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Template-Type: ReDIF-Paper 1.0
Title: Evaluating the Effects of Incomplete Markets on Risk Sharing and Asset Pricing
Classification-JEL: E44
Author-Name: John Heaton
Author-Name: Deborah Lucas
Author-Person: plu94
Note: EFG AP
Number: 4249
Creation-Date: 1993-01
Order-URL: http://www.nber.org/papers/w4249
File-URL: http://www.nber.org/papers/w4249.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Political Economy, Vol. 104, no. 3 (June 1996): 443-487.
Abstract: We examine asset prices and consumption patterns in a model in which agents face both aggregate and idiosyncratic income shocks, and insurance markets are incomplete. Agents reduce consumption variability by trading in a stock and bond market to offset idiosyncratic shocks, but transactions costs in both markets limit the extent of trade. To calibrate the model, we estimate an empirical model of labor and dividend income, using data from the PSID and the NIPA. Although the agents in the model are not very risk averse, the model predicts a sizable equity premium and a low riskfree rate. By simultaneously considering aggregate and idiosyncratic shocks, we decompose this effect of transactions costs on the equity premium into two components. The direct effect is due to the fact that individuals equate net-of-cost margins, so an asset with lower associated transactions costs will have a lower market rate of return. A second, indirect effect occurs because transactions costs result in individual consumption that more closely tracks individual income than aggregate consumption.
Handle: RePEc:nbr:nberwo:4249
Template-Type: ReDIF-Paper 1.0
Title: Real Effects of Monetary Shocks in an Economy with Sequential Purchases
Classification-JEL: E3
Author-Name: Robert E. Lucas, Jr.
Author-Name: Michael Woodford
Author-Person: pwo3
Note: EFG
Number: 4250
Creation-Date: 1993-01
Order-URL: http://www.nber.org/papers/w4250
File-URL: http://www.nber.org/papers/w4250.pdf
File-Format: application/pdf
Abstract: We study the effects of monetary disturbances in an economy in which sellers must deal with potential buyers in sequence, rather than being able to sell their goods in a Walrasian auction market. Because of the structure of trading assumed, the current state of demand is not revealed to sellers until after the process of sequential transactions has concluded. As a consequence, unanticipated changes in nominal spending flows induce less-than-proportional responses in nominal transaction prices, and changes in the same direction in real output. These effects are similar to those obtained if sellers must commit themselves in advance to money prices, but do not depend upon any cost of changing prices. We fully characterize the stationary intertemporal equilibrium of an economy subject to i.i.d. money supply shocks. We show how the ex ante distribution of monetary shocks affects sellers' pricing strategies, and hence the equilibrium relation between the money supply, the distribution of transaction prices, and the degree to which available productive capacity is utilized.
Handle: RePEc:nbr:nberwo:4250
Template-Type: ReDIF-Paper 1.0
Title: What Do We Know about Enterprise Zones?
Classification-JEL: H71
Author-Name: Leslie E. Papke
Author-Person: ppa153
Note: PE
Number: 4251
Creation-Date: 1993-01
Order-URL: http://www.nber.org/papers/w4251
File-URL: http://www.nber.org/papers/w4251.pdf
File-Format: application/pdf
Publication-Status: published as What Do We Know about Enterprise Zones?, Leslie E. Papke. in Tax Policy and the Economy, Volume 7, Poterba. 1993
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 an "enterprise zone" (EZ). A partial equilibrium model is used to analyze the theoretical effects of various EZ incentives on zone wages and employment. I review empirical evidence on the operational success of EZ programs in Britain and the U.S., and present new evidence from the 1990 Census on the success of the Indiana program. Most British zone businesses are relocations, with an annual cost per job of approximately $15,000. U.S. surveys find that much zone activity comes from expansions of existing businesses, with the average cost per zone job ranging from $4,564 to $13,000 annually (about $31,113 per zone resident job). How do zones perform relative to what would have been their performance in the absence of zone designation? Evidence on this issue is summarized for the state of Indiana, where the zone program appears to have increased inventory investment and reduced unemployment claims. But new evidence based on the 1990 Census of Population indicates that the economic well-being of zone residents in Indiana has not appreciably improved.
Handle: RePEc:nbr:nberwo:4251
Template-Type: ReDIF-Paper 1.0
Title: The Lifetime Incidence of State and Local Taxes: Measuring Changes During the 1980s
Classification-JEL: H30; H22
Author-Name: Gilbert E. Metcalf
Note: PE
Number: 4252
Creation-Date: 1993-01
Order-URL: http://www.nber.org/papers/w4252
File-URL: http://www.nber.org/papers/w4252.pdf
File-Format: application/pdf
Publication-Status: published as Tax Progressivity and Income Inequality, ed. Joel Slemrod, Cambridge University Press, 1994.
Abstract: I compute the lifetime tax incidence of the major state and local taxes used in the United States during the 1980s. Using data from the Consumer Expenditure Survey, I show that over the life cycle, general sales taxes are progressive and equally as progressive as state and local income taxes. While the progressivity of sales taxes has not changed between 1984 and 1989, income taxes have become less progressive over that five-year period. Property taxes on the other hand have become more progressive. The system of state and local taxes is mildly progressive the life cycle and has become slightly more progressive between 1984 and 1989. Finally. eliminating deductibility for sales taxes in 1986 appears to have had little effect on the overall progressivity of the tax system.
Handle: RePEc:nbr:nberwo:4252
Template-Type: ReDIF-Paper 1.0
Title: Progressivity of Capital Gains Taxation with Optimal Portfolio Selection
Classification-JEL: H21; G11
Author-Name: Michael Haliassos
Author-Person: pha8
Author-Name: Andrew B. Lyon
Author-Person: ply2
Note: PE
Number: 4253
Creation-Date: 1993-01
Order-URL: http://www.nber.org/papers/w4253
File-URL: http://www.nber.org/papers/w4253.pdf
File-Format: application/pdf
Publication-Status: published as Slemrod, Joel (ed.) Tax progressivity and income inequality. Cambridge; New York and Melbourne: Cambridge University Press, 1994.
Abstract: We provide new data on capital gains realizations using a five-year stratified panel of taxpayers covering 1985-1989. We find, as earlier studies have, that capital gains realizations are very concentrated among the highest income groups. We use these data and data from the Federal Reserve Board Survey of Consumer Finances to draw inferences from a simulation model of the effects on progressivity and efficiency of alternative tax treatment of capital gains. Tax payments alone are not an accurate indication of the burden of a tax. Taxes generally create costs beyond the dollar value collected by causing persons to change their behavior to avoid the tax. Risk is also affected by the tax system. Beneficial risk-sharing characteristics of the tax system are frequently overlooked when examining the treatment of capital gains, We find that reforms comprising reductions in the capital gains tax rate offset by increases in the tax rate on other investment income are efficiency reducing. Surprisingly, we find that for taxpayers for whom loss limits are not binding a switch to accrual taxation is also efficiency reducing. For those taxpayers for whom loss limits are potentially binding, we find that large efficiency gains can be achieved by increasing the amount of capital losses that may be deducted against ordinary income. These results are partly attributable to changes in risk-sharing encompassed in these reforms.
Handle: RePEc:nbr:nberwo:4253
Template-Type: ReDIF-Paper 1.0
Title: Capital Gains Taxation and Realizations: Evidence from Interstate Comparisons
Classification-JEL: H24
Author-Name: William T. Bogart
Author-Name: William M. Gentry
Note: PE
Number: 4254
Creation-Date: 1993-01
Order-URL: http://www.nber.org/papers/w4254
File-URL: http://www.nber.org/papers/w4254.pdf
File-Format: application/pdf
Publication-Status: published as Review of Economics and Statistics, Vol. 77, no. 2 (1995): 267-282.
Abstract: Despite numerous studies of the relation between income taxes and capital garns realizations, the revenue consequences of reducing capital gains tax rates remain unclear. However, an important source of cross-sectional variation has been neglected in this line of research: since both the tax base and the tax rate vary among states, the marginal tax rate on capital gains differs among otherwise identical individuals located in different states. The interstate variation in the tax consequences of realizing capital gains implies that the incentive to realize gains varies across states. This paper documents the interstate variation in capital gains taxation and examines the relation between capital gains taxes and aggregated state-level realizations. For each state, we construct marginal tax rates on capital gains for the highest state income tax bracket for 1982 through 1990. Using state-level aggregated data rather than data on individual taxpayers alleviates the problem that the marginal tax rate is endogenous to the amount of capital gains realized. Panel estimates indicate that capital gains realizations are negatively related to capital gains tax rates. The estimated elasticity is smaller than that found by most researchers using panel data, with a point estimate of - 0.67 in our basic specification.
Handle: RePEc:nbr:nberwo:4254
Template-Type: ReDIF-Paper 1.0
Title: Changes in the Demand for Skilled Labor within U.S. Manufacturing Industries: Evidence from the Annual Survey of Manufacturing
Classification-JEL: J23; J24
Author-Name: Eli Berman
Author-Person: pbe188
Author-Name: John Bound
Author-Person: pbo406
Author-Name: Zvi Griliches
Note: LS PR
Number: 4255
Creation-Date: 1993-01
Order-URL: http://www.nber.org/papers/w4255
File-URL: http://www.nber.org/papers/w4255.pdf
File-Format: application/pdf
Publication-Status: published as Quarterly Journal of Economics, May 1994, pp. 367-397.
Abstract: This paper investigates the shift in demand towards skilled labor in U.S. manufacturing. Between 1979 and 1989. employment of production workers in manufacturing dropped by 2.2 mil1ion or 15 percent while employment of non-production workers rose by 3 percent. A decomposition of changing employment patterns in each of 450 industries reveals that the defense buildup and trade deficits can account for only a small part of the shift in demand towards non-production workers. We conclude that production labor-saving technological change is the most likely explanation for the shift in demand towards non-production workers since the shift is mostly due to changes in labor demand within industries rather than reallocation of employment towards industries with higher shares of skilled labor. Strong correlations between within-industry skil1 upgrading and both increased investment in computers on the one hand and increased investment in R&D on the other provide further evidence for production labor saving technological change.
Handle: RePEc:nbr:nberwo:4255
Template-Type: ReDIF-Paper 1.0
Title: Substitution and Complementarity in Endogenous Innovation
Classification-JEL: O41; O31
Author-Name: Alwyn Young
Note: EFG
Number: 4256
Creation-Date: 1993-01
Order-URL: http://www.nber.org/papers/w4256
File-URL: http://www.nber.org/papers/w4256.pdf
File-Format: application/pdf
Publication-Status: published as The Quarterly Journal of Economics, vol. cviii, issue 3, August 1993, (MIT Press, Cambridge),pp. 775-807.
Abstract: The influence of Schumpeter's notion of "creative destruction" may have led to an overemphasis on substitution between technologies in recent models of endogenous innovation. Historical examples of technological change suggest that new technologies may just as frequently complement older technologies, creating, rather than destroying, rents. Acknowledgement of the potential for both substitution and complementarity amongst inventions allows for a much richer characterization of the growth process, creating the possibility of threshold effects and multiple equilibria, and bringing to the forefront the important role played by the expectations of inventive entrepreneurs.
Handle: RePEc:nbr:nberwo:4256
Template-Type: ReDIF-Paper 1.0
Title: The Swedish Wage Stucture: The Rise and Fall of Solidarity Wage Policy?
Author-Name: Per-Anders Edin
Author-Person: ped22
Author-Name: Bertil Holmlund
Author-Person: pho155
Note: LS
Number: 4257
Creation-Date: 1993-01
Order-URL: http://www.nber.org/papers/w4257
File-URL: http://www.nber.org/papers/w4257.pdf
File-Format: application/pdf
Publication-Status: published as Differences and Changes in Wage Structures, ed. Lawrence Katz and Richard Freeman, University of Chicago Press, 1995.
Publication-Status: published as The Swedish Wage Structure: The Rise and Fall of Solidarity Wage Policy?, Per-Anders Edin, Bertil Holmlund. in Differences and Changes in Wage Structures, Freeman and Katz. 1995
Abstract: Wage inequality in Sweden declined precipitously during the 1960s and the 1970s. There was a sharp reduction in overall wage dispersion and in the relative earnings advantage of highly-educated workers, a marked narrowing of wage differences between men and women, and a trend increase in youth relative wages. There was also a substantial narrowing of wage differentials among workers within broad occupational and educational groups. The trend decline in wage inequality was broken in the 1980s. Wage differentials along several dimensions have widened modestly from the rnid-1980s to the early 1990s. Much of the Swedish discussion has taken it for granted that the pay compression has been driven by the egalitarian ambitions of strong and coordinated trade unions. Our analysis of the Swedish wage structure suggests that institutions are only part of the story. We show that conventional demand and supply factors can go a substantial way towards explaining some key relative wage movements in Sweden.
Handle: RePEc:nbr:nberwo:4257
Template-Type: ReDIF-Paper 1.0
Title: What do Firms do with Cash Windfalls?
Author-Name: Olivier J. Blanchard
Author-Person: pbl2
Author-Name: Florencio Lopez-de-Silane
Author-Person: plo137
Note: CF
Number: 4258
Creation-Date: 1993-01
Order-URL: http://www.nber.org/papers/w4258
File-URL: http://www.nber.org/papers/w4258.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Financial Economics 36 (1994), pp. 337-360.
Abstract: Suppose that a firm receives a cash windfall which does not change its investment opportunity set, or equivalently its marginal Tobin's Q. What will this firm do with the money? We provide empirical answers to this question using a sample of firms with such windfalls in the form of a won or settled lawsuit. We examine a variety of decisions of the firm to shed light on alternative theories of corporate financing and investment. Our evidence is broadly inconsistent with the perfect capital markets model. The results need to be stretched considerably to fit the asymmetric information model in which managers act in the interest of shareholders. The evidence supports the agency model of managerial behavior, in which managers try to ensure the long run survival and independence of the firms with themselves at the helm.
Handle: RePEc:nbr:nberwo:4258
Template-Type: ReDIF-Paper 1.0
Title: Are OLS Estimates of the Return to Schooling Biased Downward? Another Look
Classification-JEL: D31; J24
Author-Name: McKinley L. Blackburn
Author-Person: pbl77
Author-Name: David Neumark
Author-Person: pne16
Note: LS
Number: 4259
Creation-Date: 1993-01
Order-URL: http://www.nber.org/papers/w4259
File-URL: http://www.nber.org/papers/w4259.pdf
File-Format: application/pdf
Publication-Status: published as Review of Economics and Statistics, Vol. 77, no. 2 (1995): 217-230.
Abstract: We examine evidence on omitted-ability bias in estimates of the economic return to schooling, using proxies for unobserved ability. We consider measurement error in these ability proxies and the potential endogeneity of both experience and schooling, and examine wages at labor market entry and later. Including ability proxies reduces the estimate of the return to schooling, and instrumenting for these proxies reduces the estimated return still further. Instrumenting for schooling leads to considerably higher estimates of the return to schooling, although only for wages at labor market entry. This estimated return generally reverts to being near (although still above) the OLS estimate if we allow experience to be endogenous. In contrast, for observations at least a few years after labor market entry, the evidence indicates that OLS estimates of the return to schooling that ignore omitted ability are, if anything, biased upward rather than downward.
Handle: RePEc:nbr:nberwo:4259
Template-Type: ReDIF-Paper 1.0
Title: Sex Discrimination and Women's Labor Market Interruptions
Classification-JEL: J21; J22
Author-Name: David Neumark
Author-Person: pne16
Note: LS
Number: 4260
Creation-Date: 1993-01
Order-URL: http://www.nber.org/papers/w4260
File-URL: http://www.nber.org/papers/w4260.pdf
File-Format: application/pdf
Publication-Status: published as With Michele McLennan, published as "Sex Discrimination and Women's Labor Market Outcomes", IR, Vol. 34, no. 4 (1995): 713-740.
Abstract: The human capital explanation of sex differences in wages is that women intend to work in the labor market more intermittently than men, and therefore invest less. This lower investment leads to lower wages and wage growth. The alternative "feedback" hypothesis consistent with the same facts is that women experience labor market discrimination and respond with career interruptions and specialization in household production. This paper explores the relationship between self-reported discrimination and subsequent labor market interruptions to test this alternative hypothesis, attempting to remove biases associated with using data on self-reported discrimination. The paper provides evidence consistent with the feedback hypothesis. Working women who report experiencing discrimination are significantly more likely subsequently to change employers, and to have additional children (or a first child). On the other hand, women who report experiencing discrimination, and who consequently have a greater tendency for career interruptions of these types, do not subsequently have lower wage growth.
Handle: RePEc:nbr:nberwo:4260
Template-Type: ReDIF-Paper 1.0
Title: Intertemporal Analysis of State and Local Government Spending: Theory ad Tests
Classification-JEL: H70
Author-Name: Douglas Holtz-Eakin
Author-Name: Harvey S. Rosen
Author-Person: pro55
Author-Name: Schuyler Tilly
Note: PE
Number: 4261
Creation-Date: 1993-01
Order-URL: http://www.nber.org/papers/w4261
File-URL: http://www.nber.org/papers/w4261.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Urban Economics, vol. 35, p. 159-174, 1994
Abstract: Do state and local governments smooth their consumption spending across years, or is their spending driven mainly by contemporaneous changes in resources? We design a test to determine which view of state and local spending is more consistent with the data. We find that state and local spending is determined primarily by current (as opposed to permanent) resources. That is, despite their apparent ability to skirt balanced budget laws, states and localities do not typically smooth their expenditures over time.
Handle: RePEc:nbr:nberwo:4261
Template-Type: ReDIF-Paper 1.0
Title: The Analysis of Inter-Firm Worker Mobility
Classification-JEL: J63
Author-Name: Henry S. Farber
Note: LS
Number: 4262
Creation-Date: 1993-01
Order-URL: http://www.nber.org/papers/w4262
File-URL: http://www.nber.org/papers/w4262.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Labor Economics, October 1994, pp. 554-593.
