for Eastern Europe Today, Cambridge: MIT Press, 1993
Abstract: The post-World War II reconstruction of Western Europe was one of the greatest economic policy and foreign policy successes of this century. "Folk wisdom" assigns a major role in successful reconstruction to the Marshall Plan: the program that transferred some $13 billion to Europe in the years 1948-51. We examine the economic effects of the Marshall Plan, and find that it was not large enough to have significantly accelerated recovery by financing investment, aiding the reconstruction of damaged infrastructure, or easing commodity bottlenecks. We argue, however, that the Marshall Plan did play a major role in setting the stage for post-World War II Western Europe's rapid growth. The conditions attached to Marshall Plan aid pushed European political economy in a direction that left its post World War II "mixed economies" with more "market" and less "controls" in the mix.
Handle: RePEc:nbr:nberwo:3899
Template-Type: ReDIF-Paper 1.0
Title: Which Households Own Municipal Bonds? Evidence From Tax Returns
Author-Name: Daniel R. Feenberg
Author-Person: pfe56
Author-Name: James M. Poterba
Author-Person: ppo19
Note: PE
Number: 3900
Creation-Date: 1991-11
Order-URL: http://www.nber.org/papers/w3900
File-URL: http://www.nber.org/papers/w3900.pdf
File-Format: application/pdf
Publication-Status: published as National Tax Journal, Volume XLIV, No. 4, Part 1, pp. 93-103, (December 1991). Available through NBER.
Abstract: This paper uses data from 1988 federal income tax returns, which asked taxpayers to report their tax-exempt interest income as an information item, to analyze the distribution of tax-exempt asset holdings. More than three quarters of the tax-exempt debt held by households was held by those with marginal tax rates of 28% or more. The paper reports two measures of the average marginal tax rate on tax-exempt debt. The first measures the increase in taxes if a small fraction of each taxpayer's exempt interest income were converted to taxable interest. This weighted average of 'first-dollar" marginal tax rates was 25.8%. A second calculation finds that if all tax-exempt interest were reported as taxable interest, taxes would rise by 27.6% of the increase in taxable interest. Many taxpayers who have substantial tax-exempt interest receipts, but low first-dollar marginal tax rates, would be driven into higher tax brackets if the exemption were eliminated but their portfolios remained the same.
Handle: RePEc:nbr:nberwo:3900
Template-Type: ReDIF-Paper 1.0
Title: Changes in Earnings Differentials in the 1980s: Concordance, Convergence, Causes, and Consequences
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: 3901
Creation-Date: 1991-11
Order-URL: http://www.nber.org/papers/w3901
File-URL: http://www.nber.org/papers/w3901.pdf
File-Format: application/pdf
Publication-Status: published as Papadimitriou, Dimitri B. and Edward N. Wolff (eds.) Poverty and Prosperity in the USA in the late Twentieth Century. London: Macmillan, 1993.
Abstract: This paper analyzes changes in U.S. earnings differentials in the 1980s between race, gender, age, and schooling groups. There are four main sets of results to report. First, the economic position of less-educated workers declined relative to the more-educated among almost all demographic groups. Education-earnings differentials clearly rose for whites, but less clearly for blacks, while employment rate differences associated with education increased more for blacks than for whites. Second, much of the change in education-earnings differentials for specific groups is attributable to measurable economic factors: to changes in the occupational or industrial structure of employment; to changes in average wages within industries; to the fall in the real value of the minimum wage and the tall in union density; and to changes in the relative growth rate of more-educated workers. Third, the earnings and employment position of white females, and to a lesser extent of black females, converged to that of white males in the 1980s, across education groups. At the same time, the economic position of more-educated black males appears to have worsened relative to their white-male counterparts. Fourth, there has been a sizable college-enrollment response to the rising relative wages of college graduates. This response suggests that education-earnings differentials may stop increasing, or even start to decline, in the near future.
Handle: RePEc:nbr:nberwo:3901
Template-Type: ReDIF-Paper 1.0
Title: Corporate Financial Policy, Taxation, and Macroeconomic Risk
Author-Name: Mark Gertler
Author-Person: pge11
Author-Name: R. Glenn Hubbard
Author-Person: phu97
Note: CF PE
Number: 3902
Creation-Date: 1991-11
Order-URL: http://www.nber.org/papers/w3902
File-URL: http://www.nber.org/papers/w3902.pdf
File-Format: application/pdf
Publication-Status: published as Rand Journal of Economics, 24 (Summer 1993), 286-303
Abstract: This paper develops a simple model of corporate financial structure intended to formalize the macroeconomic concern over excessive leverage. In particular, we attempt to rationalize why firms designing an optimal capital structure would choose a level of debt that leaves them heavily exposed to macroeconomic risk. Our starting point is a variant of the "corporate control" model often used to motivate debt as the optimal financial contract. We modify this framework in two ways. First, we include common risks, interpretable as business cycle risks, as well as idiosyncratic risks. Second, we include corporate and investor-level taxes, and consider the implications of a net tax bias against equity finance. The tax distortion confronts firms with a tradeoff ex ante between the costs of equity finance and the costs of increased exposure to macroeconomic risk accompanying debt finance. In this regard, an equilibrium with "excessive leverage" is possible. Further, despite the possibility of renegotiation, debt is in general less effective than equity in insulating the firm against aggregate risk. Our model leads to the prediction that individual firm dividends may vary with macroeconomic conditions, even after controlling for the effects of relevant firm-specific performance measures, such as earnings. We present some formal econometric evidence in support of this prediction, using a panel of individual corporations. Evidence on some related predictions is also presented.
Handle: RePEc:nbr:nberwo:3902
Template-Type: ReDIF-Paper 1.0
Title: Productivity and Machinery Investment: A Long Run Look 1870-1980
Author-Name: J. Bradford De Long
Note: EFG
Number: 3903
Creation-Date: 1991-11
Order-URL: http://www.nber.org/papers/w3903
File-URL: http://www.nber.org/papers/w3903.pdf
File-Format: application/pdf
Publication-Status: published as De Long, J. Bradford. "Productivity and Machinery Investment: A Long Run Look 1870-1980." Journal of Economic History 53, 2 (June 1992): 307-24.
Abstract: Over the past century the long-run growth of six economies shows a strong association between investment in machinery and economic growth that holds both within and across nations and periods. A similar strong association holds for the post-world War II period for a broader cross section of nations. A number of considerations suggest that this association is causal, and that a high rate of machinery investment is a necessary prerequisite for rapid long-run productivity growth - a hypothesis also supported by narratives from the history of technology.
Handle: RePEc:nbr:nberwo:3903
Template-Type: ReDIF-Paper 1.0
Title: Taxation of Labor Income and the Demand For Risky Assets
Author-Name: Douglas W. Elmendorf
Author-Person: pel79
Author-Name: Miles S. Kimball
Author-Person: pki97
Note: AP PE
Number: 3904
Creation-Date: 1991-11
Order-URL: http://www.nber.org/papers/w3904
File-URL: http://www.nber.org/papers/w3904.pdf
File-Format: application/pdf
Publication-Status: published as Elmendorf, Douglas W. and Miles S. Kimball. "Taxation Of Labor Income And The Demand For Risky Assets," International Economic Review, 2000, v41(3,Aug), 801-832.
Abstract: The effect of uninsured labor income risk on the joint saving/portfolio composition decision is analyzed using new techniques from the theory of multiple risk-bearing. Applying this analysis, the effect of labor income taxes on the demand for risky securities is considered. It is well known that when private insurance markets are incomplete, the insurance afforded by labor income taxes can reduce overall saving. This paper establishes that - given plausible restrictions on preferences - the insurance afforded by labor income taxes increases the demand for risky securities, even when labor income is statistically independent of the returns to risky securities.