Abstract: I use a sample of over fourteen thousand full-time jobs held by workers in the National Longitudinal Survey of Youth (NLSY) to examine mobility patterns and to evaluate theories of inter-firm worker mobility. The roles of both heterogeneity and state dependence in determining mobility rates for young workers are investigated, and both are found to be very important. There are three main findings. First, mobility is strongly positively related to the frequency of job change prior to the start of the job. Second, job change in the most recent year prior to the start of the job is more strongly related than earlier job change to mobility on the current job. Third, the monthly hazard of job ending is not monotonically decreasing in tenure as most earlier work using annual data has found, but it increases to a maximum at three months and declines thereafter. The first two findings suggest that there is important heterogeneity in mobility but that this heterogeneity is not fixed over time (workers might mature). The third finding is consistent with models of heterogeneous match quality that cannot be observed ex ante. I also find that females hold fewer jobs per year in the labor force than males and that this result is driven by a lower exit rate for females from the first job after entry.
Handle: RePEc:nbr:nberwo:4262
Template-Type: ReDIF-Paper 1.0
Title: Shifting Plaintiffs' Fees versus Increasing Damage Awards
Classification-JEL: K41
Author-Name: Louis Kaplow
Author-Person: pka44
Note: LE
Number: 4263
Creation-Date: 1993-01
Order-URL: http://www.nber.org/papers/w4263
File-URL: http://www.nber.org/papers/w4263.pdf
File-Format: application/pdf
Publication-Status: published as Rand Journal of Economics, vol 24, no. 4, pp. 625-630, (Winter 1993)
Abstract: Shifting successful plaintiffs' fees to defendants and increasing damage awards are alternative ways to achieve similar results: increasing plaintiffs' incentives to sue and raising defendants' expected payments. This paper shows that relying on higher damage awards is more efficient than shifting plaintiffs' fees. The reason is that fee-shifting is, perversely, more valuable for plaintiffs with higher litigation costs. Thus, it is possible to substitute higher damage awards for fee-shifting in a manner that leaves deterrence unaffected while eliminating the suits of plaintiffs with the highest litigation costs.
Handle: RePEc:nbr:nberwo:4263
Template-Type: ReDIF-Paper 1.0
Title: Automobile Prices in Market Equilibrium: Part I and II
Author-Name: Steven Berry
Author-Person: pbe18
Author-Name: James Levinsohn
Author-Person: ple386
Author-Name: Ariel Pakes
Author-Person: ppa20
Note: IO PR
Number: 4264
Creation-Date: 1993-01
Order-URL: http://www.nber.org/papers/w4264
File-URL: http://www.nber.org/papers/w4264.pdf
File-Format: application/pdf
Publication-Status: published as "Automobile Prices in Market Equilibrium," Econometrica, vol. 63, no. 4, pp 841-890, July 1995.
Abstract: This paper develops new techniques for empirically analyzing demand and supply in differentiated products markets and then applies these techniques to analyze equilibrium in the U.S. automobile industry. Our primary goal is to present a framework which enables one to obtain estimates of demand and cost parameters for a broad class of oligopolistic differentiated products markets. These estimates can be obtained using only widely available product-level and aggregate consumer-level data, and they are consistent with a structural model of equilibrium in an oligopolistic industry. When we apply the techniques developed here to the U.S. automobile market. we obtain cost and demand parameters for (essentially) all models marketed over a twenty year period.
Handle: RePEc:nbr:nberwo:4264
Template-Type: ReDIF-Paper 1.0
Title: Gender Gaps in Benefits Coverage
Classification-JEL: J32; J16
Author-Name: Janet Currie
Author-Person: pcu13
Note: LS
Number: 4265
Creation-Date: 1993-01
Order-URL: http://www.nber.org/papers/w4265
File-URL: http://www.nber.org/papers/w4265.pdf
File-Format: application/pdf
Publication-Status: published as Chapter 23 in The Handbook of Human Resource Management, JAI Press, 1997. Eds. David Lewin, Daniel Mitchell, and Mahmood Zaidi.
Abstract: This paper explores the extent to which there are gender gaps in the provision of 4 common non-wage benefits offered by employers: pensions, health insurance, sick leaves, and disability plans. I find that there are gender differences in whether or not benefits are offered, which remain statistically significant when observable characteristics such as age, education, marital status and number of children are controlled for. Women are less likely to be offered pensions, health coverage, and disability. However, they are 10% more likely to have paid sick leave. When the wage is controlled for, differences in offered pensions and health insurance disappear, which suggests that much of the difference in benefits coverage is associated with the fact that women work in low-wage jobs.
Handle: RePEc:nbr:nberwo:4265
Template-Type: ReDIF-Paper 1.0
Title: Labor and the Emerging World Economy
Author-Name: David E. Bloom
Author-Person: pbl79
Author-Name: Adi Brender
Note: ITI LS
Number: 4266
Creation-Date: 1993-01
Order-URL: http://www.nber.org/papers/w4266
File-URL: http://www.nber.org/papers/w4266.pdf
File-Format: application/pdf
Publication-Status: published as Population Bulletin. Washington, D.C.: Population Reference Bureau, October 1993.
Abstract: This paper explores the emergence of a world economy since 1950 and its implications for the world's labor force. There are four main sets of conclusions. First, although the integration of national economies since 1950 has been considerable, the world economy is still in its adolescence. Rapid integration has occurred among the industrial economies, but integration among the developing economies and between the industrial and developing economies has proceeded slowly. Second, international labor mobility can account for little, if any, economic integration since 1950. The economic integration that has been achieved is due mainly to the increased flow of capital across international boundaries and to a dramatic increase in trade, especially among the industrial countries. These developments have been driven by technological and institutional changes that have reduced the transactions costs for trade and capital mobility while maintaining or increasing barriers to international labor mobility. Third, these patterns of integration are associated with a sharp decline in income inequality among the industrial economies, but not in world income inequality as the income gap between the industrial and developing countries has increased. Finally, the large increase in developing economies' share of the world labor force projected for the next few decades will magnify their incentives to integrate more closely among themselves and with the industrial economies. World income per capita will be promoted by such integration.
Handle: RePEc:nbr:nberwo:4266
Template-Type: ReDIF-Paper 1.0
Title: Inflation and the Informativeness of Prices
Classification-JEL: E31
Author-Name: Laurence Ball
Author-Person: pba605
Author-Name: David Romer
Author-Person: pro406
Note: ME EFG
Number: 4267
Creation-Date: 1993-01
Order-URL: http://www.nber.org/papers/w4267
File-URL: http://www.nber.org/papers/w4267.pdf
File-Format: application/pdf
Publication-Status: published as Ball, Lawrence and N. Gregory Mankiw, "Interpreting the Correlation Between Inflation and the Skewness of Relative Prices: A Comment on Bryan and Cecchetti," Review of Economics and Statistics, Vol. 81, no. 2 (May 1999): 197-198.
Publication-Status: published as Journal of Money, Credit and Banking, vol. 35, no. 2, (April 2003), pp. 177-196
Abstract: This paper studies the welfare effects of the relative price variability arising from inflation. When agents interact in anonymous markets, with customers buying from new suppliers each period, relative price variability benefits customers and cannot harm suppliers substantially. But if customers and suppliers form long-term relationships, prices have an informational role: a potential customer uses current prices as signals of future prices. Inflation reduces the informativeness of current prices, causing customers to make costly mistakes about which relationships to enter. In addition, the reduced informativeness of prices makes demand less price-elastic, thereby increasing markups. Both effects can be quantitatively significant at moderate inflation rates.
Handle: RePEc:nbr:nberwo:4267
Template-Type: ReDIF-Paper 1.0
Title: Labor Market Returns to Two- and Four-Year Colleges: Is a Credit a Credit and Do Degrees Matter?
Classification-JEL: J00
Author-Name: Thomas J. Kane
Author-Name: Cecilia E. Rouse
Note: LS
Number: 4268
Creation-Date: 1993-01
Order-URL: http://www.nber.org/papers/w4268
File-URL: http://www.nber.org/papers/w4268.pdf
File-Format: application/pdf
Publication-Status: published as American Economic Review, June 1995, Vol. 85, #3, pp. 600-614
Abstract: In CPS data, the 20% of the civilian labor force with 1-3 years of college earn 15% more than high school graduates. We use data from the National Longitudinal Study of the High School Class of1972 which includes postsecondary transcript data and the NLSY to study the distinct returns to 2-year and 4-year college attendance and degree completion. Controlling for background and measured ability, wage differentials for both 2-year and 4-year college credits are positive and similar. We find that the average 2-year and 4-year college student earned roughly 5% more than high school graduates for every year of credits completed. Second, average bachelor and associate degree recipients did not earn significantly more than those with similar numbers of college credits and no degree, suggesting that the credentialing effects of these degrees are small. We report similar results from the NLSY and the CPS. We also pursue two IV strategies to identify measurement error and selection bias. First, we use self-reported education as an instrument for transcript reported education. Second, we use public tuition and distance from the closest 2-year and 4-year colleges as instruments, which we take as orthogonal to schooling measurement error and other unobserved characteristics of college students. We find that in our data the two biases roughly cancel each other, suggesting that the results above are, if anything, understated.
Handle: RePEc:nbr:nberwo:4268
Template-Type: ReDIF-Paper 1.0
Title: A Simple Theory of Multinational Corporations and Trade with a Trade-Off Between Proximity and Concentration
Classification-JEL: F12; F23
Author-Name: S. Lael Brainard
Note: ITI
Number: 4269
Creation-Date: 1993-02
Order-URL: http://www.nber.org/papers/w4269
File-URL: http://www.nber.org/papers/w4269.pdf
File-Format: application/pdf
Publication-Status: published as Brainard, S. Lael. "An Empirical Assessment Of The Proximity-Concentration Trade-Off Between Multinational Sales And Trade," American Economic Review, 1997, v87(4,Sep), 520-544.
Abstract: This paper develops a two-sector, two-country model, where firms in a differentiated products sector choose between exporting and multinational expansion as alternative modes of foreign market penetration, based on a trade-off between proximity and concentration advantages. The differentiated sector is characterized by multi-stage production, with increasing returns at the corporate level associated with some activity such as R&D, scale economies at the plant level, and a variable transport cost that rises with distance. A pure multinational equilibrium, where two-way horizontal expansion across borders completely supplants two-way trade in differentiated products, is possible even in the absence of factor proportion differences. It is more likely the greater are transport costs relative to fixed plant costs, and the greater are increasing returns at the corporate level relative to the plant level. The model also establishes conditions for a mixed equilibrium, in which national and multinational firms coexist.
Handle: RePEc:nbr:nberwo:4269
Template-Type: ReDIF-Paper 1.0
Title: The Role of Fertility and Population in Economic Growth: Empirical ResultsFrom Aggregate Cross-National Data
Classification-JEL: O40
Author-Name: James A. Brander
Author-Person: pbr168
Author-Name: Steve Dowrick
Author-Person: pdo35
Note: EFG
Number: 4270
Creation-Date: 1993-02
Order-URL: http://www.nber.org/papers/w4270
File-URL: http://www.nber.org/papers/w4270.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Population Economics, (February 1994)
Abstract: Two recently improved sets of cross-country panel data are combined in order to re-examine the effects of population growth and fertility on economic growth. Using a 107 country panel data set covering 1960-85, we find that high birth rates appear to reduce economic growth through investment effects and possibly through "capital dilution", although classic resource dilution is not evident in the data. Most significantly, however, birth rate declines have a strong medium-term positive impact on per capita income growth through labour supply or "dependency" effects.
Handle: RePEc:nbr:nberwo:4270
Template-Type: ReDIF-Paper 1.0
Title: Some Empirical Evidence on the Effects of Monetary Policy Shocks on Exchange Rates
Classification-JEL: F43; E32
Author-Name: Martin Eichenbaum
Author-Person: pei4
Author-Name: Charles L. Evans
Author-Person: pev23
Note: ME IFM
Number: 4271
Creation-Date: 1993-02
Order-URL: http://www.nber.org/papers/w4271
File-URL: http://www.nber.org/papers/w4271.pdf
File-Format: application/pdf
Publication-Status: published as Quarterly Journal of Economics, Nov 1995, pp. 1975-1010.
Abstract: This paper presents new empirical evidence on the effects of monetary policy shocks on U.S. exchange rates, both nominal and real. Three measures of monetary policy shocks are considered: orthogonalized shocks to the Federal Funds rate, the ratio of Non Borrowed to Total Reserves and the Romer and Romer (1989) index. Using data from the flexible exchange rate era, we find that expansionary shocks to U.S. monetary policy lead to sharp. persistent depreciations in U.S. nominal and real exchange rates as well as to sharp. persistent increases in the spread between various foreign and U.S. interest rates. The temporal pattern of the depreciation in U.S. nominal exchange rates following a positive monetary policy shock is inconsistent with simple overshooting models of the type considered by Dornbusch (1976). We also find that U.S. monetary policy was less volatile under fixed exchange rates than under floating exchange rates. Finally, we find less evidence that monetary policy shocks had a significant impact on U.S. real exchange rates under the Bretton Woods agreement.
Handle: RePEc:nbr:nberwo:4271
Template-Type: ReDIF-Paper 1.0
Title: Generics and New Goods in Pharmaceutical Price Indexes
Classification-JEL: D12; L65
Author-Name: Zvi Griliches
Author-Name: Iain Cockburn
Author-Person: pco166
Note: PR
Number: 4272
Creation-Date: 1993-02
Order-URL: http://www.nber.org/papers/w4272
File-URL: http://www.nber.org/papers/w4272.pdf
File-Format: application/pdf
Publication-Status: published as American Economic Review, vol. 84 no. 5, 1994 pp 1213-1232.
Abstract: We examine the issue of new goods and price indexes for the important and tractable case of generic and branded drugs. By treating generics as entirely distinct goods and "linking them in" to indexes with fixed weights, the standard price indexes fail to reflect the substantial welfare gains to those consumers who, like the FDA, regard generic and branded versions of a drug as being perfect substitutes. We discuss the treatment of heterogenous consumers in constructing aggregate price indexes, and then, using detailed data on wholesale prices of two anti-infective drugs, present calculations of various alternatives to the official indexes. These reflect both heterogeneity of tastes for brandedness, and also the empirically important phenomenon of diffusion of generic drugs into the market following patent expiration. We find very significant differences: for one of the drugs studied, the standard price index rose by 14% over the sample period, while our preferred alternative index fell by 48%.
Handle: RePEc:nbr:nberwo:4272
Template-Type: ReDIF-Paper 1.0
Title: The Design of Bank Loan Contracts, Collateral, and Renegotiation
Classification-JEL: G21
Author-Name: Gary Gorton
Author-Person: pgo458
Author-Name: James A. Kahn
Author-Person: pka18
Note: CF
Number: 4273
Creation-Date: 1993-02
Order-URL: http://www.nber.org/papers/w4273
File-URL: http://www.nber.org/papers/w4273.pdf
File-Format: application/pdf
Publication-Status: published as Gorton, G. and J. Kahn. "The Design Of Bank Loan Contracts," Review of Financial Studies, 2000, v13(2,Summer), 331-364.
Abstract: Empirical evidence suggests that banks playa unique role in the savings-investment process, affecting firms' cost of capital and the level of investment. We argue that bank uniqueness is related to how the design of bank loan contracts allows banks to affect borrowers' choice of project risk. Unlike corporate bonds, bank loans are typically secured senior debt which contain embedded options allowing the bank to "call" the loan. The option allows the bank tv control borrowers' risk-taking activity via renegotiation of the loan. We analyze the renegotiation outcomes and show that: (1) debt forgiveness occurs; (2) monitoring by the bank is not always successful in preventing the borrower from increasing risk; (3) renegotiated interest rates are not monotonic in borrower type; (4) inefficient liquidation can occur. In renegotiation seniority and collateral are crucial because they allow the bank to threaten the borrower and liquidate inefficient projects. We show that when a prepayment option is included in the bank loan contract, bank debt is more valuable (ex ante) to borrowing firms than corporate debt; it lowers the cost of capital.
Handle: RePEc:nbr:nberwo:4273
Template-Type: ReDIF-Paper 1.0
Title: Princes and Merchants: European City Growth before the Industrial Revolution
Classification-JEL: N13; K20
Author-Name: J. Bradford De Long
Author-Name: Andrei Shleifer
Author-Person: psh93
Note: EFG
Number: 4274
Creation-Date: 1993-02
Order-URL: http://www.nber.org/papers/w4274
File-URL: http://www.nber.org/papers/w4274.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Law and Economics, October 1993, vol. xxxvi, no. 2, p. 671-702
Abstract: As measured by the pace of city growth in western Europe from 1000 to 1800. absolutist monarchs stunted the growth of commerce and industry. A region ruled by an absolutist prince saw its total urban population shrink by one hundred thousand people per century relative to a region without absolutist government. This might be explained by higher rates of taxation under revenue-maximizing absolutist governments than under non-absolutist governments. which care more about general economic prosperity and less about State revenue.
Handle: RePEc:nbr:nberwo:4274
Template-Type: ReDIF-Paper 1.0
Title: Stochastic Trends and Short-Run Relationships Between Financial Variables and Real Activity
Classification-JEL: E44; E47
Author-Name: Toru Konishi
Author-Name: Valerie A. Ramey
Author-Person: pra154
Author-Name: Clive W.J. Granger
Note: EFG ME
Number: 4275
Creation-Date: 1993-02
Order-URL: http://www.nber.org/papers/w4275
File-URL: http://www.nber.org/papers/w4275.pdf
File-Format: application/pdf
Abstract: This paper re-examines the relationship between financial variables and real activity in a unified statistical framework. Using the methods of cointegration and separation. we characterize the long-run and short-run relationships between three sets of variables and then use the framework to assess the predictive power of alternative financial variables for real activity. Three main results emerge from the analysis. First, we show that although two sets of variables may not share the long-run trend. the error correction terms from one set of variables may have important explanatory power for the variables in another set. Second, we show that some of the key variables discussed in the literature can be interpreted as error correction terms from another system. Third, comparing two key error correction terms, M2 velocity and the interest rate spread between commercial paper and Treasury bills, we find that M2 velocity appears to be a more consistent predictor of output than is the interest rate spread.
Handle: RePEc:nbr:nberwo:4275
Template-Type: ReDIF-Paper 1.0
Title: 'Outside' Intervention in Japanese Companies: Its Determinants and Implications for Mangers
Author-Name: Steven Kaplan
Author-Name: Bernadette Minton
Note: CF
Number: 4276
Creation-Date: 1993-02
Order-URL: http://www.nber.org/papers/w4276
File-URL: http://www.nber.org/papers/w4276.pdf
File-Format: application/pdf
Publication-Status: published as "Appointments of Outsiders to Japanese Boards: Determinants and Implications for Managers" in Journal of Financial Economics, Vol. 36, No. 2 (October 1994), pp. 225-258.
Abstract: This paper estimates the determinants of appointments of 'outsiders' -- directors previously employed by banks or other non-financial firms -- to the boards of large (non-financial) Japanese companies. Appointments of both types of 'outsiders' increase with poor stock performance; those of bank outsiders also increase with negative current income. Appointments of bank outsiders are related to firm debt levels; those of corporate outsiders, to shareholder concentration and group affiliation, Both types of outsider appointments appear to be disciplinary -- top executive turnover increase substantially in the same year. Additional evidence on subsequent firm performance suggests that "bank" directors are appointed in financially distressed or contracting firms, while "corporate" directors are appointed in firms with temporary problems.
Handle: RePEc:nbr:nberwo:4276
Template-Type: ReDIF-Paper 1.0
Title: Criminal Deterrence: Revisiting the Issue with a Birth Cohort
Classification-JEL: K14
Author-Name: Helen Tauchen
Author-Name: Ann Dryden Witte
Author-Name: Harriet Griesinger
Note: PR LS
Number: 4277
Creation-Date: 1993-02
Order-URL: http://www.nber.org/papers/w4277
File-URL: http://www.nber.org/papers/w4277.pdf
File-Format: application/pdf
Publication-Status: published as The Review of Economics and Statistics, Vol. 76, No. 3 (Aug., 1994), pp. 399-412
Abstract: In this paper, we estimate the general deterrent effect of criminal justice resources on criminal behavior. Our panel data, which combine individual-level information on arrests and personal characteristics with aggregate measures of criminal justice resources, allow us to obtain deterrence measures that more closely reflect theoretical concepts and are of potential policy relevance. We find robust evidence of a general deterrent effect in our estimates of error components probit and Tobit models.
Handle: RePEc:nbr:nberwo:4277
Template-Type: ReDIF-Paper 1.0
Title: Youth Alcohol Use and Public Policy
Classification-JEL: I18
Author-Name: Adit Laixuthai
Author-Name: Frank J. Chaloupka
Author-Person: pch236
Note: EH
Number: 4278
Creation-Date: 1993-02
Order-URL: http://www.nber.org/papers/w4278
File-URL: http://www.nber.org/papers/w4278.pdf
File-Format: application/pdf
Publication-Status: published as Contemporary Economic Policy, Vol. 11, No. 4, (October 1993), pp. 70-81
Abstract: This paper examines the frequency of youth drinking and heavy drinking in 1982 and 1989. The effects of minimum legal drinking ages and beer excise taxes are considered separately for each year. In both years, drinking is found to be responsive to changes in prices resulting from higher excise taxes. However, the price sensitivity of youth alcohol use fell after the change to a uniform legal drinking age of 21.
Handle: RePEc:nbr:nberwo:4278
Template-Type: ReDIF-Paper 1.0
Title: Gender Differences in Departure from a Large Firm
Classification-JEL: J16; J60
Author-Name: Nachum Sicherman
Note: LS
Number: 4279
Creation-Date: 1993-02
Order-URL: http://www.nber.org/papers/w4279
File-URL: http://www.nber.org/papers/w4279.pdf
File-Format: application/pdf
Publication-Status: published as Nachum Sicherman, 1996. "Gender Differences in Departures from a Large Firm," ILR Review, Cornell University, ILR School, vol. 49(3), pages 484-505, April.
Abstract: Looking at the personnel records of workers in a large company, where detailed reasons for worker departure are recorded, I find striking differences in the exit patterns between men and women. As is well known, a higher proportion of women leave for a variety of non-market reasons. Further, women state more often that wages, and not opportunities, as a reason for switching jobs. Women, on average, are more likely to leave the firm. This is specially true in periods of early tenure. For both men and women, the likelihood of departure increases in the first two months of tenure, and then declines at a decreasing rate. This decline is stronger for women. Using a proportional hazard model, with controls for observed characteristics, I find that tenure beyond five years, women are less likely to leave the firm than men. Tenure turnover profiles are computed for the different reasons of departure. This detailed breakdown provides additional insights into gender differences in quit behavior.
Handle: RePEc:nbr:nberwo:4279
Template-Type: ReDIF-Paper 1.0
Title: Trade Wars and Trade Talks
Classification-JEL: F13; D72
Author-Name: Gene M. Grossman
Author-Person: pgr21
Author-Name: Elhanan Helpman
Author-Person: phe205
Note: ITI
Number: 4280
Creation-Date: 1993-02
Order-URL: http://www.nber.org/papers/w4280
File-URL: http://www.nber.org/papers/w4280.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Political Economy, vol. 103, 1995, pp. 675-708
Abstract: Whether governments clash in trade disputes or negotiate over trade agreements, their actions in the international arena reflect political conditions back home. Previous studies of cooperative and noncooperative trade relations have focused on governments that are immune from political pressures and that act as benevolent servants of the public interest. Here we take a first step toward introducing domestic politics into the analysis of international economic relations. We study the interactions between national leaders who are concerned both with providing a high standard of living to the general electorate and collecting campaign contributions from special interest groups. The analysis reveals the determinants of the structure of protection in a noncooperative trade war and in a cooperative trade agreement.
Handle: RePEc:nbr:nberwo:4280
Template-Type: ReDIF-Paper 1.0
Title: The Economic Consequences of Legislative Oversight: Theory and Evidencefrom the Medical Profession
Author-Name: Shawn Everett Kantor
Author-Person: pka54
Author-Name: Patrick Legros
Author-Person: ple192
Number: 4281
Creation-Date: 1993-02
Order-URL: http://www.nber.org/papers/w4281
File-URL: http://www.nber.org/papers/w4281.pdf
File-Format: application/pdf
Abstract: This paper provides a positive analysis of how formal, periodic legislative oversight of regulatory agencies can influence market outcomes and the welfare of regulated industries. Whereas previous research has focused on the political distinction between passive and active legislative oversight, this paper shows that there exists an important economic difference between two mechanisms as well. We develop a principal-agent model that describes how a regulatory agent's incentives are influenced if its actions are publicly scrutinized. Our empirical analysis supports our claim that formal oversight leads to measurable economic effects.
Handle: RePEc:nbr:nberwo:4281
Template-Type: ReDIF-Paper 1.0
Title: An Analysis of Factors Influencing ITC Decisions in Antidumoing, Countervailing Duty and Safeguard Cases
Author-Name: Robert E. Baldwin
Author-Name: Jeffrey W. Steagall
Note: ITI
Number: 4282
Creation-Date: 1993-02
Order-URL: http://www.nber.org/papers/w4282
File-URL: http://www.nber.org/papers/w4282.pdf
File-Format: application/pdf
Publication-Status: published as Weltwirtschaftliches Archiv, Heft 2 (1994): 290-308.
Abstract: This paper attempts to determine the economic factors that best explain the decisions of the International Trade Commission in antidumping, countervailing duty and safeguard cases, utilizing the economic data collected by the Commission for each investigation. We also consider the extent to which these factors measure the injury conditions and causation relationships specified in U.S. trade laws. Our analyses yield mixed results. For example, while the Commission tends to require declining profits and employment in an industry before recommending import protection in safeguard cases -- as specified in the law, it is not clear that it delineates between serious injury caused by increased imports and serious injury due to other factors. Similarly, in countervailing duty and antidumping cases, economic conditions, such as changes in industry shipments and the degree of capacity utilization, are taken into consideration in material injury decisions, but other factors one would expect to be associated with affirmative decisions, e.g., the ratio of unfair imports to consumption, do not seem to playa significant role. Some variables also enter significantly in the regressions that do not seem to be indicators of material injury.
Handle: RePEc:nbr:nberwo:4282
Template-Type: ReDIF-Paper 1.0
Title: Demographic Characteristics and the Public Bundle
Classification-JEL: H42; H22
Author-Name: David M. Cutler
Author-Person: pcu64
Author-Name: Douglas W. Elmendorf
Author-Person: pel79
Author-Name: Richard J. Zeckhauser
Author-Person: pze7
Note: PE AG
Number: 4283
Creation-Date: 1993-02
Order-URL: http://www.nber.org/papers/w4283
File-URL: http://www.nber.org/papers/w4283.pdf
File-Format: application/pdf
Publication-Status: published as Public Finance/Finances Publiques, vol. 48 (supp.), 1993, pp. 178-198
Publication-Status: published as Cutler, David M & Elmendorf, Douglas W & Zeckhauser, Richard J, 1993. "Demographic Characteristics and the Public Bundle," Public Finance = Finances publiques, , vol. 48(Supplemen), pages 178-98.
Abstract: This paper explores the relationship between the demographic characteristics of a community and the quantities of goods and services provided by its government We consider three models of public spending: a traditional "selfish" public choice model in which individuals care only about themselves, a "community preference" model in which an individual's preferred spending depends on the characteristics of his or her community. and a sorting process through which individuals choose communities according to their tastes for public spending. To evaluate these models of spending, we examine how county and state spending in the United States is affected by the age and racial composition, and the total size of a jurisdiction. The estimated effects of demographic characteristics in the state equations are strikingly different from the estimated effects in the county equations, apparently because a jurisdiction's spending is affected differently by its own demographic characteristics and by the characteristics of the surrounding area.
Handle: RePEc:nbr:nberwo:4283
Template-Type: ReDIF-Paper 1.0
Title: Medicaid and Medical Care for Children
Author-Name: Janet Currie
Author-Person: pcu13
Author-Name: Duncan Thomas
Author-Person: pth20
Note: PE EH
Number: 4284
Creation-Date: 1993-03
Order-URL: http://www.nber.org/papers/w4284
File-URL: http://www.nber.org/papers/w4284.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Human Resources, Winter 1995.
Abstract: Data from the National Longitudinal Surveys are used to compare the medical care received by children covered by Medicaid with that of other similar children. The longitudinal dimension of the data is exploited as we examine differences between siblings and repeated observations on the same child. We find that Medicaid coverage is associated with a higher probability of both black and white children receiving routine checkups but with increases in the number of doctor visits for illness only among white children. This racial disparity in the number of visits may be linked to the fact that black children with Medicaid coverage are less likely to see a private physician than other children.
Handle: RePEc:nbr:nberwo:4284
Template-Type: ReDIF-Paper 1.0
Title: How Important is the Credit Channel in the Transmission of Monetary Policy?
Classification-JEL: E44; E51
Author-Name: Valerie A. Ramey
Author-Person: pra154
Note: EFG ME
Number: 4285
Creation-Date: 1993-03
Order-URL: http://www.nber.org/papers/w4285
File-URL: http://www.nber.org/papers/w4285.pdf
File-Format: application/pdf
Publication-Status: published as Carnegie-Rochester Conference Series on Public Policy, Fall 1993
Abstract: This paper empirically tests the importance of the credit channel in the transmission of monetary policy. Three credit variables are analyzed: total bank loans, bank holdings of securities relative to loans, and the difference in the growth rate of short-term debt of small and large firms. In order to determine the marginal effect of the credit channel over the standard money channel, the significance of the credit variables is studied in a model that includes money (M2). In most cases, the credit variables play an insignificant role in the impact of monetary policy shocks on output.
Handle: RePEc:nbr:nberwo:4285
Template-Type: ReDIF-Paper 1.0
Title: Endogenous Growth and Cycles
Author-Name: Joseph E. Stiglitz
Note: EFG
Number: 4286
Creation-Date: 1993-03
Order-URL: http://www.nber.org/papers/w4286
File-URL: http://www.nber.org/papers/w4286.pdf
File-Format: application/pdf
Publication-Status: published as Shionoya, Yuichi and Mark Perlman (eds.) Innovation in technology, industries, and institutions: Studies in Schumpeterian perspectives. Ann Arbor: University of Michigan Press, 1994.
Abstract: Schumpeter argued that economic downturns had positive effects, in the incentives that it provided for firms to increase their efficiency. Part 1. provides a simple model confirming Schwnpeter's insight At thesame time, the model shows that there are real costs to economic fluctuations which extend well beyond the temporary losses in output and the economic waste resulting from unused resources: the future productivity of the economy is adversely affected, e.g, because of reduced expenditures on R&D. These long run losses are likely to be far more significant than any temporary gains from any induced cost cutting. While traditional Schumpeterian analyses have focused on the relationships between market structure and innovation, they have paid less attention to the relationship between innovation and capital market imperfections (resulting, in many cases, from problems of costly and imperfect information which are particularly important in the context of innovation). It is these capital market imperfections which give result in the deleterious effect of economic downturns on technological progress. Part II. of the paper shows that the nexus between fluctuations and innovation goes in both directions: fluctuations in economic activity not only cause fluctuations in innovation, fluctuations in innovation may give rise to fluctuations in economic activity. The positive feedback relationship between innovation and economic activity may, under a variety of conditions, give rise to multiple equilibria. There is no presumption that the free market, left to itself, will choose the best among them. Moreover, it is shown that under certain circumstances, the only market equilibrium entails economic fluctuations. It is the structure of the economy, not exogenous disturbances (as in real business cycle theory) which give rise to cyclical behavior.
Handle: RePEc:nbr:nberwo:4286
Template-Type: ReDIF-Paper 1.0
Title: Accuracy in the Assessment of Damages
Classification-JEL: K41
Author-Name: Louis Kaplow
Author-Person: pka44
Author-Name: Steven Shavell
Author-Person: psh42
Note: LE
Number: 4287
Creation-Date: 1993-03
Order-URL: http://www.nber.org/papers/w4287
File-URL: http://www.nber.org/papers/w4287.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Law and Economics, vol. XXXIX, no. 1, pp. 191-210, April 1996.
Abstract: Assessment of damages is a principle issue in litigation and, in light of this, we consider the social justification for, and the private benefits of, accurate measurement of harm. Greater accuracy induces parties to exercise levels of precaution that better reflect the magnitude of the harm they are likely to generate, and related, it stimulates uninformed parties to learn about risks before acting. However, accuracy in the assessment of harm cannot influence the behavior of parties -- and is therefore of no social value -- to the degree that parties lack knowledge of the harm they might cause when deciding on their precautions. In addition, regardless of the social value of accuracy, litigants generally gain by devoting resources toward proof of damages, leading often to socially excessive private incentives to establish damages.
Handle: RePEc:nbr:nberwo:4287
Template-Type: ReDIF-Paper 1.0
Title: Internal Finance and Investment: Evidence from the Undistributed Profits Tax of 1936-1937
Classification-JEL: G3; G14
Author-Name: Charles W. Calomiris
Author-Person: pca421
Author-Name: R. Glenn Hubbard
Author-Person: phu97
Note: CF
Number: 4288
Creation-Date: 1993-03
Order-URL: http://www.nber.org/papers/w4288
File-URL: http://www.nber.org/papers/w4288.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Business, vol. 68, no. 4, pp. 443-482, (October 1995).
Abstract: Recent theoretical approaches have linked shifts in firms' internal funds and investment spending, holding constant underlying investment opportunities. An important impediment to convincing tests of these models is the lack of firm-level data on the relative costs of internal and external funds. We use a tax experiment, the Surtax on Undistributed Profits (SUP) in the 1930s, to identify firms' relative cost of internal and external funds and analyze its effect on firms' investment decisions. Finns' responses to the surtax on retained earnings permit estimation of shadow price differentials between internal and external finance, and measurement of the link between access to capital markets and investment. Almost one-fourth of the 273 publicly-traded manufacturing firms in our sample retained in excess of 40 percent of their earnings in spite of the surtax, paying the highest marginal rates of surtax. The investment spending of these firms was sensitive to shifts in cash flow, holding constant investment opportunities (measured by the ratio of market-to-book value). No sensitivity of investment to internal funds could be detected for firms with higher dividend payout and lower surtax liability. In addition, many firms with high marginal rates of surtax were in the growth industries of the day. The sensitivity of investment spending to internal funds for firms with high marginal surtax rates appears mainly to reflect information-related capital-market frictions as opposed to the waste of corporate cash flows by entrenched managers.
Handle: RePEc:nbr:nberwo:4288
Template-Type: ReDIF-Paper 1.0
Title: Policies to Encourage Inflows of Technology Through Foreign Multinationals
Classification-JEL: F23; O3
Author-Name: Magnus Blomstrom
Author-Person: pbl88
Author-Name: Ari Kokko
Author-Person: pko5
Note: ITI
Number: 4289
Creation-Date: 1993-03
Order-URL: http://www.nber.org/papers/w4289
File-URL: http://www.nber.org/papers/w4289.pdf
File-Format: application/pdf
Publication-Status: published as World Development Vol. 23, No. 3, pp. 1-10, 1995.
Abstract: Do host countries aiming to maximize the inflows of technology through foreign multinationals have any policy alternatives to formal technology transfer requirements and performance requirements? To answer this question, the present paper examines some possible determinants of the technology imports of U.S. majority-owned foreign affiliates in 33 host countries. The results show that the affiliates' technology imports increase with the host countries' domestic investment levels and education levels, but that various performance requirements are negatively related to technology transfer. This suggests that policies promoting local investment, competition, and education may sometimes be alternatives to direct controls and requirements.
Handle: RePEc:nbr:nberwo:4289
Template-Type: ReDIF-Paper 1.0
Title: Optimal Insurance Contracts When Establishing The Amount of Losses is Costly
Classification-JEL: D82; K41
Author-Name: Louis Kaplow
Author-Person: pka44
Note: LE
Number: 4290
Creation-Date: 1993-03
Order-URL: http://www.nber.org/papers/w4290
File-URL: http://www.nber.org/papers/w4290.pdf
File-Format: application/pdf
Publication-Status: published as The Geneva Papers on Risk and Insurance Theory, vol. 19, no. 2, pp. 139-152, December 1994
Publication-Status: published as Louis Kaplow, 1994. "Optimal Insurance Contracts When Establishing the Amount of Losses Is Costly," The Geneva Risk and Insurance Review, Palgrave Macmillan, vol. 19(2), pages 139-152, December.