Handle: RePEc:nbr:nberwo:3904
Template-Type: ReDIF-Paper 1.0
Title: Productivity Gains From Geographic Concentration of human Capital: Evidence From the Cities
Author-Name: James E. Rauch
Author-Person: pra166
Note: EFG
Number: 3905
Creation-Date: 1991-11
Order-URL: http://www.nber.org/papers/w3905
File-URL: http://www.nber.org/papers/w3905.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Urban Economics, vol. 34, pp. 380-400, (November 1993)
Abstract: Based on recent theoretical developments I argue that the average level of human capital is a local public good. Cities with higher average levels of human capital should therefore have higher wages and higher land rents. After conditioning on the characteristics of individual workers and dwellings, this prediction is supported by data for Standard Metropolitan Statistical Areas (SMSAs) in the United States, where the SMSA average levels of formal education and work experience are used as proxies for the average level of human capital. I evaluate the alternative explanations of omitted SMSA variables and self-selection. I conclude by computing an estimate of the effect of an additional year of average education on total factor productivity.
Handle: RePEc:nbr:nberwo:3905
Template-Type: ReDIF-Paper 1.0
Title: A Theory of Debt Based on the Inalienability of Human Capital
Author-Name: Oliver Hart
Author-Person: pha222
Author-Name: John Moore
Author-Person: pmo265
Note: CF
Number: 3906
Creation-Date: 1991-11
Order-URL: http://www.nber.org/papers/w3906
File-URL: http://www.nber.org/papers/w3906.pdf
File-Format: application/pdf
Publication-Status: published as The Quarterly Journal of Economics, vol. 109, no. 4, pp. 841-879, (November 1994).
Abstract: Consider an entrepreneur who needs to raise funds from an investor, but cannot commit not to withdraw his human capital from the project. The possibility of a default or quit puts an upper bound on the total future indebtedness from the entrepreneur to the investor at any date. We characterize the optimal repayment path and show how it is affected both by the maturity structure of the project return stream and by the durability and specificity of project assets. Our results are consistent with the conventional wisdom about what determines the maturity structure of (long-term) debt contracts.
Handle: RePEc:nbr:nberwo:3906
Template-Type: ReDIF-Paper 1.0
Title: Liquidity Constraints and Intertemporal Consumer Optimization: Theory and Evidence From Durable Goods
Author-Name: Eun Young Chah
Author-Name: Valerie A. Ramey
Author-Person: pra154
Author-Name: Ross M. Starr
Note: EFG
Number: 3907
Creation-Date: 1991-11
Order-URL: http://www.nber.org/papers/w3907
File-URL: http://www.nber.org/papers/w3907.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Money, Credit, and Banking, 27(1): 272-287, (February 1995)
Abstract: This paper develops and tests a new set of stochastic implications of optimal consumption behavior in the presence of borrowing constraints. In a departure from previous models, the theory shows that liquidity constraints imply a distinctive intertemporal relationship between durable and nondurable good~ consumption. The presence of binding, liquidity constraints are manifested as part of an error correction term from the long-run cointegrating relationship between durables and nondurables. When liquidity constraints are binding, the error correction term will have predictive power for the future change in nondurable consumption. Empirical tests of the implications using aggregate data support the hypothesis that liquidity constraints, rather than rule-of-thumb behavior, best explain the excess sensitivity of consumption to predictable changes in income.
Handle: RePEc:nbr:nberwo:3907
Template-Type: ReDIF-Paper 1.0
Title: Pension COLAs
Author-Name: Alan L. Gustman
Author-Person: pgu327
Author-Name: Thomas L. Steinmeier
Note: AG LS
Number: 3908
Creation-Date: 1991-11
Order-URL: http://www.nber.org/papers/w3908
File-URL: http://www.nber.org/papers/w3908.pdf
File-Format: application/pdf
Publication-Status: published as "Cost of Living Adjustments in Pensions", As the Workforce Ages: Costs, Benefits, and Policy Challenges, 1993 Cornell University: ILR Press, Ithaca, New York
Abstract: This paper studies cost of living adjustments in pensions from the perspective of labor economics. Evidence from longitudinal data on pension and annuity incomes of retirees suggests that pension COLAs are less important in the 1980s than in the 1970s, but that through 1987 they continued to cover about half of cost of living increases. Data from a longitudinal sample of pension benefit formulae and COLA provisions collected by the Wyatt Company for the fifty largest industrial companies indicate that if the 1968-78 decade persisted, cost of living adjustments would increase basic pension benefits for retirees by a half; while if the inflation experience were that of the 1978-88 period, pension COLAs would raise the present value of pensions by only fourteen percent. Simulation analysis allows an examination of the effects of pension COLA provisions on the key incentives emphasized in the pension literature, incentives affecting the retirement, turnover and shirking decisions. Pension COLAs are found to have very small effects on these incentives. Finally a simulation analysis demonstrates that when the contribution side of COLAs is taken into account, pension COLAs do not necessarily dampen the variation among generations in real incomes realized under alternative inflation shocks.
Handle: RePEc:nbr:nberwo:3908
Template-Type: ReDIF-Paper 1.0
Title: Alcoholism, Work, and Income Over the Life Cycle
Author-Name: John Mullahy
Author-Name: Jody L. Sindelar
Note: LS EH
Number: 3909
Creation-Date: 1991-11
Order-URL: http://www.nber.org/papers/w3909
File-URL: http://www.nber.org/papers/w3909.pdf
File-Format: application/pdf
Publication-Status: published as "Alcoholism, Work and Income," Journal of Labor Economics, Volume 11, No. 3(1993): 494-520.
Abstract: We find that alcoholism decreases labor force participation among prime age males, and therefore decreases the income of this group. The effects of alcoholism on the labor force participation of younger and older males and on the wage rates of prime age males are not significantly positive. We also find that alcoholism affects income indirectly through its effects on individual characteristics such as schooling and marital status, as well as directly through labor force participation rates after controlling for these indirect effects.
Handle: RePEc:nbr:nberwo:3909
Template-Type: ReDIF-Paper 1.0
Title: Are Option-Implied Forecasts of Exchange Rate Volatility Excessively Variable?
Author-Name: Shang-Jin Wei
Author-Person: pwe20
Author-Name: Jeffrey A. Frankel
Author-Person: pfr12
Note: ITI AP IFM
Number: 3910
Creation-Date: 1991-11
Order-URL: http://www.nber.org/papers/w3910
File-URL: http://www.nber.org/papers/w3910.pdf
File-Format: application/pdf
Abstract: Market participants' forecasts of future exchange rate volatility can be recovered from option contracts on foreign currencies. Such implicit volatility forecasts for four currencies are used to test rational expectations jointly with the applicability of the standard Black-Scholes formula. First, we examine the null hypothesis that the market-anticipated one-month-ahead standard deviation is an unbiased estimator of the subsequent realized standard deviation. The parametric regression method rejects this hypothesis overwhelmingly: the implicit forecasts are themselves excessively variable. Simulations indicate that the rejection is not caused by non-normality of the error term. Second, we use a nonparametric method to test a weaker version of market rationality: the market can correctly forecast the direction of the change in exchange rate volatility. This time, the weaker version of rationality is confirmed- Third, we investigate how market forecasts are formed. We find some evidence that market participants put heavy weight on lagged volatility when forecasting future volatility. Finally, results from the Alternating Conditional Expectations algorithm provide further support for the central finding that when the market predicts a large deviation of volatility from its mean, it could do better by moderating its forecast.