Abstract: The problem of establishing the amount of losses covered by public and private insurance is often characterized by asymmetric information, in which the claimant already knows the extent of a loss but this can be demonstrated to the insurer only at a cost. It is shown that a simple arrangement, which provides greater coverage whenever individuals demonstrate unusually high losses, gives claimants an excessive incentive to establish the amount of their losses. This paper determines what insurance claims process, consistent with the form typically employed in existing insurance arrangements, is optimal.
Handle: RePEc:nbr:nberwo:4290
Template-Type: ReDIF-Paper 1.0
Title: The Determinants of Realignment Expectations Under the EMS: Some Empirical Regularities
Author-Name: Zhaohui Chen
Author-Name: Alberto Giovannini
Note: IFM
Number: 4291
Creation-Date: 1993-03
Order-URL: http://www.nber.org/papers/w4291
File-URL: http://www.nber.org/papers/w4291.pdf
File-Format: application/pdf
Publication-Status: published as European Economic Review, Vol. 41, no. 9 (December 1997): 1687-1707.
Abstract: The stability of the EMS depends crucially on realignment expectations of the market participants. In this paper we discuss how to measure such expectations and how to relate them to economic fundamentals, central bank reputation, and institutional arrangements of the EMS. We find the following empirical regularities for FF/DM and IL/DM exchange rates: (1) expected devaluations are positively related to the current exchange rate deviation from the central parity; (2) expected devaluations are negatively related to the length of time since last realignment in the short and medium run; (3) the Basle-Nyborg agreements seem to have a stabilizing effect for both currencies examined, albeit through different channels; (4) large revaluation expectations occur immediately after devaluations. (1) and (4) are not inconsistent with the hypothesis of over-speculation or market inefficiency.
Handle: RePEc:nbr:nberwo:4291
Template-Type: ReDIF-Paper 1.0
Title: German and American Wage and Price Dynamics: Differences and Common Thenes
Classification-JEL: E30
Author-Name: Wolfgang Franz
Author-Name: Robert J. Gordon
Author-Person: pgo50
Note: EFG
Number: 4292
Creation-Date: 1993-03
Order-URL: http://www.nber.org/papers/w4292
File-URL: http://www.nber.org/papers/w4292.pdf
File-Format: application/pdf
Publication-Status: published as European Economic Review, Volume 37, Issue 4, pp. 719-754, (May 1993)
Abstract: The evolution of unemployment in West Germany and the U. S. stands in sharp contrast, with German unemployment much lower from 1960 to the early 19705 but substantially higher from 1984 to 1988. This paper provides a framework for examining the relationship between inflation and unemployment that sheds light on these developments. The theoretical section develops a new nonstructural model of wage and Price adjustment that integrates severa! concepts that have often been treated separately, including Phillips curve "level effects," hysteresis "change effects," the error-correction mechanism, and the role of changes in labor's share that act as a supply shock. The empirical analysis reaches rwo striking conclusions. First, during 1973-90coefficients in our German wage equations arc remarkably similar to those in the U.S., with almost identical estimates of the Phillips curve slope, of the hysteresis effect, and of the NAIRU. The two countries also share similar inflation behavior, in that inflation depends more closely on the capacity utilization rate than on the unemployment rate, The big difference berween the two countries is that there is no feedback from wages to prices in Germany, and so high unemployment does not put downward pressure on the inflation rate. During the 19705 and 19805 in Germany there emerged a growing mismatch between the labor market and industrial capacity, so that the unemployment rate consistent with the mean (constant-inflation) utilization rate ("MURU") increased sharply, while in the U. S. the MURU was relatively stable. The German utilization rate in late 1990was about 90 percent, considerably higher than the estimated MURU of 85 percent. Accordingly, we conclude that the Bundesbank was appropriately concerned about the acceleration of inflation implied by the tight product market of that period.
Handle: RePEc:nbr:nberwo:4292
Template-Type: ReDIF-Paper 1.0
Title: Did Teachers' Race and Verbal Ability Matter in the 1960's? Coleman Revisited
Author-Name: Ronald Ehrenberg
Author-Person: peh2
Author-Name: Dominic Brewer
Note: LS
Number: 4293
Creation-Date: 1993-03
Order-URL: http://www.nber.org/papers/w4293
File-URL: http://www.nber.org/papers/w4293.pdf
File-Format: application/pdf
Publication-Status: published as Economics of Education Review, vol. 14, no. 1, pp. 1-21, (March 1995).
Abstract: Our paper reanalyzes data from the classic 1966 study Equality of Educational Opportunity, or Coleman Report. It addresses whether teacher characteristics, including race and verbal ability, influenced "synthetic gain scores" of students (mean test scores of upper grade students in a school minus mean test scores of lower grade students in a school), in the context of an econometric model that allows for the possibility that teacher characteristics in a school are endogenously determined. We find that verbal aptitude scores of teachers influenced synthetic gain scores for both black and white students. Verbal aptitude mattered as much for black teachers as it did for white teachers. Finally, holding teacher characteristics other than race constant, black teachers were associated with higher gain scores for black high school students, but lower gain scores for white elementary and secondary students. Because these findings are for American schools in the mid-1960's. they do not directly apply to our contemporary experience. However, they do raise issues that should be addressed in discussions of hiring policies in American education.
Handle: RePEc:nbr:nberwo:4293
Template-Type: ReDIF-Paper 1.0
Title: The Constrained Asset Share Estimation (CASE) Method: Testing Mean-Variance Efficiency of the U.S. Stock Market
Classification-JEL: G11; G12
Author-Name: Charles Engel
Author-Person: pen14
Author-Name: Jeffrey A. Frankel
Author-Person: pfr12
Author-Name: Kenneth A. Froot
Author-Person: pfr60
Author-Name: Anthony P. Rodrigues
Note: AP
Number: 4294
Creation-Date: 1993-03
Order-URL: http://www.nber.org/papers/w4294
File-URL: http://www.nber.org/papers/w4294.pdf
File-Format: application/pdf
Publication-Status: published as revised as: "Tests of Conditional Mean-Variance Efficiency of the US Stock Market," Journal of Empirical Finance, vol 2, March 1995.
Abstract: We apply the method of constrained asset share estimation (CASE) to test the mean-variance efficiency (MVE) of the stock market. This method allows conditional expected returns to vary in relatively unrestricted ways. The data estimate reasonably the price of risk, and, in some cases, the MVE model is valuable in explaining expected equity returns. Unlike with most tests of MVE. we can put an explicit interpretation on the alternative hypothesis -- a general linear Tobin portfolio choice model. We reject the restrictions implied by MVE.
Handle: RePEc:nbr:nberwo:4294
Template-Type: ReDIF-Paper 1.0
Title: The Role of Pensions in the Labor Market
Classification-JEL: J14; J26
Author-Name: Alan L. Gustman
Author-Person: pgu327
Author-Name: Olivia S. Mitchell
Author-Person: pmi73
Author-Name: Thomas L. Steinmeier
Note: LS AG
Number: 4295
Creation-Date: 1993-03
Order-URL: http://www.nber.org/papers/w4295
File-URL: http://www.nber.org/papers/w4295.pdf
File-Format: application/pdf
Publication-Status: published as "The Role of Pensions In The Labor Market: A Survey of the Literature". Industrial and Labor Relations Review, vol. 47, no.3, April 1994
Abstract: Employer-sponsored group pension plans offer an unusual window into long-term employment relationships. This is because the pension promise is documented in a set of explicit statements regarding future payment and employment agreements between workers and their employers. In this paper, we show that recent research on pensions in the labor market offers considerable insight into long-term labor market arrangements. Most importantly. we explore how pensions influence employee compensation. retirement, turnover, and other matters central to the determination of labors' price and quantity over time. A number of unanswered questions. and difficult-to-reconcile empirical findings, are also outlined.
Handle: RePEc:nbr:nberwo:4295
Template-Type: ReDIF-Paper 1.0
Title: A Unified Model of Investment Under Uncertainty
Classification-JEL: E22
Author-Name: Andrew B. Abel
Author-Person: pab10
Author-Name: Janice C. Eberly
Author-Person: peb3
Note: EFG
Number: 4296
Creation-Date: 1993-03
Order-URL: http://www.nber.org/papers/w4296
File-URL: http://www.nber.org/papers/w4296.pdf
File-Format: application/pdf
Publication-Status: published as American Economic Review, Vol. 84, no. 1 (December 1994): 1369-1384.
Publication-Status: published as The Economic Legacy of Robert Lucas, Jr., Hoover, Kevin D., ed.: Edward Elgar Publishing, October 1999.
Abstract: This paper extends the theory of investment under uncertainty to incorporate fixed costs of investment, a wedge between the purchase price and sale price of capital, and potential irreversibility of investment. In this extended framework, investment is a non-decreasing function of q, the shadow price of installed capital. There are potentially three investment regimes, which depend on the value of q relative to two critical values. For values of q above the upper critical value, investment is positive and is an increasing function of q, as is standard in the theory branch of the adjustment cost literature. For intermediate values of q, between two critical values, investment is zero. Although this regime features prominently in the irreversibility literature, it is largely ignored in the adjustment cost literature. Finally, if q is below the lower critical value, gross investment is negative, a possibility that is ruled out by assumption in the irreversibility of literature. In general, however, the shadow price q is not directly observable, so we present two examples relating q to observable varieties.
Handle: RePEc:nbr:nberwo:4296
Template-Type: ReDIF-Paper 1.0
Title: A Comparison of Changes in the Structure of Wages
Classification-JEL: J31; J38
Author-Name: Lawrence F. Katz
Author-Person: pka266
Author-Name: Gary W. Loveman
Author-Name: David G. Blanchflower
Author-Person: pbl22
Note: LS
Number: 4297
Creation-Date: 1993-03
Order-URL: http://www.nber.org/papers/w4297
File-URL: http://www.nber.org/papers/w4297.pdf
File-Format: application/pdf
Publication-Status: published as Lawrence F. Katz & Gary W. Loveman & David G. Blanchflower, 1995. "A Comparison of Changes in the Structure of Wages in Four OECD Countries," NBER Chapters, in: Differences and Changes in Wage Structures, pages 25-66 National Bureau of Economic Research, Inc.
Publication-Status: published as Differences and Changes in Wage Structures, University of Chicago Press, ed . Katz and Freeman, 1995.
Abstract: This paper compares changes in the structure of wages in France, Great Britain, Japan. and the United States over the last twenty years. Wage differentials by education and occupation (skill differentials) narrowed substantially in all four countries in the 1970s. Overall wage inequality and skill differentials expanded dramatically in Great Britain and the United States and moderately in Japan during the 1980s. In contrast, wage inequality did not increase much in France through the mid-1980s. Industrial and occupational shifts favored more-educated workers in all four countries throughout the last twenty years. Reductions in the rate of the growth of the relative supply of college-educated workers in the face of persistent increases in the relative demand for more-skilled labor can explain a substantial portion of the increase in educational wage differentials in the United States, Britain, and Japan in the 1980s. Sharp increases in the national minimum wage (the SM1C) and the ability of French unions to extend contracts even in the face of declining membership helped prevent wage differentials from expanding in France through the mid-1980s.
Handle: RePEc:nbr:nberwo:4297
Template-Type: ReDIF-Paper 1.0
Title: Does Foreign Exchange Intervention Signal Future Monetary Policy?
Classification-JEL: F4; E5
Author-Name: Graciela Kaminsky
Author-Person: pka84
Author-Name: Karen K. Lewis
Author-Person: ple1119
Note: ME IFM
Number: 4298
Creation-Date: 1993-03
Order-URL: http://www.nber.org/papers/w4298
File-URL: http://www.nber.org/papers/w4298.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Monetary Economics, vol. 37, no. 2, (April 1996), pp. 285-312.
Abstract: A frequently cited explanation for why sterilized interventions may affect exchange rates is that these interventions signal central banks' future monetary policy intentions. This explanation presumes that central banks in fact back up interventions with subsequent changes in monetary policy. We empirically examine this hypothesis using data on market observations of U.S. intervention together with monetary policy variables, and exchange rates. We strongly reject the hypothesis that interventions convey no signal. However, we also find that in some episodes, intervention signaled changes in monetary policy in the opposite direction of the conventional signaling story. This finding can explain why in some periods exchange rates moved in the opposite direction of that suggested by intervention.
Handle: RePEc:nbr:nberwo:4298
Template-Type: ReDIF-Paper 1.0
Title: Human Capital and the Income Tax
Author-Name: Louis Kaplow
Author-Person: pka44
Number: 4299
Creation-Date: 1993-03
Order-URL: http://www.nber.org/papers/w4299
File-URL: http://www.nber.org/papers/w4299.pdf
File-Format: application/pdf
Publication-Status: published as Virginia Law Review, Vol. 80, pp. 1477-1514 (1994).
Abstract: This article examines how to treat human capital -- perhaps the vast majority of the capital stock -- under an ideal, Haig-Simons income tax. Innate ability, investments in human capital, and uncertainty in future earnings are considered. It is demonstrated that conventional income tax treatment and proposed modifications are closer to implementing a consumption tax than an income tax. Approximating ideal income tax treatment may be feasible, but assessing its desirability would require further inquiry.
Handle: RePEc:nbr:nberwo:4299
Template-Type: ReDIF-Paper 1.0
Title: The Incidence of Adverse Medical Outcomes Under Prospective Payments
Classification-JEL: H40; I18
Author-Name: David M. Cutler
Author-Person: pcu64
Note: PE EH AG
Number: 4300
Creation-Date: 1993-03
Order-URL: http://www.nber.org/papers/w4300
File-URL: http://www.nber.org/papers/w4300.pdf
File-Format: application/pdf
Publication-Status: published as Econometrica, February 1995, pp. 29-50
Abstract: This paper examines the effect of prospective payment for hospital care on adverse medical outcomes. In 1983, the federal government replaced its previous cost-based reimbursement method with a prospective payment system, where reimbursement depends only On the diagnosis of the patient. Hospitals thus lost the marginal reimbursement they formally received for providing additional treatments. In addition, the average price each received changed with fixed reimbursement. This paper related each of these changes to adverse outcomes, with two conclusions. First, there is a change in the timing of deaths associated with changes in average prices. In hospitals with price declines, a greater share of deaths occur in the hospital or shortly after discharge, but by one or two years post-discharge, this difference in mortality rates disappears. Second, there is a trend increase in readmission rates caused by the elimination of marginal reimbursement. This appears to be due to accounting changes on the part of hospitals, however, rather than true changes in morbidity.
Handle: RePEc:nbr:nberwo:4300
Template-Type: ReDIF-Paper 1.0
Title: Why Doesn't the Market Fully Insure Long-Term Care?
Classification-JEL: I11
Author-Name: David M. Cutler
Author-Person: pcu64
Note: PE EH AG
Number: 4301
Creation-Date: 1993-03
Order-URL: http://www.nber.org/papers/w4301
File-URL: http://www.nber.org/papers/w4301.pdf
File-Format: application/pdf
Abstract: This paper examines the failure of the private market to fully insure long-term care. I argue that the failure is a result of large intertemporal variability in the cost of long-term care. Unlike variability in cross section use, variability in the cost of care affects everyone in a pool and therefore cannot be diversified within a cohort. Further, since costs are serially correlated, the cost risk cannot be diversified across cohorts. Estimates suggest that the standard deviation of cost uncertainty is on the order of 4 to 14 percent for an average long-term care policy. In response to this cost risk, most long-term care policies do not insure real benefits. Policies generally pay a fixed nominal amount for care, which is updated using predetermined nominal rules. Many policies also have lifetime maximum payments and other restrictions on aggregate risk bearing by the insurer. The lack of complete long-term care insurance may be one explanation for the low rate of purchase of long-term care policies.
Handle: RePEc:nbr:nberwo:4301
Template-Type: ReDIF-Paper 1.0
Title: Policy Options for Long-Term Care
Classification-JEL: I11; H20
Author-Name: David M. Cutler
Author-Person: pcu64
Author-Name: Louise M. Sheiner
Note: AG EH PE
Number: 4302
Creation-Date: 1993-03
Order-URL: http://www.nber.org/papers/w4302
File-URL: http://www.nber.org/papers/w4302.pdf
File-Format: application/pdf
Publication-Status: published as Studies in the Economics of Aging, David A. Wise, ed. University of Chicago Press 1994.
Publication-Status: published as Policy Options for Long-Term Care, David M. Cutler, Louise Sheiner. in Studies in the Economics of Aging, Wise. 1994
Abstract: This paper examines the effect of government nursing home policies on institutionalization rates and support for the elderly in the community. We combine data from the National Long Term Care Survey with information on state policies to estimate these effects. We examine two state policies for nursing home care: the ability of some high income elderly to receive Medicaid support, and the price differential between Medicaid and the private market. Both policies strongly affect aggregate nursing home utilization. as well as the composition of nursing home residents. In states with more liberal Medicaid rules. the high income elderly are more likely to use a nursing home. while in states with larger underpayments. the poor suffer reduced access. The marginal source of community care for the institutionalized elderly appears to be support from children or other helpers, rather than living alone. Almost all of the elderly in nursing homes would have lived with children or others had they been in the community. In addition, as the ease of acquiring Medicaid increases or Medicaid payments become more generous, fewer elderly receive substantial day-to-day help from their children.
Handle: RePEc:nbr:nberwo:4302
Template-Type: ReDIF-Paper 1.0
Title: Measuring Core Inflation
Classification-JEL: E31
Author-Name: Michael F. Bryan
Author-Name: Stephen G. Cecchetti
Author-Person: pce4
Note: ME
Number: 4303
Creation-Date: 1993-03
Order-URL: http://www.nber.org/papers/w4303
File-URL: http://www.nber.org/papers/w4303.pdf
File-Format: application/pdf
Publication-Status: published as N. Gregory Mankiw, ed., Monetary Policy, University of Chicago Press, 1994
Publication-Status: published as Measuring Core Inflation, Michael F. Bryan, Stephen G. Cecchetti. in Monetary Policy, Mankiw. 1994
Abstract: In this paper, we investigate the use of limited-information estimators as measures of core inflation. Employing a model of asymmetric supply disturbances, with costly price adjustment, we show how the observed skewness in the cross-sectional distribution of inflation can cause substantial noise in the aggregate price index at high frequencies. The model suggests that limited-influence estimators, such as the median of the cross-sectional distribution of inflation, will provide superior short-run measures of core inflation. We document that our estimates of inflation have a higher correlation with past money growth and deliver improved forecasts of future inflation relative to the CPI. Moreover, unlike the CPI, the limited-influence estimators do not forecast future money growth, suggesting that monetary policy has often accommodated supply shocks that we measure as the difference between core inflation and the CPI. Among the three limited-influence estimators we consider - the CP1 excluding food and energy, the IS-percent trimmed mean, and the median - we find that the median has the strongest relationship with past money growth and provides the most accurate forecast of future inflation. Using the median and several other variables including nominal interest rates and M2, our best forecast is that in the absence of monetary accommodation of any future aggregate supply shocks, inflation will average roughly 3 percent per year over the next five years.
Handle: RePEc:nbr:nberwo:4303
Template-Type: ReDIF-Paper 1.0
Title: The Use of Monetary Aggregate to Target Nominal GDP
Author-Name: Martin Feldstein
Author-Person: pfe112
Author-Name: James H. Stock
Author-Person: pst148
Note: EFG ME
Number: 4304
Creation-Date: 1993-03
Order-URL: http://www.nber.org/papers/w4304
File-URL: http://www.nber.org/papers/w4304.pdf
File-Format: application/pdf
Publication-Status: published as Monetary Policy, N. Gregory Mankiw, ed., pp.7-70, (Chicago: University of Chicago Press: 1994).
Publication-Status: published as The Use of a Monetary Aggregate to Target Nominal GDP, Martin Feldstein, James H. Stock. in Monetary Policy, Mankiw. 1994
Abstract: This paper studies the possibility of using the broad monetary aggregate M2 to target the quarterly rate of growth of nominal GDP. Our findings indicate that the Federal Reserve could probably guide M2 in a way that reduces not only the long-term average rate of inflation but also the variance of the annual rate of growth of nominal GDP. An optimal M2 rule, derived from a simple VAR, reduces the mean ten-year standard deviation of annual GDP growth by over 20 percent. Although there is uncertainty about this value because of both parameter uncertainty and stochastic shocks to the economy, we estimate that the probability that the annual variance would be reduced over a ten year period exceeds 85 percent. A much simpler policy based on a single equation linking M2 and GDP is shown to be almost as successful in reducing this annual GDP variance. Additional statistical tests indicate that M2 is a useful predictor of nominal GDP. Moreover, a battery of recently developed tests for parameter stability fails to reject the hypothesis that the M2 - GDP link is stable, but the MI - GDP and monetary base - GDP relations are found to be highly unstable. This evidence contradicts those who have argued that the M2 - GDP relation is so unstable in the short run that it cannot be used to reduce the variance of nominal GDP growth.
Handle: RePEc:nbr:nberwo:4304
Template-Type: ReDIF-Paper 1.0
Title: The Equity of Social Services Provided to Children and Senior Citizens
Classification-JEL: H22
Author-Name: Laurence J. Kotlikoff
Author-Person: pko44
Author-Name: Jagadeesh Gokhale
Note: AG PE
Number: 4305
Creation-Date: 1993-03
Order-URL: http://www.nber.org/papers/w4305
File-URL: http://www.nber.org/papers/w4305.pdf
File-Format: application/pdf
Publication-Status: published as "Passing the Generational Buck," The Public Interest, Winter 1994.
Abstract: This paper marshals a variety of different types of evidence in considering the degree of equity in the government's treatment of children vis-a-vis adults, particularly the current elderly. The paper begins by showing that poverty rates of children have, over the past two decades, risen dramatically while those of the elderly have fallen. Next, it shows that, over this same time frame, the levels of consumption and income of the elderly have risen relative to those of other Americans, including children. The paper then turns to the role of government policy in influencing these trends. It documents the high level of transfer payments going to the elderly relative to those going to children, even if one includes educational expenditures on children as a transfer payment. But the paper argues that such point-in-time comparisons are invalid because they fail to account for the fact that, at a point in time, children and the elderly are at different stages of their life cycles, Controlling for the stage of the life cycle requires examining the government's fiscal treatment of generations over their entire lifetimes. Accordingly, the paper compares the lifetime fiscal treatment of generations. Specifically, it presents/projects lifetime net tax rates for generations born from 1900 through the present as well as for generations that will be born in the future. These lifetime tax rates indicate that today's and tomorrow's children could well end up paying as much as 50, 60, or even 70 percent of their lifetime incomes to the government while generations that are now old will end up paying only about 25 percent of their lifetime incomes to the government. While the paper cautions that generational equity is in the eye of the beholder, such disparate taxation of generations does considerable violence to standard norms of generational equity.
Handle: RePEc:nbr:nberwo:4305
Template-Type: ReDIF-Paper 1.0
Title: What Determines the Sacrifice Ratio?
Classification-JEL: E31; E32
Author-Name: Laurence Ball
Author-Person: pba605
Note: EFG ME
Number: 4306
Creation-Date: 1993-03
Order-URL: http://www.nber.org/papers/w4306
File-URL: http://www.nber.org/papers/w4306.pdf
File-Format: application/pdf
Publication-Status: published as Monetary Policy, ed. N.G. Mankiw, University of Chicago Press, 1994
Publication-Status: published as What Determines the Sacrifice Ratio?, Laurence Ball. in Monetary Policy, Mankiw. 1994
Abstract: This paper investigates the determinants of the "sacrifice ratio" for disinflation: the ratio of the loss in output to the fall in trend inflation. I develop a method for estimating the sacrifice ratio in individual disinflation episodes, and apply it to 65 episodes in moderate-inflation OECD countries. In this sample. the sacrifice ratio is decreasing in the speed of disinflation: cold turkey is less costly than gradualism. The ratio is also decreasing in the flexibility of wage-setting institutions. The openness of the economy has no effect on the ratio. and the effects of incomes policies and the initial level of inflation are unclear.
Handle: RePEc:nbr:nberwo:4306
Template-Type: ReDIF-Paper 1.0
Title: Employer Provided Health Insurance and Retirement Behavior
Classification-JEL: I1; J14
Author-Name: Alan L. Gustman
Author-Person: pgu327
Author-Name: Thomas L. Steinmeier
Note: LS AG
Number: 4307
Creation-Date: 1993-03
Order-URL: http://www.nber.org/papers/w4307
File-URL: http://www.nber.org/papers/w4307.pdf
File-Format: application/pdf
Publication-Status: published as Alan L. Gustman & Thomas L. Steinmeier, 1994. "Employer-provided health insurance and retirement behavior," Industrial and Labor Relations Review, ILR Review, Cornell University, ILR School, vol. 48(1), pages 124-140, October.
Abstract: This paper analyzes the effects on retirement of employer provided health benefits to workers and retirees. Retiree health benefits delay retirement until age of eligibility, and then accelerate it. With a base case of no retiree health coverage, granting retiree health coverage to all those with employer coverage while working accelerates retirement age by less than one month. Valuing benefits at costs of private health insurance to unaffiliated individuals, rather than at group rates, increases the effect. Ignoring retiree health benefits in retirement models creates only a small bias. Changing health insurance policies has a small effect on retirement.
Handle: RePEc:nbr:nberwo:4307
Template-Type: ReDIF-Paper 1.0
Title: Are Industrial-Country Consumption Risks Globally Diversified?
Classification-JEL: F36; G15
Author-Name: Maurice Obstfeld
Author-Person: pob13
Note: IFM
Number: 4308
Creation-Date: 1993-03
Order-URL: http://www.nber.org/papers/w4308
File-URL: http://www.nber.org/papers/w4308.pdf
File-Format: application/pdf
Publication-Status: forthcoming in Leonardo Leiderman and Assaf Razin, eds., Capital Mobility Cambridge, UK, Cambridge University Press, 1994
Abstract: What idiosyncratic consumption risks can countries trade away on international asset markets? This paper develops an empirical methodology for answering the question. The tests are based on the proposition that in an integrated world asset market with representative national agents, the ex post difference between two countries' intertemporal marginal rates of substitution in consumption is uncorrelated with any random variable on which contractual payoffs can be conditioned. This result is applied to annual time-series data for the seven largest industrial countries over 1950-88. Of these countries, Germany seems to have been most successful at internationally diversifying its consumption risks.
Handle: RePEc:nbr:nberwo:4308
Template-Type: ReDIF-Paper 1.0
Title: Production, Financial Structure and Productivity Growth in U.S. Manufacturing
Classification-JEL: D24; G32
Author-Name: Jeffrey I. Bernstein
Author-Person: pbe327
Author-Name: M. Ishaq Nadiri
Note: PR
Number: 4309
Creation-Date: 1993-03
Order-URL: http://www.nber.org/papers/w4309
File-URL: http://www.nber.org/papers/w4309.pdf
File-Format: application/pdf
Abstract: The purpose of this paper is to estimate a model that incorporates the effects of financial decisions on production, profitability, and productivity growth. Asymmetric information generates agency costs of debt and signaling benefits of dividends which then influence production decisions. The model is applied to the U.S. manufacturing sector. Agency costs and signaling benefits are measured by their effects on profitability. A one percent increase in debt reduces variable profit by 0.04 percent, while a one percent increase in dividends raises variable profit by 0.12 percent. Agency costs also limit the adjustment of U.S. manufacturing to long-run equilibrium. On average, for $1.00 of funds raised through bond issues, debt adjustment cost is about $0.05. The dynamic efficiency of the manufacturing sector is affected by financial considerations. Signaling benefits contribute 4.2 percent to total factor productivity growth, while agency costs reduce efficiency by 3.3 percent. Thus the financial effects on dynamic efficiency approximately offset each other.
Handle: RePEc:nbr:nberwo:4309
Template-Type: ReDIF-Paper 1.0
Title: The Gold Standard, Bretton Woods and other Monetary Regimes: An Historical Appraisal
Classification-JEL: F33; E42
Author-Name: Michael Bordo
Author-Person: pbo243
Note: IFM DAE ME
Number: 4310
Creation-Date: 1993-04
Order-URL: http://www.nber.org/papers/w4310
File-URL: http://www.nber.org/papers/w4310.pdf
File-Format: application/pdf
Publication-Status: published as Federal Reserve Bank of St. Louis Review, Vol. 75, No. 2, pp. 123-191,(March/April 1993).
Abstract: This paper provides answers to two questions. The first question is which international monetary regime is best for economic performance? One based on fixed exchange rates: including the gold standard and its variants? Adjustable peg regimes such as the Bretton Woods system and the European Monetary System? Or one based on floating exchange rates? The second question is why have some monetary regimes been more successful than others? Specifically. why did the classical gold standard last close to a century (at least for Great Britain) and why did Bretton Woods only endure for twenty-five years (or less)? Why was the European Monetary System successful for only a few years? To answer the first question I examine empirical evidence on the performance of three monetary regimes: the classical gold standard; Bretton Woods; and the current float; and as a backdrop the mixed regime interwar period. 1 answer the second question by linking regime success to the presence of credible commitment mechanisms, that is to the incentive compatibility features of the regime. Successful fixed rate regimes. in addition to being based on simple transparent rules. contained features which encouraged a center country to enforce the rules and other countries to comply.
Handle: RePEc:nbr:nberwo:4310
Template-Type: ReDIF-Paper 1.0
Title: Heterogeneity, Stratification, and Growth
Classification-JEL: O41; D62
Author-Name: Roland Benabou
Author-Person: pbe27
Note: EFG
Number: 4311
Creation-Date: 1993-04
Order-URL: http://www.nber.org/papers/w4311
File-URL: http://www.nber.org/papers/w4311.pdf
File-Format: application/pdf
Publication-Status: published as modified title: "Heterogeneity, Stratification and Growth: Macroeconomicmplications of Community Structure and School Finance," American Economic Review, vol. 86, no. 3, pp. 584-609, June 1996.
Abstract: We examine how economic stratification affects inequality and growth over time. We study economies where heterogenous agents interact through local public goods or externalities (school funding, neighborhood effects) and economy-wide linkages (complementary skills. knowledge spillovers). We compare growth and welfare when families are stratified into homogeneous local communities and when they remain integrated. Segregation tends to minimize the losses from a given amount of heterogeneity, but integration reduces heterogeneity faster. Society may thus face an intertemporal tradeoff: mixing leads to slower growth in the short run, but to higher output or even productivity growth in the long run. This tradeoff occurs in particular when comparing local and national funding of education, which correspond to special cases of segregation and integration. More generally, we identify the key parameters which determine which structure is more efficient over short and long horizons. Particularly important are the degrees of complementarity in local and in global interactions.
Handle: RePEc:nbr:nberwo:4311
Template-Type: ReDIF-Paper 1.0
Title: Does History Matter Only When it Matters Little? The Case of City-Indu try Location
Classification-JEL: O41; R11
Author-Name: James E. Rauch
Author-Person: pra166
Note: ITI EFG
Number: 4312
Creation-Date: 1993-04
Order-URL: http://www.nber.org/papers/w4312
File-URL: http://www.nber.org/papers/w4312.pdf
File-Format: application/pdf
Publication-Status: published as The Quarterly Journal of Economics, vol. cviii, issue 3, August 1993, (MIT Press, Cambridge), p. 843-867
Abstract: When will an industry subject to agglomeration economies move from an old, high-cost site to a new, low-cost site? It is argued that history, in the form of sunk costs resulting from the operation of many firms at a site, creates a first-mover disadvantage that can prevent relocation. It is demonstrated that developers of industrial parks can partly overcome this inertia through discriminatory pricing of land over time, and empirical evidence is provided that they actually engage in such behavior. It is also shown that other aspects of developer land-sale strategy can be a source of information on the nature of interfirm externalities.
Handle: RePEc:nbr:nberwo:4312
Template-Type: ReDIF-Paper 1.0
Title: Productivity and the Density of Economic Activity
Classification-JEL: O40; O47
Author-Name: Antonio Ciccone
Author-Person: pci47
Author-Name: Robert E. Hall
Note: EFG
Number: 4313
Creation-Date: 1993-04
Order-URL: http://www.nber.org/papers/w4313
File-URL: http://www.nber.org/papers/w4313.pdf
File-Format: application/pdf
Publication-Status: published as American Economic Review, vol. 86, no. 1, pp. 54-70, (March 1996).
Abstract: Two different models - one based on local geographical externalities and the other on the variety of only locally available intermediate services - are shown to give rise to a simple, estimable relation between employment density and productivity. Using data on gross state output for the U.S., we find that agglomeration more than offsets congestion effects in denser areas. While our estimate of the elasticity of productivity with respect to density is small, it explains more than 50% of the observed state productivity differences, given the large differences in density.
Handle: RePEc:nbr:nberwo:4313
Template-Type: ReDIF-Paper 1.0
Title: Arbitrage Chains
Classification-JEL: G12
Author-Name: James Dow
Author-Person: pdo106
Author-Name: Gary Gorton
Author-Person: pgo458
Note: AP
Number: 4314
Creation-Date: 1993-04
Order-URL: http://www.nber.org/papers/w4314
File-URL: http://www.nber.org/papers/w4314.pdf
File-Format: application/pdf
Publication-Status: published as Dow, James and Gary Gorton. "Arbitrage Chains," Journal of Finance, 1994, v49(3), 819-849.
Abstract: In efficient markets the price should reflect the arrival of private information. The mechanism by which this is accomplished is arbitrage. A privately informed trader will engage in costly arbitrage, that is, trade on his knowledge that the price of an asset is different from the fundamental value if: (1) his order does not move the price immediately to reflect the information; (2) he can hold the asset until the date when the information is reflected in the price. We study a general equilibrium model in which all agents optimize. In each period, there may be a trader with a limited horizon who has private information about a distant event. Whether he acts on his information, and whether subsequent informed traders act, is shown to depend on the possibility of a sequence or chain of future informed traders spanning the event date. An arbitrageur who receives good news will buy only if it is likely that, at the end of his trading horizon, a subsequent arbitrageur's buying will have pushed up the expected price. We show that limited trading horizons result in inefficient prices because informed traders do not act on their information until the event date is sufficiently close.
Handle: RePEc:nbr:nberwo:4314
Template-Type: ReDIF-Paper 1.0
Title: Profitable Informed Trading in a Simple General Equilibrium Model of Asset Pricing
Classification-JEL: G12
Author-Name: James Dow
Author-Person: pdo106
Author-Name: Gary Gorton
Author-Person: pgo458
Note: AP
Number: 4315
Creation-Date: 1993-04
Order-URL: http://www.nber.org/papers/w4315
File-URL: http://www.nber.org/papers/w4315.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Economic Theory, Vol. 67, no. 2 (December 1995): 327-369.
Abstract: This paper presents a simple general equilibrium model of asset pricing in which profitable informed trading can occur without any "noise" added to the model. It shows that models of profitable informed trading must restrict the portfolio choices of uninformed traders: in particular, they cannot buy the market portfolio. In this model, profitable informed trading lowers the welfare of all agents when compared across steady states.
Handle: RePEc:nbr:nberwo:4315
Template-Type: ReDIF-Paper 1.0
Title: Poison or Placebo? Evidence on the Deterrent and Wealth Effects of Modern Antitakeover Measures
Classification-JEL: G34; G38
Author-Name: Robert Comment
Author-Name: G. William Schwert
Author-Person: psc116
Note: CF
Number: 4316
Creation-Date: 1993-04
Order-URL: http://www.nber.org/papers/w4316
File-URL: http://www.nber.org/papers/w4316.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Financial Economics, vol. 39, no. 1, pp. 3-43, (September 1995)
Abstract: This paper provides large-sample evidence that poison pill rights issues, control share statutes, and business combination statutes do not deter takeovers and are unlikely to have caused the demise of the 1980s market for corporate control, even though 87% of all exchange-listed firms are now covered by one or another of these antitakeover measures. We show that poison pills and control share statutes are reliably associated with higher takeover premiums for selling shareholders, both unconditionally and conditional on a successful takeover, and we provide updated event-study evidence for the three-quarters of all poison pills not yet analyzed.