Handle: RePEc:nbr:nberwo:3910
Template-Type: ReDIF-Paper 1.0
Title: Do Bulls and Bears Move Across Borders? International Transmission of Stock Returns and Volatility as the World Turns
Author-Name: Wen-Ling Lin
Author-Name: Robert F. Engle
Author-Name: Takatoshi Ito
Note: AP ITI IFM
Number: 3911
Creation-Date: 1991-11
Order-URL: http://www.nber.org/papers/w3911
File-URL: http://www.nber.org/papers/w3911.pdf
File-Format: application/pdf
Publication-Status: published as Review of Financial Studies, Volume 7, Number 3. pp 507-538. (1994)
Abstract: This paper investigates empirically how returns and volatilities of stock indices are correlated between Tokyo and New York. Intradaily data are used, so that daytime and overnight returns are defined for both markets. Tokyo daytime hours overlap with New York overnight hours, while New York daytime hours overlap with Tokyo overnight hours. We find that in general Tokyo (Mew York) daytime returns are significantly correlated with New York (Tokyo) overnight returns. This suggests that information revealed during the trading hours of one market has a global impact on the returns of the other market. One exception is that after the October 1987 Crash, the Tokyo overnight returns were not significantly affected by New York daytime returns. We propose and estimate a signal extraction model with GARCH processes to determine the global factor from daytime returns. This is the problem of setting the opening price of a domestic market conditional on the foreign daytime returns. We also investigate lagged return and volatility spillovers. Except for a lagged return spillover from New York to Tokyo for the period after the Crash, there are no significant lagged spillovers in returns or in volatilities.
Handle: RePEc:nbr:nberwo:3911
Template-Type: ReDIF-Paper 1.0
Title: Estimating the Effect of Training on Employment and Unemployment Durations: Evidence From Experimental Data
Author-Name: John C. Ham
Author-Person: pha1028
Author-Name: Robert J. LaLonde
Author-Person: pla194
Note: LS
Number: 3912
Creation-Date: 1991-11
Order-URL: http://www.nber.org/papers/w3912
File-URL: http://www.nber.org/papers/w3912.pdf
File-Format: application/pdf
Publication-Status: Published as "The Effect of Sample Selection and Initial Conditions in Duration Models: Evidence from Experimental Data on Training", Econometrica Vol. 64 (1), 1996, pp. 175-205.
Publication-Status: published as With Curtis Eberwin, published as "The Impact of Being Offered and Receiving Classroom Training on the Employment Histories of Disadvantaged Women", Review of Economic Studies, Vol. 64, no. 221 (October 1997): 655-682.
Abstract: Using data from a social experiment, we estimate the impact of training on the duration of employment and unemployment spells for AFDC recipients. Although an experimental design eliminates the need to construct a comparison group for this analysis, simple comparisons between the average durations or the transition rates of treatments' and controls' employment and unemployment spells lead to biased estimates of the effects of training. We present and implement several econometric approaches that demonstrate the importance of and correct for these biases. For the training program studied in the paper, we find that it raised employment rates because employment durations increased. In contrast, training did not lead to shorter unemployment spells.
Handle: RePEc:nbr:nberwo:3912
Template-Type: ReDIF-Paper 1.0
Title: Borrowing Constraints and Two-Sided Altruism With an Application to Social Security
Author-Name: David Altig
Author-Name: Steve J. Davis
Author-Person: pda15
Note: PE
Number: 3913
Creation-Date: 1991-11
Order-URL: http://www.nber.org/papers/w3913
File-URL: http://www.nber.org/papers/w3913.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Economic Dynamics and Control, 17 (1993), pp. 467-494
Abstract: We develop the implications of borrowing constraints and two-sided altruism in an overlapping generations framework with agents who live three periods. Our analysis identifies six equilibrium patterns of intertemporal and intergenerational linkages in the no-loan economy, one of which corresponds to the traditional lifecycle model, and one of which corresponds to Barro's dynastic model. Novel linkage patterns involve parent-to-child transfers early in the life cycle, child-to-parent gifts late in the life cycle, or both. Capital accumulation behavior and the consequences of fiscal policy interventions depend, often critically, on which linkage patterns prevails. We show how unfunded social security interventions can significantly depress aggregate capital accumulation, even when every generation is linked to its successor generation by altruistic transfers. We also derive a non-Ricardian neutrality result for gift-motive economies that holds whether or not borrowing constraints bind and whether or not parent and child are connected by an operative altruism motive at all points in the life cycle.
Handle: RePEc:nbr:nberwo:3913
Template-Type: ReDIF-Paper 1.0
Title: Environmental Impacts of a North American Free Trade Agreement
Author-Name: Gene M. Grossman
Author-Person: pgr21
Author-Name: Alan B. Krueger
Author-Person: pkr63
Note: ITI IFM
Number: 3914
Creation-Date: 1991-11
Order-URL: http://www.nber.org/papers/w3914
File-URL: http://www.nber.org/papers/w3914.pdf
File-Format: application/pdf
Publication-Status: published as The U.S. Mexico Free Trade Agreement, Peter Garber, ed., MIT Press, 1994
Abstract: A reduction in trade barriers generally will affect the environment by expanding the scale of economic activity, by altering the composition of economic activity, and by bringing about a change in the techniques of production. We present empirical evidence to assess the relative magnitudes of these three effects as they apply to further trade liberalization in Mexico. In Section 1. we use comparable measures of three air pollutants in a cross-section of urban areas located in 42 countries to study the relationship between air quality and economic growth. We find for two pollutants (sulfur dioxide and "smoke") that concentrations increase with per capita GDP at low levels of national income, but decrease with GD? growth at higher levels of income. Section 2 studies the determinants of the industry pattern of U.S. imports from Mexico and of value added by Mexico's maquiladora sector. We investigate whether the size of pollution abatement costs in the U.S. industry influences the pattern of international trade and investment. Finally, in Section 3, we use the results from a computable general equilibrium model to study the likely compositional effect of a NAFTA on pollution in Mexico.
Handle: RePEc:nbr:nberwo:3914
Template-Type: ReDIF-Paper 1.0
Title: Social Security and Medicare Policy From the Perspective of Generational Accounting
Author-Name: Alan J. Auerbach
Author-Person: pau33
Author-Name: Jagadeesh Gokhale
Author-Name: Laurence J. Kotlikoff
Author-Person: pko44
Note: PE AG
Number: 3915
Creation-Date: 1991-11
Order-URL: http://www.nber.org/papers/w3915
File-URL: http://www.nber.org/papers/w3915.pdf
File-Format: application/pdf
Publication-Status: published as Auerbach, Alan J., Jagadeesh Gokhale and Laurence J. Kotlikoff. "Generational Accounting: A Meaningful Way To Evaluate Fiscal Policy," Journal of Economic Perspectives, 1994, v8(1), 73-94
Publication-Status: published as Social Security and Medicare Policy from the Perspective of Generational Accounting, Alan J. Auerbach, Jagadeesh Gokhale, Laurence J. Kotlikoff. in Tax Policy and the Economy, Volume 6, Poterba. 1992
Abstract: Our previous study (Auerbach, Gokhale and Kotlikoff 1991) introduced the concept of generational accounting, a method of determining how the burden of fiscal policy falls on different generations. it found that fiscal policy in the U.S. is out of balance, in terms of projected generational burdens. This means that either current generations will bear a larger share (than we project under current law) of the burden of the government's spending or that future generations will have to pay, on average, at least 21 percent more, on a growth-adjusted basis, than will those generations who have just been born. These conclusions were based on relatively optimistic assumptions about the path of social security sod Medicare policies, namely that the accumulation of a social security trust fund would continue and that Medicare costs would not rise as a share of QP. In this paper, we simulate the effects of realistic alternative paths for social security and Medicare. Our results suggest that such alternative policies could greatly increase the imbalance in generational policy, making not only future generations pay significantly more, but current young Americans as well. For example, continued expansion of Medicare in this decade alone could double the 21 percent imbalance figure if the bill for this Medicare growth is shifted primarily to future generations.
Handle: RePEc:nbr:nberwo:3915
Template-Type: ReDIF-Paper 1.0
Title: The Impact of Terms of Trade Shocks on a Small Open Economy: A Stochastic Analysis
Author-Name: Stephen J. Turnovsky
Author-Person: ptu5
Note: ITI IFM
Number: 3916
Creation-Date: 1991-11
Order-URL: http://www.nber.org/papers/w3916
File-URL: http://www.nber.org/papers/w3916.pdf
File-Format: application/pdf
Publication-Status: published as Journal of International Money and Finance 12, pp. 278-297 (1993).
Abstract: This paper investigates the impact of change in the terms of trade on the economic performance of a small economy. Both the effects of unanticipated shocks and changes in the mean and variance of the probability distribution generating these disturbances are discussed. In all cases, the key element determining the response of the economy is the effect on the rate of growth of real wealth, to which all other real quantities are directly tied in equilibrium. Conditions for the Harberger-Laursen-Metzler effect to hold are discussed. The impact of these changes on economic welfare, as measured by expected discounted utility of the representative agent is also addressed.
Handle: RePEc:nbr:nberwo:3916
Template-Type: ReDIF-Paper 1.0
Title: The Currency Reform as the Last Stage of Economic and Monetary Union: Some Policy Questions
Author-Name: Alberto Giovannini
Note: ITI IFM
Number: 3917
Creation-Date: 1991-11
Order-URL: http://www.nber.org/papers/w3917
File-URL: http://www.nber.org/papers/w3917.pdf
File-Format: application/pdf
Publication-Status: published as European Economic Review Volume 36, April 1992
Abstract: The paper discusses the policy problems of a project aimed at substituting several national currencies with one single currency. While these problems are of general interest, the analysis is motivated by the plan for Economic and Monetary Union among the members of the European Community. The issues discussed include the choice of conversion rates and the effects of exchange-rate devaluations at the time of the monetary reform.
Handle: RePEc:nbr:nberwo:3917
Template-Type: ReDIF-Paper 1.0
Title: Devaluation Expectations: The Swedish Krona 1982-1991
Author-Name: Hans Lindberg
Author-Name: Lars E.O. Svensson
Author-Person: psv2
Author-Name: Paul Soderlind
Author-Person: pso16
Note: ITI IFM
Number: 3918
Creation-Date: 1991-11
Order-URL: http://www.nber.org/papers/w3918
File-URL: http://www.nber.org/papers/w3918.pdf
File-Format: application/pdf
Publication-Status: published as Economic Journal. vol. 103, pp. 1170-1179, (1993)
Abstract: Devaluation expectations for the Swedish krona are estimated for the period 1982-1991 with several methods. First the "simplest test" is applied under either only the minimal assumption of "no positive minimum profit" or the additional assumption of uncovered interest parity. Then a more precise method suggested by Bertola and Svensson is used, in which expected rates of depreciation within the exchange rate band, estimated in several ways, are subtracted from interest rate differentials. In addition the probability density of the time of devaluations is estimated. Finally, estimated devaluation expectations are to some extent explained by a few macrovariables and parliament elections.
Handle: RePEc:nbr:nberwo:3918
Template-Type: ReDIF-Paper 1.0
Title: Speculative Attacks and Models of Balance-of-Payments Crises
Author-Name: Pierre-Richard Agenor
Author-Person: pag16
Author-Name: Jagdeep S. Bhandari
Author-Name: Robert P. Flood
Author-Person: pfl25
Note: ITI IFM
Number: 3919
Creation-Date: 1991-11
Order-URL: http://www.nber.org/papers/w3919
File-URL: http://www.nber.org/papers/w3919.pdf
File-Format: application/pdf
Publication-Status: published as Pierre-Richard Agenor & Jagdeep S. Bhandari & Robert P. Flood, 1992. "Speculative Attacks and Models of Balance of Payments Crises," Staff Papers - International Monetary Fund, vol 39(2).
Abstract: This paper reviews recent developments in the theoretical and empirical analysis of balance-of-payments crises. A simple analytical model highlighting the process leading to such crises is first developed. The basic framework is then extended to deal with a variety of issues, such as: alternative post-collapse regimes, uncertainty, real sector effects, external borrowing and capital controls, imperfect asset substitutability, sticky prices, and endogenous policy switches. Empirical evidence on the collapse of exchange rate regimes is also examined, and the major implications of the analysis for macroeconomic policy are discussed.
Handle: RePEc:nbr:nberwo:3919
Template-Type: ReDIF-Paper 1.0
Title: Identification and the Liquidity Effect of a Monetary Policy Shock
Author-Name: Lawrence J. Christiano
Author-Person: pch45
Author-Name: Martin Eichenbaum
Author-Person: pei4
Note: EFG ME
Number: 3920
Creation-Date: 1991-11
Order-URL: http://www.nber.org/papers/w3920
File-URL: http://www.nber.org/papers/w3920.pdf
File-Format: application/pdf
Publication-Status: published as "Some Empirical Evidence on the Liquidity Effect", Political Economy, Growth, and Business Cycles EDS.: A. Cuikerman, Z. Hercowitz, L. Leiderman MIT Press 1992
Abstract: Conventional wisdom holds that unanticipated expansionary monetary policy shocks cause transient but persistent decreases in real and nominal interest rates. However a number of econometric studies argue that the evidence favors the opposite view, namely that these shocks actually raise, rather than lower, short term interest rates. We show that this conclusion is not robust to the measure of monetary aggregate used or to the assumptions made to identify monetary policy disturbances. For example, when our analysis is done using non borrowed reserves, we find strong evidence in favor of the conventional view. Existing challenges to the conventional view lack credibility not just because of their fragility. They are based upon measures of policy disturbances which generate seemingly implausible implications about things other than interest rates.
Handle: RePEc:nbr:nberwo:3920
Template-Type: ReDIF-Paper 1.0
Title: Bank Runs: Liquidity and Incentives
Author-Name: Russell Cooper
Author-Name: Thomas W. Ross
Note: EFG
Number: 3921
Creation-Date: 1991-11
Order-URL: http://www.nber.org/papers/w3921
File-URL: http://www.nber.org/papers/w3921.pdf
File-Format: application/pdf
Publication-Status: Published as "Bank Runs: Liquidity Costs and Investment Distortions", Journal of Monetary Economics, Vol. 41, no. 1 (February 1998): 27-38.
Abstract: Diamond-Dybvig [1983] provide a model of intermediation in which bank runs are driven by pessimistic depositor expectations. Models which address these issues are important in the ongoing discussion which weighs the costs (incentive problems) and the benefits (preventing runs) of deposit insurance. In the present paper we extend the Diamond-Dybvig analysis to consider several important questions for evaluating deposit insurance that could not be addressed within their framework. First, we provide conditions for runs when banks can invest in both illiquid and liquid projects. This results in a weakening of the conditions necessary for bank runs relative to the Diamond-Dybvig model in which no liquid investments occur in equilibrium. Second, we characterize how banks respond to the possibility of runs in their design of deposit contracts and investment decisions, particularly through the holding of excess reserves. Finally, we use this framework to evaluate the costs and benefits of deposit insurance and other forms of intervention. To do so, we introduce moral hazard and monitoring into the model to explore the incentive effects of deposit insurance. The implementation of a capital requirement can, along with deposit insurance, support the optimal allocation.
Handle: RePEc:nbr:nberwo:3921
Template-Type: ReDIF-Paper 1.0
Title: The Cleansing Effect of Recessions
Author-Name: Ricardo J. Caballero
Author-Person: pca44
Author-Name: Mohamad L. Hammour
Note: EFG
Number: 3922
Creation-Date: 1991-12
Order-URL: http://www.nber.org/papers/w3922
File-URL: http://www.nber.org/papers/w3922.pdf
File-Format: application/pdf
Publication-Status: published as American Economic Review, Volume 84, No. 5, (December 1994), pp. 1350-1368
Abstract: This paper investigates the response of industries to cyclical variations in demand in the context of a vintage model of ?creative destruction.? Due to process and product innovation, production units that embody the newest techniques are continuously being created, and outdated units are being destroyed. We investigate the extent to which changes in demand are accommodated on the creation or destruction margins. Although outdated production units are the most likely to turn unprofitable and be scrapped in a recession, they can be "insulated" from the fall in demand if it is accompanied by a reduction in the creation rate. The model's implications are broadly consistent with observed variations in manufacturing gross job flows. The calibrated model matches the relative volatilities of job creation and destruction, and their asymmetries over the cycle.