Handle: RePEc:nbr:nberwo:4316
Template-Type: ReDIF-Paper 1.0
Title: Monetary Policy and Bank Lending
Author-Name: Anil Kashyap
Author-Person: pka35
Author-Name: Jeremy C. Stein
Author-Person: pst43
Note: ME
Number: 4317
Creation-Date: 1993-04
Order-URL: http://www.nber.org/papers/w4317
File-URL: http://www.nber.org/papers/w4317.pdf
File-Format: application/pdf
Publication-Status: published as Monetary Policy, ed. N. Gregory Mankiw, University of Chicago Press, 1994
Publication-Status: published as Monetary Policy and Bank Lending, Anil K. Kashyap, Jeremy C. Stein. in Monetary Policy, Mankiw. 1994
Abstract: This paper surveys recent work that relates to the "lending" view of monetary policy transmission. It has three main goals: 1) to explain why it is important to distinguish between the lending and "money" views of policy transmission; 2) to outline the microeconomic conditions that are needed to generate a lending channel; and 3) to review the empirical evidence that bears on the lending view.
Handle: RePEc:nbr:nberwo:4317
Template-Type: ReDIF-Paper 1.0
Title: Dynamic Efficiency in the Gifts Economy
Classification-JEL: D51; E13
Author-Name: Stephen A. O'Connell
Author-Person: poc39
Author-Name: Stephen P. Zeldes
Note: EFG
Number: 4318
Creation-Date: 1993-04
Order-URL: http://www.nber.org/papers/w4318
File-URL: http://www.nber.org/papers/w4318.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Monetary Economics, vol.31, no. 3, June 1993, p. 363-380
Abstract: In the standard analysis of an overlapping generations economy with gifts from children to parents, each generation takes the actions of all other generations as given. The resulting "simultaneous moves" equilibrium is dynamically inefficient. In reality, however, parents precede children in time and realize that children will respond to higher parental saving by reducing their gifts. Incorporating this feature lowers the effective return to saving, resulting in lower steady state capital accumulation. For a broad class of gift economies, we show that the steady state capital stock in the gifts model must be on the efficient side of the golden rule. The analysis therefore overturns the standard presumption of dynamic inefficiency in the gift economy. This result reestablishes the potential relevance of the gift model to the U.S. economy, renders moot an important part of the debate on Ricardian Equivalence, extends the recent literature on the effects of implicit taxation on capital accumulation, and provides a motivation for the presence of a Social Security type system that unconditionally transfers resources from young to old.
Handle: RePEc:nbr:nberwo:4318
Template-Type: ReDIF-Paper 1.0
Title: The Political Economy of Infaliton and Stabilization in Developing Countries
Classification-JEL: F41
Author-Name: Sebastian Edwards
Author-Person: ped3
Note: IFM
Number: 4319
Creation-Date: 1993-04
Order-URL: http://www.nber.org/papers/w4319
File-URL: http://www.nber.org/papers/w4319.pdf
File-Format: application/pdf
Publication-Status: published as in Economic Development and Cultural Change, 42(2), January 1994, 235-266.
Abstract: This paper deals with political aspects of inflation and stabilization in developing countries. it is argued that by ignoring political considerations. traditional models failed to fully understand the dynamics of inflation. Several newer models are discussed. including models based on strategic government behavior and war of attrition models. Empirical results obtained with developing countries data are discussed in detail. Data on Chile are used to test several versions of political business cycle models. It is found that this perspective helps explain the evolution of inflation through time in that country. Finally. data on a large cross section of countries are used to investigate the political-economy circumstances surrounding major devaluation crises.
Handle: RePEc:nbr:nberwo:4319
Template-Type: ReDIF-Paper 1.0
Title: Exchange Rates, Inflation and Disinflation: Latin American Experiences
Classification-JEL: F31
Author-Name: Sebastian Edwards
Author-Person: ped3
Note: IFM
Number: 4320
Creation-Date: 1993-04
Order-URL: http://www.nber.org/papers/w4320
File-URL: http://www.nber.org/papers/w4320.pdf
File-Format: application/pdf
Publication-Status: published as Edwards, S. (ed.) Capital Controls, Exchange Rates and Monetary Policy in the World Economy. Cambridge University Press, 1995.
Abstract: This paper analyzes the relationship between exchange rates, inflation and disinflation in Latin America. The analysis concentrates on two central issues. First, the historical experience with fixed exchange rates in four Latin American countries is investigated. It is shown that even though these countries had the ability to undertake independent monetary policy, they chose to play by the "rules of the game". Until 1973, when the first oil shock took place, these countries strictly respected the constraints imposed by fixed exchange rates on their domestic credit policy. Between that date and the late 1980s, when the fixed rates were finally abandoned, they tried to ignore these constraints. This generated losses of reserves and increased inflation. The second issue addressed in the paper refers to the use of a nominal exchange rate anchor to reduce inflation. Data on Chile, Mexico and Venezuela are used to investigate the extent to which alternative exchange rate regimes affect inflationary inertia. It is found that fixing the exchange rate will not, on its own, reduce the degree of inertia.
Handle: RePEc:nbr:nberwo:4320
Template-Type: ReDIF-Paper 1.0
Title: Environmental Regulation and Manufacturing Productivity at the Plant Level
Classification-JEL: D24; Q28
Author-Name: Wayne B. Gray
Author-Person: pgr111
Author-Name: Ronald J. Shadbegian
Author-Person: psh911
Note: PR EEE
Number: 4321
Creation-Date: 1993-04
Order-URL: http://www.nber.org/papers/w4321
File-URL: http://www.nber.org/papers/w4321.pdf
File-Format: application/pdf
Abstract: We analyze the connection between productivity, pollution abatement expenditures, and other measures of environmental regulation for plants in three industries (paper, oil, and steel). We examine data from 1979 to 1985, considering, both labor and total factor productivity, both levels and growth rates, and both annual measures and averages over the period. We find a strong connection between regulation and productivity when regulation is measured by compliance costs. More regulated plants have significantly lower productivity levels and slower productivity growth rates than less regulated plants. The magnitude of the impacts are larger than expected: a $1 increase in compliance costs appears to reduce TFP by the equivalent of $3 to $4. Thus, commonly used methods of calculating the impact of regulation on productivity are substantially underestimated. Other measures of regulation (compliance status, enforcement activity, and emissions) show much less consistent results. Higher enforcement, lower compliance, and higher emissions are generally associated with lower productivity levels and slower productivity growth, but the coefficients are rarely significant.
Handle: RePEc:nbr:nberwo:4321
Template-Type: ReDIF-Paper 1.0
Title: Monetary Policy and Inflation in the 1980s: A Personal View
Classification-JEL: E5
Author-Name: Martin Feldstein
Author-Person: pfe112
Note: EFG ME
Number: 4322
Creation-Date: 1993-04
Order-URL: http://www.nber.org/papers/w4322
File-URL: http://www.nber.org/papers/w4322.pdf
File-Format: application/pdf
Publication-Status: published as Feldstein, Martin (ed.) American Economic Policy in the 1980s. Chicago: University of Chicago Press, 1994.
Abstract: This paper, which was written as a part of the NBER project on American economic policy in the 1980s, reviews some of the major changes in monetary policy during that period. The paper tries to explain why policies changed in the way that they did and looks particularly at the role of economists and economic analysis in shaping those developments.
Handle: RePEc:nbr:nberwo:4322
Template-Type: ReDIF-Paper 1.0
Title: Tax Policy in the 1980s: A Personal View
Classification-JEL: H2
Author-Name: Martin Feldstein
Author-Person: pfe112
Note: PE
Number: 4323
Creation-Date: 1993-04
Order-URL: http://www.nber.org/papers/w4323
File-URL: http://www.nber.org/papers/w4323.pdf
File-Format: application/pdf
Publication-Status: published as Feldstein, Martin (ed.) American Economic Policy in the 1980s. Chicago: University of Chicago Press, 1994.
Abstract: The tax reforms of the 1980s were the most substantial tax changes since the dramatic expansion of personal taxation during World War II. This paper. which was written as part of the NBER project on American economic policy in the 1980s. examines the nature of these changes and discusses the reasons why tax policies evolved as they did in the 1980s. Particular attention is given to the role of economic analysis in shaping the tax reforms.
Handle: RePEc:nbr:nberwo:4323
Template-Type: ReDIF-Paper 1.0
Title: Government Spending and Budget Deficits in the 1980s: A Personal View
Classification-JEL: H6
Author-Name: Martin Feldstein
Author-Person: pfe112
Note: PE EFG
Number: 4324
Creation-Date: 1993-04
Order-URL: http://www.nber.org/papers/w4324
File-URL: http://www.nber.org/papers/w4324.pdf
File-Format: application/pdf
Publication-Status: published as Feldstein, Martin (ed.) American Economic Policy in the 1980s. Chicago: University of Chicago Press, 1994.
Abstract: This paper, which was written as part of the NBER project on American economic policy in the 1980s, examines the changes in government spending and budget deficits during the decade. The paper analyzes why the deficit increased substantially and looks at the policy options for reducing the deficit that were considered. The paper discusses the period when the author was a member of the Administration in greater detail than other years in the 19805 and seeks to explain why the policy choices evolved as they did.
Handle: RePEc:nbr:nberwo:4324
Template-Type: ReDIF-Paper 1.0
Title: The Dollar and the Trade Deficit in the 1980s: A Personal View
Classification-JEL: F4
Author-Name: Martin Feldstein
Author-Person: pfe112
Note: ME ITI IFM EFG
Number: 4325
Creation-Date: 1993-04
Order-URL: http://www.nber.org/papers/w4325
File-URL: http://www.nber.org/papers/w4325.pdf
File-Format: application/pdf
Publication-Status: published as Feldstein, Martin (ed.) American Economic Policy in the 1980s. Chicago: University of Chicago Press, 1994.
Abstract: The sharp gyrations of the dollar and of the trade deficit in the 1980s were among the most novel and least understood economic developments of the decade. This paper, which was written as part of the NBER project on American economic policy in the 1980s, examines the reasons for the dollar's swings and the nature of the policy debate about the appropriate government response to the rising and then falling dollar.
Handle: RePEc:nbr:nberwo:4325
Template-Type: ReDIF-Paper 1.0
Title: Historical Perspectives on the Monetary Transmission Mechanism
Classification-JEL: E40; E50
Author-Name: Jeffrey A. Miron
Author-Person: pmi250
Author-Name: Christina D. Romer
Author-Person: pro407
Author-Name: David N. Weil
Author-Person: pwe24
Note: ME
Number: 4326
Creation-Date: 1993-04
Order-URL: http://www.nber.org/papers/w4326
File-URL: http://www.nber.org/papers/w4326.pdf
File-Format: application/pdf
Publication-Status: published as Monetary Policy, N. Gregory Mankiw, ed., (Chicago; University of Chicago Press: 1994).
Publication-Status: published as Historical Perspectives on the Monetary Transmission Mechanism, Jeffrey A. Miron, Christina D. Romer, David N. Weil. in Monetary Policy, Mankiw. 1994
Abstract: This paper examines changes over time in the importance of the lending channel in the transmission of monetary shocks to the real economy. We first use a simple extension of the Bernanke-Blinder model to isolate the observable factors that affect the strength of the lending channel. We then show that based on changes in the structure of banks assets, reserve requirements, and the composition of external firm finance, the lending channel should have been stronger before 1929 than during the post-World War II period, especially the first half of this period. Finally, we demonstrate that conventional indicators of the importance of the lending channel, such as the spread between the loan rate and the bond rate and the correlation between loans and output, do not show the predicted decline in the importance of lending over time. From this we conclude that either the traditional indicators are not useful measures of the strength of the lending channel or that the lending channel has not been quantitatively important in any era.
Handle: RePEc:nbr:nberwo:4326
Template-Type: ReDIF-Paper 1.0
Title: Determinants of Young Male Schooling and Training Choices
Author-Name: Stephen V. Cameron
Author-Name: James J. Heckman
Note: LS
Number: 4327
Creation-Date: 1993-04
Order-URL: http://www.nber.org/papers/w4327
File-URL: http://www.nber.org/papers/w4327.pdf
File-Format: application/pdf
Publication-Status: published as Determinants of Young Males' Schooling and Training Choices, Stephen Cameron, James J. Heckman. in Training and the Private Sector: International Comparisons, Lynch. 1994
Abstract: This paper examines the determinants of GED acquisition. high school graduation and postsecondary training and schooling choices. Economic factors determining dropping out are considered. The determinants of high school certification by exam are fundamentally different from the determinants of ordinary high school graduation. GED graduates are more likely to take vocational and technical training while ordinary graduates are more likely to attend academic programs. GED recipients are much less likely to complete the post-secondary programs they begin. The GED exam does not measure the ability or motivation that predicts successful completion of post-secondary schooling and training programs. Participation in post-secondary nonacademic training is positively related to family resources. Thus both academic and non-academic training operate to reinforce initial family earnings inequalities.
Handle: RePEc:nbr:nberwo:4327
Template-Type: ReDIF-Paper 1.0
Title: Intertemporal Choice and Inequality
Classification-JEL: D31; D91
Author-Name: Angus Deaton
Author-Person: pde30
Author-Name: Christina Paxson
Author-Person: ppa335
Note: AG EFG
Number: 4328
Creation-Date: 1993-04
Order-URL: http://www.nber.org/papers/w4328
File-URL: http://www.nber.org/papers/w4328.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Political Economy, Vol. 102, no. 3 (1994): 437-467.
Abstract: We show that standard models of intertemporal choice, including the permanent income hypothesis, imply that for any given cohort of people born at the same time, inequality in both consumption and income will grow with age. At any given date, each individual's consumption depends on the integral of unanticipated earnings shocks up to that date, so that consumption becomes more dispersed with time. If earnings are not themselves similarly dispersing, assets will do so, so that the dispersion of total income will increase, irrespective of the behavior of earnings. Because the result applies to an increase in inequality over time within a given age cohort, it has no immediate implications for the behavior of inequality in the economy as a whole, and is consistent with constant aggregate inequality over time. Cohort data are constructed from 11 years of household survey data from the U.S., 22 years from Great Britain, and 14 years from Taiwan. They show that within-cohort consumption and income inequality does indeed grow with age in all three economies, and that the rate of increase is broadly similar in all three.
Handle: RePEc:nbr:nberwo:4328
Template-Type: ReDIF-Paper 1.0
Title: Where do Betas Come From? Asset Price Dynamics and the Sources of Systematic Risk
Classification-JEL: G12
Author-Name: John Campbell
Author-Person: pca54
Author-Name: Jianping Mei
Author-Person: pme634
Note: AP
Number: 4329
Creation-Date: 1993-04
Order-URL: http://www.nber.org/papers/w4329
File-URL: http://www.nber.org/papers/w4329.pdf
File-Format: application/pdf
Publication-Status: published as Review of Financial Studies. vol 6, no. 3, 1993, p. 567-592
Abstract: This paper breaks assets' betas with common factors into components attributable to news about future cash flows, real interest rates, and excess returns. To achieve this decomposition the paper uses a vector autoregressive time-series model and an approximate log-linear present value relation. The betas of industry and size portfolios with the market are largely attributed to changing expected returns. Betas with inflation and industrial production reflect opposing cash flow and expected return effects. The paper also shows how asset pricing theory restricts the expected excess return components of betas.
Handle: RePEc:nbr:nberwo:4329
Template-Type: ReDIF-Paper 1.0
Title: Saving, Growth, and Aging in Taiwan
Classification-JEL: D91; J14
Author-Name: Angus Deaton
Author-Person: pde30
Author-Name: Christina H. Paxson
Author-Person: ppa335
Note: AG
Number: 4330
Creation-Date: 1993-04
Order-URL: http://www.nber.org/papers/w4330
File-URL: http://www.nber.org/papers/w4330.pdf
File-Format: application/pdf
Publication-Status: published as Studies in the Economics of Aging, Wise, David A., ed., Chicago: University of Chicago Press, 1994, pp. 331-357.
Publication-Status: published as Saving, Growth, and Aging in Taiwan, Angus S. Deaton, Christina Paxson. in Studies in the Economics of Aging, Wise. 1994
Abstract: This paper examines issues of household saving, growth. and aging in Taiwan. The Taiwanese patterns of high income growth, declines in fertility, and increases in life expectancy all have implications for life-cycle saving. We use data from fifteen consecutive household income and expenditure surveys. from 1976 to 1990, to examine whether observed profiles of consumption and saving are consistent with life-cycle theory. The patterns of consumption and saving across households of different ages and cohorts appear to be broadly consistent with a life-cycle model. However. the data also indicate that household consumption tracks income closely. and this evidence casts doubt on simple life-cycle theory.
Handle: RePEc:nbr:nberwo:4330
Template-Type: ReDIF-Paper 1.0
Title: U.S. Manufacturing and an Emerging Mexico
Author-Name: Edward E. Leamer
Author-Person: ple440
Author-Name: Chauncey J. Medberry
Note: ITI
Number: 4331
Creation-Date: 1993-04
Order-URL: http://www.nber.org/papers/w4331
File-URL: http://www.nber.org/papers/w4331.pdf
File-Format: application/pdf
Publication-Status: published as The North American Journal of Economics and Finance, vol. 4, no. 1, Spring 1993, pp. 51-89.
Abstract: This paper offers a vision of the future of trade in manufactured products between Mexico and the United States. This vision is formed from a study of the 1970 and 1985 trade patterns of OECD countries. The vision accounts directly for the proximity of Mexico and the United States, and also for the continuing wage gap between Mexico and the United States. The vision accounts indirectly for the declining level of trade barriers and for the technological improvements that are probable in a liberalized Mexico. Based on the OECD trade patterns, an emerging Mexico will present U.S. export opportunities that are a significant fraction of current U.S. production of transportation equipment, chemicals and machinery. But Mexican exports are likely to displace a substantial amount of U.S. production of apparel, footwear, pottery and leather products. This vision which is formed using 1985 data does not offer an entirely accurate description of the changes in trade between Mexico and the United States that have occurred between 1985 and 1992. It is possible that the vision is defective, but it is also possible that the Mexican liberalization is incomplete, is in its infancy, and is still under serious threat of reversal.