Handle: RePEc:nbr:nberwo:3922
Template-Type: ReDIF-Paper 1.0
Title: Organizational Failure and Government Transfers: Evidence From an Experiment in the Financing of Mental Health Care
Author-Name: Richard G. Frank
Author-Name: Martin Gaynor
Author-Person: pga1
Note: EH
Number: 3923
Creation-Date: 1991-12
Order-URL: http://www.nber.org/papers/w3923
File-URL: http://www.nber.org/papers/w3923.pdf
File-Format: application/pdf
Publication-Status: published as "Organization Failure and Government Transfers: Evidence From an Experiment in the Financing of Mental Health Care,"Journal of Human Resources, vol.2 9, no.1, pp.108-125, winter 1994.
Abstract: This paper makes use of a unique "natural experiment" in the design of intergovernmental grants. The State of Ohio has dramatically altered the method by which local public mental health care is financed. The manner in which the grant mechanism has been altered allows for the estimation of income compensated subsidy responses of local governmental entities. The empirical results indicate strong responses to the "new" incentives suggesting a direction for policy makers for dealing with some of the most vexing problems in mental health policy.
Handle: RePEc:nbr:nberwo:3923
Template-Type: ReDIF-Paper 1.0
Title: Income Shifting in U.S. Multinational Corporations
Author-Name: David Harris
Author-Name: Randall Morck
Author-Person: pmo146
Author-Name: Joel Slemrod
Author-Person: psl10
Author-Name: Bernard Yeung
Note: PE
Number: 3924
Creation-Date: 1991-12
Order-URL: http://www.nber.org/papers/w3924
File-URL: http://www.nber.org/papers/w3924.pdf
File-Format: application/pdf
Publication-Status: published as Studies in Internatioanl Taxationedited by Alberto Giovannini, R. Glenn Hubbard, and Joel Slemrod University of Chicago Press: May 1993
Publication-Status: published as Income Shifting in U.S. Multinational Corporations, David Harris, Randall Morck, Joel B. Slemrod. in Studies in International Taxation, Giovannini, Hubbard, and Slemrod. 1993
Abstract: It is often claimed that multinational firms avoid taxes by shifting income from high-tax to low-tax countries. Using a five year panel of data for two hundred large U.S. manufacturing firms, we find that U.S. tax liability, as a fraction either of U.S. sales or U.S. assets, is related to the location of foreign subsidiaries in a way that is consistent with tax-motivated income shifting. Having a subsidiary in a tax haven, Ireland, or one of the "four dragon" Asian countries - all characterized by low tax rates - is associated with lower U.S. tax ratios. Having a subsidiary in a high-tax region is associated with higher U.S. tax ratios. These results suggest that U.S. manufacturing companies shift income out of high-tax countries into the U.S., and from the U.S. to low-tax countries. Such behavior certainly lowers worldwide tax liabilities for larger U.S. manufacturing companies and appears to significantly lower their U.S. tax liabilities as well.
Handle: RePEc:nbr:nberwo:3924
Template-Type: ReDIF-Paper 1.0
Title: The Effects of U.S. Tax Policy on the Income Repatriation Patterns of U.S. Multinational Corporations
Author-Name: Rosanne Altshuler
Author-Person: pal34
Author-Name: T. Scott Newlon
Note: PE
Number: 3925
Creation-Date: 1991-12
Order-URL: http://www.nber.org/papers/w3925
File-URL: http://www.nber.org/papers/w3925.pdf
File-Format: application/pdf
Publication-Status: published as Studies in International Taxationedited by Alberto Giovannini, R. Glenn Hubbard, and Joel Slemrod University of Chicago Press; May 1993
Publication-Status: published as The Effects of U.S. Tax Policy on the Income Repatriation Patterns of U. S . Multinational Corporations, Rosanne Altshuler, T. Scott Newlon, Joel Slemrod. in Studies in International Taxation, Giovannini, Hubbard, and Slemrod. 1993
Abstract: U.S. corporations owe taxes to the U.S. Treasury on income earned both inside and outside American borders. This paper examines the incentives created by the U.S. tax system for the legal avoidance of taxes on foreign source income. Using data from 1986 corporate tax returns, we investigate the extent to which U.S. corporations structure and coordinate remittances of income from their foreign subsidiaries to reduce their U.S. and foreign tax liabilities. In contrast to previous work in this area, our estimates of the tax consequences of income remittances from foreign subsidiaries to parent corporations explicitly take into account the ability to use foreign tax credits generated from one source of foreign income to offset the U.S. tax liability generated by other sources of foreign income, withholding tax rates on income remittances, variations in source country corporate income tax systems, and dynamic aspects of the U.S. tax system. Our findings indicate that U.S. multinationals are able to take advantage of the U.S. tax system to avoid paying much U.S. tax on their foreign source income.
Handle: RePEc:nbr:nberwo:3925
Template-Type: ReDIF-Paper 1.0
Title: Labor Market Institutions, Liquidity Constraints, and Macroeconomic Stability
Author-Name: Frank R. Lichtenberg
Author-Person: pli76
Note: LS
Number: 3926
Creation-Date: 1991-12
Order-URL: http://www.nber.org/papers/w3926
File-URL: http://www.nber.org/papers/w3926.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Economic Behavior and Organization, vol. 28, no. 1, (September 1995), pp. 145-154
Abstract: The sensitivity of employment and real wages -- hence aggregate labor income to short-run fluctuations in output varies across countries. We develop a simple theoretical model to show that, if workers, but not capitalists, are liquidity constrained, the sensitivity of an economy to exogenous expenditure shocks is inversely related to the extent to which capitalists, rather than workers, bear fluctuations in income. We perform an econometric test of this proposition using cross-sectional, country-level data on elements of the (time-series) covariance matrix of output, employment, real wages, and investment. We argue that, for two reasons, our estimate of the elasticity of consumption with respect to labor income is likely to be biased towards zero. Nevertheless, our estimate of this parameter is highly significantly different from zero, and is also consistent with previous estimates (obtained from a completely different specification). The empirical results support the view that the lower the sensitivity of labor income to output fluctuations, the smaller the output fluctuations themselves will be. Low sensitivity contributes indirectly as well as directly to the stability of labor income.
Handle: RePEc:nbr:nberwo:3926
Template-Type: ReDIF-Paper 1.0
Title: Changes in Relative Wages, 1963-1987: Supply and Demand Factors
Author-Name: Lawrence F. Katz
Author-Person: pka266
Author-Name: Kevin M. Murphy
Author-Person: pmu108
Note: LS
Number: 3927
Creation-Date: 1991-12
Order-URL: http://www.nber.org/papers/w3927
File-URL: http://www.nber.org/papers/w3927.pdf
File-Format: application/pdf
Publication-Status: published as Quarterly Journal of Economics Feb, 1992 Volume 107, No. 1, pp. 35-78
Abstract: A simple supply and demand framework is used to analyze changes in the U.S. wage structure from 1963 to 1987. Rapid secular growth in the demand for more-educated workers, 'more-skilled' workers, and females appears to be the driving force behind observed changes in the wage structure. Measured changes in the allocation of labor between industries and occupations strongly favored college graduates and females throughout the period. Movements in the college wage premium over this period appear to be strongly related to fluctuations in the rate of growth of the supply of college graduates.
Handle: RePEc:nbr:nberwo:3927
Template-Type: ReDIF-Paper 1.0
Title: The Appointment-Book Problem and Commitment, With Applications to Refereeing and Medicine
Author-Name: Daniel S. Hamermesh
Author-Person: pha78
Note: LS
Number: 3928
Creation-Date: 1991-12
Order-URL: http://www.nber.org/papers/w3928
File-URL: http://www.nber.org/papers/w3928.pdf
File-Format: application/pdf
Publication-Status: published as "Nonprice Rationing of Services with Applications to Refereeing Medicine," Research in Labor Economics, vol. 14, pp 283-306, 1995
Abstract: Markets that involve customers waiting for services or goods in queues whose length they cannot observe are studied. In these markets suppliers truncate queues that become so long that they jeopardize the supplier's future relations with the customer. The length of the queue and the probability of truncation increase with the quality of the supplier, and this implicitly defines the price that customers are willing to pay for quality. Queue-jumping or nontruncation can occur if monetary payments are made or if nonmonetary specific commitments exist between a customer and a supplier. The predictions apply to any activity where the queue is unobservable and transactions costs make contracts or spot pricing uneconomic. The theory is examined on a random sample of refereeing requests by seven economics journals. Quality, measured by experience and citations to the referee's work, lengthens the queue and increases the probability of truncation. Monetary bribes affect queue discipline in the expected way; and specific commitments, measured by past publication in the journal and location at the editor's institution, greatly affect the truncation rate, but have no impact on the rate of servicing the queue. The implications for truncation are also examined on a set of data describing doctors' willingness to accept new patients, with much the same results as in the sample of referees.
Handle: RePEc:nbr:nberwo:3928
Template-Type: ReDIF-Paper 1.0
Title: How Does It Matter?
Author-Name: Benjamin M. Friedman
Note: ME
Number: 3929
Creation-Date: 1991-12
Order-URL: http://www.nber.org/papers/w3929
File-URL: http://www.nber.org/papers/w3929.pdf
File-Format: application/pdf
Publication-Status: published as Michael T. Belangia and Michelle R. Garfinkle, The Business Cycle: Theories and Evidence (Kluwer, 1992).
Abstract: This paper argues that the distinctions among different current theories of the business cycle do not have the force usually assumed in their behalf in discussions of macroeconomic policy. The distinction between aggregate demand and aggregate supply as the principal location of the disturbances that drive business cycles the distinction most popularly associated with 'real business cycle' models -- is, from a policy perspective, less important than is commonly believed. The policy prescriptions that follow from these models have more to do with the kinds of assumptions that they incorporate about how markets function than with whether the chief disturbances to which the economy is subject work through demand or supply. At the same time, a further set of distinctions not customarily addressed in the business cycle literature, mostly revolving around the definition of 'income,' turns out to be surprisingly important. Finally, yet further issues, which traditionally receive too little attention from economists, arise from the fact that the people and the business institutions that make up the private sector of a modern industrialized economy are vastly heterogeneous, and that democratic forms of government, for all their virtues, have not been very effective in arranging appropriate transfers from one group to others as the need arises.
Handle: RePEc:nbr:nberwo:3929
Template-Type: ReDIF-Paper 1.0
Title: On the Sensitivity of R&D to Delicate Tax Changes: The Behavior of U.S. Multinationals in the 1980s
Author-Name: James R. Hines, Jr.
Author-Person: phi111
Note: PE
Number: 3930
Creation-Date: 1991-12
Order-URL: http://www.nber.org/papers/w3930
File-URL: http://www.nber.org/papers/w3930.pdf
File-Format: application/pdf
Publication-Status: published as Studies in International Taxation, edited by Alberto Giovannini, R. Glenn Hubbard, and Joel Slemrod, pp. 149-187. Chicago: The University of Chicago Press, 1993.
Publication-Status: published as On the Sensitivity of R&D to Delicate Tax Changes: The Behavior of U. S. Multinationals in the 1980s , James R. Hines, Jr., R. Glenn Hubbard, Joel Slemrod. in Studies in International Taxation, Giovannini, Hubbard, and Slemrod. 1993
Abstract: This paper explores the effect of recent U.S. tax changes on the R&D activities of American multinational corporations. Prior to 1986, U.S. multinational firms could deduct all of their domestic R&D expenses against their U.S. income for tax purposes. After 1986, some firms could take only a partial deduction (while other multinationals continued to receive the benefits of 100% deductibility). By comparing the behavior of firms in these two situations (after 1986), it is possible to estimate the responsiveness of R&D to changes in after-tax prices. The results indicate that the price elasticity of demand for R&D lies between -1.2 and -1.6, thereby implying considerably more price sensitivity than is typically assumed to be true of R&D. Based on these results, the 1986 tax change appears to have been responsible for a reduction of between $1.4 billion and $2.2 billion in annual R&D in the United States, in return for $1.2 billion in additional annual tax revenue.
Handle: RePEc:nbr:nberwo:3930
Template-Type: ReDIF-Paper 1.0
Title: How Long do Unilateral Target Zones Last?
Author-Name: Bernard Dumas
Author-Person: pdu519
Author-Name: Lars E.O. Svensson
Author-Person: psv2
Note: ITI IFM
Number: 3931
Creation-Date: 1991-12
Order-URL: http://www.nber.org/papers/w3931
File-URL: http://www.nber.org/papers/w3931.pdf
File-Format: application/pdf
Publication-Status: published as Journal of International Economics, 36 (1994) pp. 467-481
Abstract: We examine the expected survival time of a unilateral exchange rate target zone, when constraints on monetary policy prevent the central bank from exclusively focusing on defending the target zone. Generally, the width of the target zone has a negligible effect on the expected survival time, and the dominant determinants are reserve levels and the degree of real and monetary divergence between the country in question and the rest of the world. For seemingly realistic parameters, the expected survival time is fairly long: a few decades rather than a few years.
Handle: RePEc:nbr:nberwo:3931
Template-Type: ReDIF-Paper 1.0
Title: Consumption Taxes in a Life-Cycle Framework: Are Sin Taxes Regressive?
Author-Name: Andrew B. Lyon
Author-Person: ply2
Author-Name: Robert M. Schwab
Note: PE
Number: 3932
Creation-Date: 1991-12
Order-URL: http://www.nber.org/papers/w3932
File-URL: http://www.nber.org/papers/w3932.pdf
File-Format: application/pdf
Publication-Status: published as Review of Economics and Statistics, Vol. 77, no. 3 (1995): 389-406.
Abstract: In this paper we construct measures of tax incidence over the life-cycle and compare these measures to traditional measures based on annual data. We show that annual measures of the incidence of taxes on consumption goods may differ from life-cycle measures for three reasons. First, annual measures of income reflect transitory components which should have smaller effects on consumption than permanent changes in income. Second, income measured in a single period differs from lifetime income due to age-related differences in earnings. Third, consumption of certain items follows life-cycle patterns independent of changes in income. Surprisingly, we find that these effects cause almost no change in the assessment of the incidence of taxes applying to the consumption of cigarettes. For alcohol, however, we find that a tax on its consumption is slightly less regressive when measured with respect to lifetime income than when measured with respect to annual income.
Handle: RePEc:nbr:nberwo:3932
Template-Type: ReDIF-Paper 1.0
Title: Local House Price Indexes: 1982-1991
Author-Name: Donald Haurin
Author-Person: pha178
Author-Name: Patric Hendershott
Author-Name: Dongwook Kim
Number: 3933
Creation-Date: 1991-12
Order-URL: http://www.nber.org/papers/w3933
File-URL: http://www.nber.org/papers/w3933.pdf
File-Format: application/pdf
Publication-Status: published as Real Estate Economics, 19(3), September 1991, pp. 451-472
Abstract: We begin with a description of three house price panel data sets for the period 1982 to 1991. Next, we estimate a model that assumes the three sources are derived from an underlying unobserved price series, and we construct composite indexes that report house prices for 135 locations. These series can be used either as explanatory variables in studies of household formation, housing demand, and migration or to test models of the determinants of spatial and intertemporal variations in house prices. Finally, we construct regional series (based, alternatively, on census and Salomon Brothers regions) and two national aggregates and describe their movements. Our series are compared to other local, regional, and national series.
Handle: RePEc:nbr:nberwo:3933
Template-Type: ReDIF-Paper 1.0
Title: Anatomy of a Financial Crisis
Author-Name: Frederic S. Mishkin
Author-Person: pmi37
Note: ME
Number: 3934
Creation-Date: 1991-12
Order-URL: http://www.nber.org/papers/w3934
File-URL: http://www.nber.org/papers/w3934.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Evolutionary Economics, 2, pp. 115-130 (1992).