Handle: RePEc:nbr:nberwo:4331
Template-Type: ReDIF-Paper 1.0
Title: Demographic Factors and Real House Prices
Classification-JEL: R21
Author-Name: Richard K. Green
Author-Name: Patric H. Hendershott
Note: ME
Number: 4332
Creation-Date: 1993-04
Order-URL: http://www.nber.org/papers/w4332
File-URL: http://www.nber.org/papers/w4332.pdf
File-Format: application/pdf
Publication-Status: published as "Age, Housing Demand and Real House Prices), Regional Science and Urban Economics, Vol. 26 (1996): 465-480.
Abstract: Real house prices are directly determined by the willingness of households to pay for (and willingness of builders to supply) a constant-quality house. Changes in the quantity of housing demanded will affect real prices only to the extent that the long-run housing supply schedule is positively sloped. In this paper we use 1980 census data to measure the impact of the age structure and real income per household on the willingness of households to pay for a constant quality house. Extrapolating these variables forward to 2010, we conclude that evolving demographic forces are likely to raise real house prices. not lower them.
Handle: RePEc:nbr:nberwo:4332
Template-Type: ReDIF-Paper 1.0
Title: Keeping People Out: Income Distribution, Zoning and the Quality of Public Education
Classification-JEL: E62; H52
Author-Name: Raquel Fernandez
Author-Person: pfe17
Author-Name: Richard Rogerson
Author-Person: pro53
Note: ME
Number: 4333
Creation-Date: 1993-04
Order-URL: http://www.nber.org/papers/w4333
File-URL: http://www.nber.org/papers/w4333.pdf
File-Format: application/pdf
Publication-Status: published as International Economic Review, 38, 1997, pp.23-42
Abstract: This paper examines the effect of community zoning regulations on allocations and welfare in a two-community model. Each community uses a local property tax to finance public education. Tax rates are determined by majority vote within each community, and individuals choose in which community to reside. We study exogenously imposed zoning regulations as well as the case where the regulator is endogenously determined by majority vote. Our analysis indicates that a number of outcomes are theoretically possible. Several interesting results emerge from simulations of the model. Although zoning tends to make the rich community more exclusive, this need not increase the quality of education in the rich community relative to the poor community. Welfare effects are not monotone in income; some lower income individuals benefit and some higher income individuals are made worse off when zoning is introduced.
Handle: RePEc:nbr:nberwo:4333
Template-Type: ReDIF-Paper 1.0
Title: The Dynamic-Optimizing Approach to the Current Account: Theory and Evidence
Classification-JEL: J13; J22
Author-Name: Assaf Razin
Author-Person: pra388
Note: IFM
Number: 4334
Creation-Date: 1993-04
Order-URL: http://www.nber.org/papers/w4334
File-URL: http://www.nber.org/papers/w4334.pdf
File-Format: application/pdf
Publication-Status: published as Understanding Interdependence: The Macroeconomics of Open Economy, Peter B. Kenen, ed., Princeton University, 1995, pp. 169-198.
Abstract: The organization of this paper is as follows. Section I builds an empirically implementable model of the current account. Likewise, Section II derives the essential time series properties of the real exchange rate. Positive implications of the intertemporal approach against panel and international cross section data are analyzed in Section III. Section IV brings out evidence relevant for the normative implications of the intertemporal approach, highlighting the role of taxes and incentives, capital controls, and convergence of growth rates. Section V concludes.
Handle: RePEc:nbr:nberwo:4334
Template-Type: ReDIF-Paper 1.0
Title: Emerging Currency Blocs
Classification-JEL: F15; F3
Author-Name: Jeffrey A. Frankel
Author-Person: pfr12
Author-Name: Shang-Jin Wei
Author-Person: pwe20
Note: ITI IFM
Number: 4335
Creation-Date: 1993-04
Order-URL: http://www.nber.org/papers/w4335
File-URL: http://www.nber.org/papers/w4335.pdf
File-Format: application/pdf
Publication-Status: published as The Future of the Internationals Monetary System and its Institutions, Genberg, Hans, ed., Geneva, 1994.
Abstract: Using the gravity model to examine bilateral trade patterns throughout the world. we find clear evidence of trading blocs in Europe. the Western Hemisphere, East Asia and the Pacific. In Europe, it is the EC that operates as a bloc, not including EFTA. Two EC members trade an extra 55 per cent more with each other. beyond what can be explained by proximity, size. and GNP/capita. We also find slight evidence of trade-diversion in 1990. Even though the blocs fall along natural geographic lines. they may actually be "super-natural." Turning to the possibility of currency blocs, we find a degree of intra-regional stabilization of exchange rates, especially in Europe. Not surprisingly. the European currencies link to the OM. and Western Hemisphere countries peg to the dollar. East Asian countries, however, link to the dollar. not the yen. We also find some tentative cross-section evidence that bilateral exchange rate stability may have a (small) effect on trade. A sample calculation suggests that if real exchange rate variability within Europe were to double, as it would if it returned from the 1990 level to the 1980 level, the volume of intra-regional trade might fall by an estimated 0.7 per cent.
Handle: RePEc:nbr:nberwo:4335
Template-Type: ReDIF-Paper 1.0
Title: Convergence in Growth Rates: A Quantitative Assessment of the Role of Capital Mobility and International Taxation
Classification-JEL: F43; F41
Author-Name: Assaf Razin
Author-Person: pra388
Author-Name: Chi-Wa Yuen
Note: EFG IFM
Number: 4336
Creation-Date: 1993-04
Order-URL: http://www.nber.org/papers/w4336
File-URL: http://www.nber.org/papers/w4336.pdf
File-Format: application/pdf
Publication-Status: published as Money and Credit (Spanish), vol. 20, 1994
Abstract: We provide an exploratory quantitative analysis of the role of capital mobility and international taxation in explaining the observed cross-country diversity in the long-run rates of growth of per capita and total incomes as well as the population growth rates. Corroborative evidence is found for the theoretical results on the convergence/divergence in long-term population, per capita and total income growth rates obtained in Razin and Yuen (1992). In particular, the data (and casual observations) show that (1) population growth and per capita income growth are negatively correlated across countries, (2) the total income growth rates are less variable than the per capita income growth rates across countries, and (3) asymmetry in capital income tax rates, coupled with the residence principle of international income taxation, can be an important source of cross-country differences in per capita income growth. Our computer simulations indicate that although the effects of liberalizing capital flows on long-run growth may not be all that sizable, the growth effects of changes in capital income tax rates can be tremendously bigger with than without capital mobility due to cross-border policy spillovers.
Handle: RePEc:nbr:nberwo:4336
Template-Type: ReDIF-Paper 1.0
Title: Anti-Tax Revolutions and Symbolic Prosecutions
Classification-JEL: H26; E62
Author-Name: Holger C. Wolf
Note: ME
Number: 4337
Creation-Date: 1993-04
Order-URL: http://www.nber.org/papers/w4337
File-URL: http://www.nber.org/papers/w4337.pdf
File-Format: application/pdf
Publication-Status: published as Kyklos, 1996.
Abstract: We extend the traditional tax evasion model to take account of the interaction between individual compliance decisions and perceived detection probabilities. The generalization provides a rationale for "anti-tax revolutions" characterized by a sudden shift of a significant fraction of the tax paying citizenry from compliance to tax evasion with unchanged fundamentals and monitoring rules. We establish, with an application to hyperinflation, the possibility of multiple compliance equilibria with lock-in effects. Finally, we demonstrate the potential cost effectiveness of "symbolic prosecution" as an equilibrium shifting device in preference to permanent changes the monitoring process.
Handle: RePEc:nbr:nberwo:4337
Template-Type: ReDIF-Paper 1.0
Title: Evaluating the Connection Between Social Protection and Economic Flexib ility
Classification-JEL: J60; I30
Author-Name: Rebecca M. Blank
Author-Person: pbl56
Author-Name: Richard B. Freeman
Author-Person: pfr23
Note: LS
Number: 4338
Creation-Date: 1993-04
Order-URL: http://www.nber.org/papers/w4338
File-URL: http://www.nber.org/papers/w4338.pdf
File-Format: application/pdf
Publication-Status: published as Social Protection vs. Economic Flexibility: Is There a Tradeoff? University of Chicago Press, 1994.
Publication-Status: published as Evaluating the Connection between Social Protection and Economic Flexibility, Rebecca M. Blank, Richard B. Freeman. in Social Protection versus Economic Flexibility: Is There a Trade-Off?, Blank. 1994
Abstract: Over the last 10 years, a variety of analysts have blamed high unemployment and stagnant economic growth in Europe on inflexible labor markets and pointed to the US as a more flexible economy, due to its less regulated labor markets and less generous social protection programs. This paper reviews that debate, critiques the arguments about the relationship between social protection programs and labor market adjustment, and reviews the research literature on this topic. In general, we conclude that much less is known about the aggregate effects of social protection programs on the economy than is generally claimed. Within the very limited existing research, there is little evidence of a significant trade-off between social programs and labor market adjustment, although there is also not much evidence to support those who claim that social protection promotes economic growth. The paper ends by suggesting future research directions.
Handle: RePEc:nbr:nberwo:4338
Template-Type: ReDIF-Paper 1.0
Title: Public Sector Growth and Labor Market Flexibility: The United States vs. The United Kingdom
Classification-JEL: J45
Author-Name: Rebecca M. Blank
Author-Person: pbl56
Note: LS
Number: 4339
Creation-Date: 1993-04
Order-URL: http://www.nber.org/papers/w4339
File-URL: http://www.nber.org/papers/w4339.pdf
File-Format: application/pdf
Publication-Status: published as Rebecca M. Blank, 1994. "Public Sector Growth and Labor Market Flexibility: The United States versus the United Kingdom," NBER Chapters, in: Social Protection versus Economic Flexibility: Is There a Trade-Off?, pages 223-264 National Bureau of Economic Research, Inc.
Publication-Status: published as Social Protection vs. Economic Flexibility: Is There a Tradeoff? University of Chicago Press, 1994.
Abstract: This paper investigates whether a larger public sector limits labor market adjustment, using data from the United States and the United Kingdom, two countries with quite different public/private employment trends. The results indicate that the two countries have a similar mix of occupations and workers in the public versus the private sector. Both countries have experienced some overall convergence of the public/private wage differential over the 1980s, although the extent of this differential varies substantially by occupation and gender. Both countries have also seen wage inequality in the public and private sectors increase over the past decade. Variability in public sector employment and wages over time is generally as great as in the private sector, although the cyclical patterns are different. The US public sector, however, seems more responsive to private sector demand changes than does the public sector in the UK. The paper concludes that the public sectors of both countries show a substantial amount of change and adaptation, particularly over the past decade.
Handle: RePEc:nbr:nberwo:4339
Template-Type: ReDIF-Paper 1.0
Title: Internationally Diversified Bond Portfolios: The Merits of Active Currency Risk Management
Classification-JEL: G23; F31
Author-Name: Richard M. Levich
Author-Name: Lee R. Thomas
Note: IFM
Number: 4340
Creation-Date: 1993-04
Order-URL: http://www.nber.org/papers/w4340
File-URL: http://www.nber.org/papers/w4340.pdf
File-Format: application/pdf
Publication-Status: published as Financial Analysts Journal, vol. 49, 1993, pp.63-70.
Abstract: A new statistical procedure is used to test for weak form efficiency in the foreign exchange futures markets. Using daily currency futures prices for the 1976-1990 period, we conclude that successive exchange rate changes have not been independent We examine the implications of this finding for two groups of investors: (1) return seeking investors considering foreign exchange as a separate asset class; (2) international portfolio investors deciding whether or not to currency hedge the foreign exchange rate exposures embedded in their non-dollar investments. Using the currency futures data and monthly data on 10-year dollar and non-dollar bonds, we conclude that active currency risk management, based on a simple application of technical trading signals, can substantially improve the risk-return opportunities for both groups of investors in comparison to passive currency strategies.
Handle: RePEc:nbr:nberwo:4340
Template-Type: ReDIF-Paper 1.0
Title: Losers and Winners in Economic Growth
Classification-JEL: O4; J1
Author-Name: Robert J. Barro
Author-Person: pba251
Author-Name: Jong-Wha Lee
Author-Person: ple164
Note: EFG
Number: 4341
Creation-Date: 1993-04
Order-URL: http://www.nber.org/papers/w4341
File-URL: http://www.nber.org/papers/w4341.pdf
File-Format: application/pdf
Publication-Status: published as Bruno, Michael and Boris Pleskovic (eds.) Proceedings of the World Bank Annual Conference on Development Economics, 1993: Supplement to The World Bank Economic Review and The World Bank Research Observer. Washington, D.C.: World Bank, 1994. pp. 267-314
Publication-Status: published as Robert J. Barro & Jong-Wha Lee, 1993. "Losers and Winners in Economic Growth," The World Bank Economic Review, vol 7(suppl 1), pages 267-298.
Abstract: For 116 countries from 1965 to 1985, the lowest quintile had an average growth rate of real per capita GDP of -1.3%, whereas the highest quintile had an average of 4.8%. We isolate five influences that discriminate reasonably well between the slow and fast-growers: a conditional convergence effect, whereby a country grows faster if it begins with lower real per capita GDP relative to its initial level of human capital in the fOnTIS of educational attainment and health; a positive effect on growth from a high ratio of investment to GDP (although this effect is weaker than that reported in some previous studies); a negative effect from overly large government; a negative effect from government-induced distortions of markets; and a negative effect from political instability. Overall, the fitted growth rates for 85 countries for 1965-85 had a correlation of 0.8 with the actual values. We also find that female educational attainment has a pronounced negative effect on fertility, whereas female and male attainment are each positively related to life expectancy and negatively related to infant mortality. Male attainment plays a positive role in primary-school enrollment ratios, and male and female attainment relate positively to enrollment at the secondary and higher levels.
Handle: RePEc:nbr:nberwo:4341
Template-Type: ReDIF-Paper 1.0
Title: Federal Reserve Policy: Cause and Effect
Classification-JEL: E52; E58
Author-Name: Matthew D. Shapiro
Author-Person: psh144
Note: ME EFG
Number: 4342
Creation-Date: 1993-04
Order-URL: http://www.nber.org/papers/w4342
File-URL: http://www.nber.org/papers/w4342.pdf
File-Format: application/pdf
Publication-Status: published as Monetary Policy, N. Gregory Mankiw, ed., (Chicago: University of Chicago Press: 1994).
Publication-Status: published as Federal Reserve Policy: Cause and Effect, Matthew D. Shapiro. in Monetary Policy, Mankiw. 1994
Abstract: Romer and Romer (1989,1990,1992) identify dates where the Federal Reserve appears to have shifted its policy towards reducing the rate of inflation. This paper examines the economic context that drives this decision. It finds that the Fed appears to weigh the outlook for unemployment as well as that for inflation in making its decision about disinflation. Previous work has not examined the course of inflation over the disinflations. This paper finds responses of the inflation rate to the "disinflations" only in a specification where the effects of the policy are presumed to be permanent Moreover, the Volcker disinflation is found to be the only "disinflation" to reduce inflation permanently. The disinflation after the 1973 OPEC price increases was effective, but only temporarily. Other disinflations had negligible impacts on the rate of inflation over all horizons. Variables measuring the expected present discounted values of unemployment and inflation are constructed. These variables are used in a discrete-choice model to explain the Fed's decision to disinflate. This model does a fairly good job of explaining the Fed's decisions. Both inflation and unemployment drive the Fed's decision. For some episodes, notably in the 1970's, inflation is the main variable driving the decision. In the 1969 and 1988 episodes, unemployment matters more.
Handle: RePEc:nbr:nberwo:4342
Template-Type: ReDIF-Paper 1.0
Title: Bringing GATT into the Core
Classification-JEL: G17; F12
Author-Name: Carsten Kowalczyk
Author-Name: Tomas Sjostrom
Note: ITI
Number: 4343
Creation-Date: 1993-04
Order-URL: http://www.nber.org/papers/w4343
File-URL: http://www.nber.org/papers/w4343.pdf
File-Format: application/pdf
Publication-Status: published as Economica, Vol. 61, no. 243, pp. 301-317, (August 1994).
Abstract: This paper calculates international income transfers which implement a Pareto optimal trade equilibrium in a world where many countries trade many goods.
Handle: RePEc:nbr:nberwo:4343
Template-Type: ReDIF-Paper 1.0
Title: Consumer Response to the Timing of Income: Evidence from a Change in Tax Withholding
Classification-JEL: H31; E21
Author-Name: Matthew D. Shapiro
Author-Person: psh144
Author-Name: Joel Slemrod
Author-Person: psl10
Note: PE EFG
Number: 4344
Creation-Date: 1993-04
Order-URL: http://www.nber.org/papers/w4344
File-URL: http://www.nber.org/papers/w4344.pdf
File-Format: application/pdf
Publication-Status: published as American Economic Review, vol. 85, no. 1, pp. 274-283, (March 1995)
Abstract: In 1992, the income tax withholding tables were adjusted so that withholding was reduced. A typical worker received an extra $28.80 in take-home pay per month in March through December 1992, to be offset by a lower tax refund in 1993. The change in withholding amounted to 0.5 percent of GDP. President Bush, who proposed this change in his State of the Union address, intended that it provide a temporary stimulus to demand. But the policy change involved only the timing of income, so, under the life-cycle/permanent-income model, it would be predicted to have a negligible effect on consumption and aggregate demand. This paper reports consumers' responses to the change in withholding. The results are based on a survey taken shortly after it went into effect. Forty-three percent of consumers report spending the extra take-home pay--substantially more than the zero percent predicted by the standard models, but substantially less than the one hundred percent upon which the policy was predicated. The decision to save the income is not explained by expected income growth. Therefore, while behavior of many households is not fully consistent with the life-cycle/permanent-income model, liquidity constraints do not appear to account for this behavior.