Abstract: This paper provides an asymmetric information framework for understanding the nature of financial crises. It provides the following precise definition of a financial crisis: A financial crisis is a disruption to financial markets in which adverse selection and moral hazard problems become much worse, so that financial markets are unable to efficiently channel funds to those who have the most productive investment opportunities. As a result, a financial crisis can drive the economy away from an equilibrium with high output in which financial markets perform well to one in which output declines sharply. The asymmetric information framework explains the patterns in the data and many features of these crises which are otherwise hard to explain. It indicates that financial crises have effects over and above those resulting from bank panics and therefore provides a rationale for an expanded lender-of-last resort role for the central bank in which the central bank uses the discount window to provide liquidity to sectors outside of the banking system.
Handle: RePEc:nbr:nberwo:3934
Template-Type: ReDIF-Paper 1.0
Title: Errors in Output Deflators Revisited: Unit Values and the PPI
Author-Name: Donald Siegel
Note: PR
Number: 3935
Creation-Date: 1991-12
Order-URL: http://www.nber.org/papers/w3935
File-URL: http://www.nber.org/papers/w3935.pdf
File-Format: application/pdf
Publication-Status: published as EI, Vol. 32, no. 1 (1994): 11-32.
Abstract: Extending a methodology developed by Lichtenberg and Griliches (1989), we examine the extent of measurement error in two independent indicators of price change: the producer price index (PPI) and the U.S. Census Bureau's unit value relative (UVR). Estimation of factor analytic models is improved by the availability of more accurate and comprehensive proxies for price and quality change within industries and a more complete specification of the econometric model. We find that the UVR is a "noisier measure of price change than the PPI and that the PPI adjusts for approximately 57% of product quality change.
Handle: RePEc:nbr:nberwo:3935
Template-Type: ReDIF-Paper 1.0
Title: Openness and Inflation: Theory and Evidence
Author-Name: David Romer
Author-Person: pro406
Note: EFG ME
Number: 3936
Creation-Date: 1991-12
Order-URL: http://www.nber.org/papers/w3936
File-URL: http://www.nber.org/papers/w3936.pdf
File-Format: application/pdf
Publication-Status: published as Quarterly Journal of Economics, vol. 108, no. 4, pp. 869-903, November 1993
Publication-Status: published as David Romer, 1991. "Openness and inflation: theory and evidence," Proceedings, Federal Reserve Bank of San Francisco, issue Nov.
Abstract: This paper points out and tests a straight forward but previously unnoticed prediction of models in which the absence of precommitment in monetary policy leads to excessive inflation. Because unanticipated monetary expansion leads to real exchange rate depreciation, and because the harms of real depreciation are greater in more open economies, the benefits of surprise expansion are decreasing in the degree of openness. Thus, under discretionary policy-making, money growth and inflation will be lower in more open economies. After presenting a simple theoretical model demonstrating this prediction of the theory, the paper examines the link between openness and inflation using cross-country data. The data reveal a strong negative link between openness and inflation.
Handle: RePEc:nbr:nberwo:3936
Template-Type: ReDIF-Paper 1.0
Title: Revisions and Investment Plans and the Stock Market Rate of Return
Author-Name: Mark Schankerman
Note: AP
Number: 3937
Creation-Date: 1991-12
Order-URL: http://www.nber.org/papers/w3937
File-URL: http://www.nber.org/papers/w3937.pdf
File-Format: application/pdf
Abstract: This paper explores the sources of uncertainty that cause firms to revise their capital investment plans and the stock market to revise its valuation of those firms. A simple method is developed to decompose the uncertainty governing revisions in investment plans and the stock market rate of return in micro, setoral and aggregate components, and to measure the degree of heterogeneity in micro responses to common disturbances. The method is applied to a panel data set of firms in the U.S. economy for the period 1950-1973. The empirical results show that the capital investment decision is governed primarily by idiosyncratic uncertainty, but common disturbances are more important for movements in the stock market rate of return.
Handle: RePEc:nbr:nberwo:3937
Template-Type: ReDIF-Paper 1.0
Title: Individual Retirement Accounts: A Review of the Evidence
Author-Name: Jonathan Skinner
Author-Person: psk23
Note: AG PE
Number: 3938
Creation-Date: 1991-12
Order-URL: http://www.nber.org/papers/w3938
File-URL: http://www.nber.org/papers/w3938.pdf
File-Format: application/pdf
Publication-Status: published as Tax Notes, 54(2), January 13, 1992, pp.201-212
Abstract: Recent legislative proposals have included restoring Individual Retirement Accounts (IRAs) to their pre-1987 eligibility rules. Whether IRAs are simply tax windfalls with no effect on saving, or whether IRAs stimulate saving, is a crucial issue in evaluating the effectiveness of such proposals. In this paper, I review the previous literature on IRAs as well as presenting new evidence on the saving behavior of IRA contributors. In brief, IRA contributors are wealthier and older than the general population. There is no clear consensus from structural economic models on whether IRA contributions are new saving or old, shuffled, saving. Nevertheless, IRA contributors during the 1980s were remarkably active savers. For example, the typical IRA contributor was estimated to hav~ increased total financial wealth in real terms by 71 percent between 1982-86. Individual Retirement Accounts may have induced saving through psychological factors not normally present in orthodox economic models, but evidence on such factors is speculative rather than conclusive.
Handle: RePEc:nbr:nberwo:3938
Template-Type: ReDIF-Paper 1.0
Title: The Structure of Production, Technical Change and Efficiency in a Multiproduct Industry: An Application to U.S. Airlines
Author-Name: David H. Good
Author-Name: M. Ishaq Nadiri
Author-Name: Robin C. Sickles
Author-Person: psi296
Note: PR
Number: 3939
Creation-Date: 1991-12
Order-URL: http://www.nber.org/papers/w3939
File-URL: http://www.nber.org/papers/w3939.pdf
File-Format: application/pdf
Abstract: In this paper we construct a short run model of the firm describing the behavior of thirteen U.S. airlines during the difficult transition to deregulation. Several modeling scenarios are developed to assess three common assumptions in cost studies: the use of time as a proxy for technological change as opposed to a more thorough description of changes in the production technique, the assumption of cost minimizing behavior as opposed to permitting allocative inefficiency in input selection, and the assumption exogeneity of output and capital and their characteristics as opposed to endogenous decisions regarding these variables. Derived properties of the resulting eight combinations of these issues are calculated to identify the sensitivity of these properties to the modeling assumptions. The most dramatic finding is that input concavity are reduced by 80 percent by relaxing the assumption of cost minimization. Demand and substitution elasticities are nearly twice as large under our most flexible compared to the least flexible scenarios. Measured returns to scale are substantively much higher when a more complete description of the production technique is included in the model, and when this production technique is permitted to be modeled endogenously. Similarly, cost complementarity is quite sensitive to the assumption of endogeneity. Finally, cost models based on these three common assumptions over state the level of productivity growth by as much as 40%. By correctly modeling and estimating the production technique, our most general model predicts a level of productivity growth which is quite similar to that based on Divisia indices calculations.
Handle: RePEc:nbr:nberwo:3939
Template-Type: ReDIF-Paper 1.0
Title: Why Didn't the Tax Reform Act of 1986 Raise Corporate Taxes?
Author-Name: James M. Poterba
Author-Person: ppo19
Note: PE
Number: 3940
Creation-Date: 1991-12
Order-URL: http://www.nber.org/papers/w3940
File-URL: http://www.nber.org/papers/w3940.pdf
File-Format: application/pdf
Publication-Status: published as Tax Policy and the Economy, J. Poterba ed., vol.6, (1992) pp.43-58 MIT Press, Cambridge
Publication-Status: published as Why Didn't the Tax Reform Act of 1986 Raise Corporate Taxes?, James M. Poterba. in Tax Policy and the Economy, Volume 6, Poterba. 1992
Abstract: The Tax Reform Act of 1986 was projected to raise corporate taxes by more than $120 billion over the 1986-1991 period. Actual federal corporate tax receipts in the last five years have fallen far short of these projections. This paper explores the factors that have contributed to this shortfall. The most important factor is lower-than-expected corporate profits. The underperformance of corporate profits can be attributed to three principal causes. First, the predicted rates of corporate profits when the 1986 Tax Reform Act was enacted were high by historical standards. The U.S. economy in the late 1980s did not experience total returns on corporate capital, the combined return to equity and debt investors, as high as the forecasts would have suggested. Second, corporate interest payments were significantly higher, as a share of corporate operating income or GNP, in the late 1980s than in the years leading up to the Tax Reform Act. This reduced the corporate tax base, and may in substantial part ultimately be attributable to the marginal incentive effects for debt and equity finance provided in the 1986 Tax Reform Act. Third, also quite likely in reaction to recent tax changes, the last few years have seen rapid growth in the income reported by Subchapter S corporations. This income is taxed under the individual income tax. The rise of S corporations has therefore contributed to the erosion of the corporate income tax.
Handle: RePEc:nbr:nberwo:3940
Template-Type: ReDIF-Paper 1.0
Title: Fiscal Federalism in Europe: Lessons From the United States Experience
Author-Name: Robert P. Inman
Author-Name: Daniel L. Rubinfeld
Note: PE
Number: 3941
Creation-Date: 1991-12
Order-URL: http://www.nber.org/papers/w3941
File-URL: http://www.nber.org/papers/w3941.pdf
File-Format: application/pdf
Publication-Status: published as European Economic Review, Vol. 36, 1992, 654-660.
Abstract: The existing political and legal institutions of fiscal policy-making are under challenge. As the United States and the eastern European and Soviet states experiment with policy decentralization, the states of western Europe are looking to a more centralized policy structure via the E.E.C.. This paper seeks to raise issues of importance to all such reform efforts--notably, the need to consider, and balance, the inefficiencies of fiscal policy decentralization (spillovers and wasteful fiscal competition) against the inefficiencies of fiscal policy centralization (policy cycles and localized 'pork barrel' spending and taxes). The need to develop new fiscal policy institutions emphasizing voluntary agreements and responsive 'agenda-setters' is stressed.
Handle: RePEc:nbr:nberwo:3941
Template-Type: ReDIF-Paper 1.0
Title: Anatomy of Financial Distress: An Examination of Junk-Bond Issuers
Author-Name: Paul Asquith
Author-Name: Robert Gertner
Author-Name: David Scharfstein
Author-Person: psc177
Note: CF
Number: 3942
Creation-Date: 1991-12
Order-URL: http://www.nber.org/papers/w3942
File-URL: http://www.nber.org/papers/w3942.pdf
File-Format: application/pdf
Publication-Status: published as Quarterly Journal of Economics, Vol. 109, no. 3 (1994): 625-658.
Abstract: This paper examines the events following the onset of financial distress for 102 public junk bond issuers. We find that out-of-court debt relief mainly comes from junk bond - holders; banks almost never forgive principal, though they do defer payments and waive debt covenants. Asset sales are an important means of avoiding Chapter 11 reorganization; however, they may be limited by industry factors. If a company simply restructures its bank debt, but either does not restructure its public debt or does not sell major assets or merge, the company goes bankrupt. The structure of a company's liabilities affects the likelihood that it goes bankrupt; companies whose bank and private debt are secured as well as companies with complex public debt structures are more prone to go bankrupt. Finally, there is no evidence that more profitable distressed companies are more successful in dealing with financial distress; they are not less likely to go bankrupt, sell assets, or reduce capital expenditures.
Handle: RePEc:nbr:nberwo:3942
Template-Type: ReDIF-Paper 1.0
Title: The Adjustment Mechanism
Author-Name: Maurice Obstfeld
Author-Person: pob13
Note: ITI IFM
Number: 3943
Creation-Date: 1991-12
Order-URL: http://www.nber.org/papers/w3943
File-URL: http://www.nber.org/papers/w3943.pdf
File-Format: application/pdf
Publication-Status: published as A Retrospective on the Bretton Woods System, edited by Michael D. Bordo and Barry Eichengreen, pp. 201-268. Chicago, IL: University of Chicago Press, 1993.
Publication-Status: published as The Adjustment Mechanism, Maurice Obstfeld. in A Retrospective on the Bretton Woods System: Lessons for International Monetary Reform, Bordo and Eichengreen. 1993
Abstract: This paper studies the mechanisms of international payments adjustment at work under the Bretton Woods system of fixed exchange rates, 1945 to 1971. I argue that two market failures, imperfect international capital mobility and imperfect wage-price flexibility, are central to understanding the adjustment problems of that period. Imperfect capital mobility implied that even intertemporally solvent governments could face international liquidity constraints. Wage-price inflexibility implied that countries suffering from simultaneous reserve loss and unemployment might need to undergo lengthy transitions before returning to balance. By the 1960s, when trade had been substantially liberalized and partial convertibility restored, the main remaining adjustment weapon was currency realignment: devaluation could eliminate an unemployment-cum-deficit dilemma in a stroke, while revaluation could relieve the inflationary pressures in surplus countries. The currency-realignment option proved incompatible with the growing efficiency of the international capital market, however. Under the classical gold standard, high capital mobility had supported the credibility of fixed exchange rates. Under Bretton Woods fixed gold parities did not have primacy among other economic objectives; and increasing capital mobility undermined the regime as governments proved unwilling to stand by key systemic commitments.
Handle: RePEc:nbr:nberwo:3943
Template-Type: ReDIF-Paper 1.0
Title: The Debt Burden and Debt Maturity
Author-Name: Alessandro Missale
Author-Person: pmi118
Author-Name: Olivier Jean Blanchard
Author-Person: pbl2
Note: EFG
Number: 3944
Creation-Date: 1991-12
Order-URL: http://www.nber.org/papers/w3944
File-URL: http://www.nber.org/papers/w3944.pdf
File-Format: application/pdf
Publication-Status: published as American Economic Review, 84-1, March 1994, pp. 309-319.
Abstract: At low and moderate levels of government debt, there appears to be little relation between the level of debt and its maturity. But at high levels of debt, a strong inverse relation emerges. We start the paper by documenting this inverse relation for those OECD Countries which have reached very high levels of debt. We then provide a theory of the joint movements of debt and maturity which can explain both sets of facts. It is based on the idea that, at high levels of debt, the government may need to decrease the maturity of the debt as debt increases, in order to maintain the credibility of its anti-inflation stance.
Handle: RePEc:nbr:nberwo:3944
Template-Type: ReDIF-Paper 1.0
Title: Tax Policy and Urban Development: Evidence From The Indiana Enterprise Zone Program
Author-Name: Leslie E. Papke
Author-Person: ppa153
Note: PE
Number: 3945
Creation-Date: 1991-12
Order-URL: http://www.nber.org/papers/w3945
File-URL: http://www.nber.org/papers/w3945.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Public Economics, vol 54, no. 1, May 1994, p. 37-49
Abstract: In the last decade, most states have targeted certain depressed areas for revitalization by providing a combination of labor and capital tax incentives to firms operating in the "enterprise zone" (EZ). Despite the large number of state initiatives, and the frequent re-introduction of federal EZ legislation, there have been few statistical analyses of the effect of EZs apart from surveys of plan administrators. This paper analyzes the effect of the Indiana EZ program on local employment and investment using a panel of local taxing jurisdictions. In 1988, the direct budgetary costs of the Indiana program totaled over $11 million, averaging $13,933 per participating firm, $4,564 per new job, and $31,113 per new zone resident job. I estimate that zone designation initially reduces the value of depreciable personal property by about 13 percent, but also reduces unemployment claims in the zone and surrounding community by 19 percent. Both estimates are statistically significant. The value of inventories in Indiana zones is 8 percent higher than it otherwise would be, and the estimated effect is marginally statistically significant.
Handle: RePEc:nbr:nberwo:3945