Handle: RePEc:nbr:nberwo:4344
Template-Type: ReDIF-Paper 1.0
Title: The Political Economy of Immigration Restriction in the United States, 1890 to 1921
Classification-JEL: J38; N31
Author-Name: Claudia Goldin
Author-Person: pgo601
Note: DAE LS
Number: 4345
Creation-Date: 1993-04
Order-URL: http://www.nber.org/papers/w4345
File-URL: http://www.nber.org/papers/w4345.pdf
File-Format: application/pdf
Publication-Status: published as The Regulated Economy: An Historical Analysis of Political Economy, (University of Chicago Press) C. Goldin and G. Libecap, eds., 1994
Publication-Status: published as The Political Economy of Immigration Restriction in the United States, 1890 to 1921, Claudia Goldin . in The Regulated Economy: A Historical Approach to Political Economy, Goldin and Libecap. 1994
Abstract: Anti-immigrant forces almost succeeded in passing restrictive legislation in 1897, but their plan did not ultimately materialize for another twenty years. During that time 17 million Europeans from among the poorest nations came to the United States. This paper explores the economic and political forces that propped the door open for those twenty years, as well as the factors that eventually shut it Economic downturns and their consequent unemployment almost always brought demands for restriction. The flood of immigrants eventually did result in large negative effects on the wages of native-born workers. But the political clout of immigrants was strengthened by the reinforcing nature of their flows. Cities having large numbers of the foreign born received a disproportionate share of immigrants during the 1900 to 1910 period. After 1910, however, immigrant flows were diluting. This factor and the negative impact of immigrants on native wages were important in the passage of restrictionist legislation, although the rural heartland of America was pro-restriction from the l890s.
Handle: RePEc:nbr:nberwo:4345
Template-Type: ReDIF-Paper 1.0
Title: Do Hostile Takeovers Reduce Extramarginal Wage Payments?
Classification-JEL: D20; J30
Author-Name: Jagadeesh Gokhale
Author-Name: Erica L. Groshen
Author-Person: pgr213
Author-Name: David Neumark
Author-Person: pne16
Note: LS
Number: 4346
Creation-Date: 1993-04
Order-URL: http://www.nber.org/papers/w4346
File-URL: http://www.nber.org/papers/w4346.pdf
File-Format: application/pdf
Publication-Status: published as Review of Economics and Statistics, Vol. 77, no. 3 (1995): 470-485.
Abstract: Hostile takeovers may reduce the prevalence of long-term employment contracts if they facilitate the opportunistic expropriation of extramarginal wage payments. Our tests of two versions of the expropriation hypothesis improve on existing research by using firm- and establishment-level data from an employer salary survey, and by performing both ex ante and ex post tests. First, we study the relationship between proxies for extramarginal wage payments and subsequent hostile takeover activity, and find little evidence of an expropriation motive. Then. since we observe wage and employment structures both before and after takeovers. we investigate whether proxies for extramarginal wages drop after hostile takeovers. The ex post experiments provide evidence consistent with one version of the expropriation hypothesis. In particular, such takeovers appear to reduce extramarginal wage payments to more-tenured workers, mostly through flattening wage-seniority profiles in firms with relatively senior work forces.
Handle: RePEc:nbr:nberwo:4346
Template-Type: ReDIF-Paper 1.0
Title: A Model of Target Changes and the Term Structure of Interest Rates
Classification-JEL: E43; E44
Author-Name: Pierluigi Balduzzi
Author-Name: Giuseppe Bertola
Author-Person: pbe54
Author-Name: Silverio Foresi
Note: ME AP
Number: 4347
Creation-Date: 1993-04
Order-URL: http://www.nber.org/papers/w4347
File-URL: http://www.nber.org/papers/w4347.pdf
File-Format: application/pdf
Publication-Status: published as Balduzzi, Pierluigi, Giuseppe Bertola and Silvero Foresi. "A Model Of Target Changes And The Term Structure Of Interest Rates," Journal of Monetary Economics, 1997, v39(2,Jul), 223-249.
Abstract: We explore the effects of official targeting policy on the term-structure of nominal interest rates, adapting relevant insights from theoretical work on "peso problems" to account for realistic infrequency of target changes. Our analysis of daily U.S. interest rates and newly available historical targets provides an interpretation for persistent spreads between short-term money-market rates and overnight fed-funds targets, and for the poor performance of expectations-hypothesis tests: it is the policy-induced component of fed funds dynamics that appears to be erroneously anticipated by the market. Still, allowance for serial correlation in target changes makes it possible to extract from interest-rate data an expected-knoll series which is quite consistent with the assumptions of the model, indicating that some features of the interest-rate-targeting process are incorporated by market expectations.
Handle: RePEc:nbr:nberwo:4347
Template-Type: ReDIF-Paper 1.0
Title: "The Minimum Wage and the Employment of Youth: Evidence from the NLSY"
Classification-JEL: J38
Author-Name: Janet Currie
Author-Person: pcu13
Author-Name: Bruce Fallick
Author-Person: pfa146
Note: LS
Number: 4348
Creation-Date: 1993-04
Order-URL: http://www.nber.org/papers/w4348
File-URL: http://www.nber.org/papers/w4348.pdf
File-Format: application/pdf
Publication-Status: published as Currie, Janet and Bruce C. Fallick. "The Minimum Wage And The Employment Of Youth: Evidence From The NLSY," Journal of Human Resources, 1996, v31(2,Spring), 404-428.
Abstract: Using panel data on individuals from the National Longitudinal Survey of Youth, we find that employed individuals who were affected by the increases in the federal minimum wage in 1979 and 1980 were 3 to 4% less likely to be employed a year later, even after accounting for the fact that workers employed at the minimum wage may differ from their peers in unobserved ways. These results were obtained using a methodology similar in spirit 10 Card's recent work on the topic, although we use individual rather than state-level data, and an earlier time period.
Handle: RePEc:nbr:nberwo:4348
Template-Type: ReDIF-Paper 1.0
Title: International Comparisons of Educational Attainment
Classification-JEL: O4
Author-Name: Robert J. Barro
Author-Person: pba251
Author-Name: Jong-Wha Lee
Author-Person: ple164
Note: EFG
Number: 4349
Creation-Date: 1993-04
Order-URL: http://www.nber.org/papers/w4349
File-URL: http://www.nber.org/papers/w4349.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Monetary Economics, Vol. 32, no. 3 (1993): 363-394.
Abstract: Many theories of economic growth stress the role of human capital in the form of education, but empirical studies have been hampered by inadequate data. We describe a data set on educational attainment that we have constructed for 129 countries over five-year periods from 1960-1985. We use census/survey information to fill over 40% of the cells, and we use school enrollment figures in a perpetual-inventory framework to fill the remainder. The data refer to male and female attainment of the adult population at four levels: no-schooling. primary. secondary, and higher. We also provide a rough breakdown into incomplete and complete attainment at the three levels of schooling. We then take account of cross-country variations in the durations of schooling at each level to provide figures on total years of attainment.
Handle: RePEc:nbr:nberwo:4349
Template-Type: ReDIF-Paper 1.0
Title: On the Feasibility of a One or Multi-Speed European Monetary Union
Author-Name: Alberto Alesina
Author-Person: pal207
Author-Name: Vittorio Grilli
Note: IFM
Number: 4350
Creation-Date: 1993-04
Order-URL: http://www.nber.org/papers/w4350
File-URL: http://www.nber.org/papers/w4350.pdf
File-Format: application/pdf
Publication-Status: published as Alesina, Alberto and Vittorio Grilli. “On the Feasibility of a One-Speed or a Multi-Speed European Monetary Union." Economics and Politics 5 (July 1993): 145-66.
Abstract: This paper addresses two questions: (1) Is a twelve country monetary union in Europe feasible; (2) Can monetary union be achieved at multi-speed, i.e., with a rust group of countries going first, and later admitting the others? After examining several politico-economic arguments concerning problems of feasibility of the union, we conclude with a fair amount of skepticism concerning the multi-speed idea. We show that the final result of the process of monetary integration is dependent upon at "how many speeds" Europe will proceed. Our discussion of feasibility shed some light on the political economy of the recent (Fall of 1992) turmoil in the monetary system of Europe.
Handle: RePEc:nbr:nberwo:4350
Template-Type: ReDIF-Paper 1.0
Title: The Political Economy of Controls: Complexity
Classification-JEL: F13
Author-Name: Anne O. Krueger
Author-Name: Roderick Duncan
Note: IFM ITI
Number: 4351
Creation-Date: 1993-04
Order-URL: http://www.nber.org/papers/w4351
File-URL: http://www.nber.org/papers/w4351.pdf
File-Format: application/pdf
Publication-Status: published as Stetting, Lange, Knad Erik Svendsen, and Ebbi Yndgaard (eds.) Global Change and Transformation. Copenhagen: Handelshoyskolens Forlag, 1993.
Abstract: Increasing complexity of regulation over time is a regular empirical phenomenon whenever political processes attempt to control economic activity. In this paper it is argued that a tendency toward increasing complexity of controls is probably inherent in most efforts to regulate, and that the great likelihood that it will occur should be taken into account in initial policy formulation. Economic policy analyses may be correct as formulated on the assumption that the initial policies will be adopted and not be altered, but be wrong if it is recognized that increased complexity may be an inevitable cost of the policy.
Handle: RePEc:nbr:nberwo:4351
Template-Type: ReDIF-Paper 1.0
Title: Free Trade Agreements as Protectionist Devices: Rules of Origin
Classification-JEL: F13
Author-Name: Anne O. Krueger
Note: ITI
Number: 4352
Creation-Date: 1993-04
Order-URL: http://www.nber.org/papers/w4352
File-URL: http://www.nber.org/papers/w4352.pdf
File-Format: application/pdf
Publication-Status: Published as "Free Trade Agreements Versus Customs Unions", Journal of Development Economics, Vol. 54, no. 1 (October 1997): 169-187.
Abstract: In this paper it is argued that there is an important protectionist bias inherent in free trade agreements which is not present in custom unions. In any customs union or free trade agreement, one of the critical issues concerns "rules of origin." In a free trade agreement rules of origin have an important function because, without one, each imported commodity would enter through the country with the lowest tariff on each commodity. The criterion for duty-free treatment is important in determining the economic effects of the rule of origin. It is shown that rules of origin in fact extend the protection accorded by each country to producers in other free trade agreement member countries. As such, rules of origin can constitute a source of bias toward economic inefficiency in free trade agreements in a way they cannot do with customs unions.
Handle: RePEc:nbr:nberwo:4352
Template-Type: ReDIF-Paper 1.0
Title: The Political Economy of Capital Controls
Author-Name: Alberto Alesina
Author-Person: pal207
Author-Name: Vittorio Grilli
Author-Name: Gian Maria Milesi-Ferretti
Author-Person: pmi28
Note: IFM
Number: 4353
Creation-Date: 1993-05
Order-URL: http://www.nber.org/papers/w4353
File-URL: http://www.nber.org/papers/w4353.pdf
File-Format: application/pdf
Publication-Status: Published as "The Political Economy of Fiscal Adjustments", BP, Vol. 28,no. 1 (1998): 197-248.
Abstract: This paper calculates international income transfers which implement a Pareto optimal trade equilibrium in a world where many countries trade many goods.
Handle: RePEc:nbr:nberwo:4353
Template-Type: ReDIF-Paper 1.0
Title: Economic Growth and Decline with Endogenous Property Rights
Author-Name: Aaron Tornell
Author-Person: pto157
Note: EFG
Number: 4354
Creation-Date: 1993-05
Order-URL: http://www.nber.org/papers/w4354
File-URL: http://www.nber.org/papers/w4354.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Economic Growth, Vol. 2, no. 3 (September 1997): 219-250.
Abstract: This paper introduces endogenous property rights into a neoclassical growth model. 1t identifies a mechanism that generates growth rates which are increasing at low levels of capital. and decreasing at high levels of capital. The driving force behind changes in property rights is the attempt of each rent-seeking group to secure exclusive access to a greater share of capital by excluding others. We characterize an equilibrium in which there is a shift from common to private property, followed by a switch back to common property.
Handle: RePEc:nbr:nberwo:4354
Template-Type: ReDIF-Paper 1.0
Title: Currency Hedging over Long Horizons
Author-Name: Kenneth A. Froot
Author-Person: pfr60
Note: ITI IFM AP
Number: 4355
Creation-Date: 1993-05
Order-URL: http://www.nber.org/papers/w4355
File-URL: http://www.nber.org/papers/w4355.pdf
File-Format: application/pdf
Publication-Status: published as Kenneth A. Froot, 2019. "Currency Hedging Over Long Horizons," Annals of Economics and Finance, Society for AEF, vol. 20(1), pages 37-66, May.
Abstract: This paper reexamines the widely-held wisdom that the currency exposure of international investments should be entirely hedged. It finds that the previously documented ability of hedges to reduce portfolio return variance holds at short horizons, but not at long horizons. At horizons of several years, complete hedging not only does not lower return variance, it actually increases the return variance of many portfolios. Hedge ratios chosen to minimize long-run return variance are not only low, they also have no perceptible impact on return variance. The paper reports and explores these results, their apparent causes, and investigates their implications for hedging practice.
Handle: RePEc:nbr:nberwo:4355
Template-Type: ReDIF-Paper 1.0
Title: Do Historically Black Institutions of Higher Education Confer Unique Advantages on Black Students: An Initial Analysis
Author-Name: Ronald G. Ehrenberg
Author-Person: peh2
Author-Name: Donna S. Rothstein
Note: LS
Number: 4356
Creation-Date: 1993-05
Order-URL: http://www.nber.org/papers/w4356
File-URL: http://www.nber.org/papers/w4356.pdf
File-Format: application/pdf
Publication-Status: published as Ronald Ehrenberg ed., Choices and Consequences: Contemporary Policy Issues in Education, (Ithaca, NY, ILR Press), 1994.
Abstract: Do Historically Black Institutions (HBIs)of Higher Education confer unique advantages on black students? Our paper consists of two separate analyses that begin 10 address this issue. The first uses data from the ?National Longitudinal Study of the High School Class of 1972? to ascertain whether black college students who attended HBIs in the early 1970s had higher graduation rates. improved early career labor market success and higher probabilities of going on 10 graduate or professional schools than their counterparts who attended other institutions. The econometric methods we employ control for the characteristics of the students. characteristics of the institutions, and the process by which black students decided 10 enroll (or were prevented from enrolling) in different types of institutions. We find that attendance at an HBI subswltia1ly enhanced the probability that a black student received a bachelor?s degree within seven years. however it had no apparent affect on the student's early career labor market success and probability of enrolling in post-college schooling. The second uses data from the 1987 to 1991 waves of the National Research Council's ?Survey of Earned Doctorates? to provide evidence on the patterns of black citizen doctorates with respect to their undergraduate institutions, their graduate institutions, and whether they achieved academic positions in major American liberal arts and research/doctorate institutions. Among the major findings is that black doctorates who received their undergraduate degrees at HBIs were much less likely to have received their graduate degree at a major research institution than those black doctorates who attended a major research or selective liberal arts undergraduate institution. Similarly, among the black doctorates who entered academic careers, those with graduate degrees from HBIs were less likely to be employed in major American research or liberal arts institutions than those who received their graduate degrees from major research institutions.
Handle: RePEc:nbr:nberwo:4356
Template-Type: ReDIF-Paper 1.0
Title: Equilibrium Unemployment as a Worker Screening Device
Author-Name: Barry Nalebuff
Author-Person: pna205
Author-Name: Andres Rodriguez
Author-Name: Joseph E. Stiglitz
Note: EFG
Number: 4357
Creation-Date: 1993-05
Order-URL: http://www.nber.org/papers/w4357
File-URL: http://www.nber.org/papers/w4357.pdf
File-Format: application/pdf
Abstract: We present a model of the labor market with asymmetric information in which the equilibrium of the' market generates unemployment and job queues so that wages may serve as an effective screening device. This happens because more productive workers -- within any group of individuals with a given set of observable characteristics -- are more willing to accept the risk of being unemployed than less productive workers. The model is consistent with cyclical movements in average real wages as well as with differences in unemployment rates across different groups in the population. We also show that the market equilibrium is not, in general. constrained Pareto efficient Moreover. we identify a new category of nonexistence problems, different in several essential ways from those earlier discussed by Rothschild-Stiglitz [1976J and Wilson [1977]. We also extend the analysis to incorporate the possibility of renegotiation, showing that a separating-renegotiation-proof-equilibrium exists for certain parameters and that a renegotiation-proof equilibrium is always constrained Pareto efficient Finally, we present a version of the model in which firms enter sequentially, as in Guash and Weiss [1980]. But contrary to the main result in that paper, we show that there is no advantage of being late, provided workers have rational expectations.
Handle: RePEc:nbr:nberwo:4357
Template-Type: ReDIF-Paper 1.0
Title: Rents, Regulation, and Indirect Tax Design
Author-Name: Carlo Perroni
Author-Person: ppe298
Author-Name: John Whalley
Author-Person: pwh8
Note: PE
Number: 4358
Creation-Date: 1993-05
Order-URL: http://www.nber.org/papers/w4358
File-URL: http://www.nber.org/papers/w4358.pdf
File-Format: application/pdf
Abstract: This paper discusses the implications of rents and regulations which support them for the design of indirect taxes such as VATS. Intuition suggests high tax rates on industries or products with rents; but we argue that whether rents are natural (due to fixed factors) or market structure related (monopolistic) makes a large difference. In the latter case, a high tax may induce adverse behavioral changes. We develop a general equilibrium tax model based on Canadian data and which incorporates both types of rent, and we use numerical simulation analysis to explore the implications of different types of rents for the design of indirect taxes. Our results suggest that the ways in which taxes should deviate from uniformity depends crucially on the mechanisms that generate rents. They also imply that a broadly based uniform tax will typically not be the optimal choice for economies where rents represent a significant share of value added, even when preferences are homothetic. Finally, they demonstrate that the presence of rents substantially affects measures of the social costs of indirect taxes, both in total and at the margin, and in both directions depending upon the nature of the rents involved.
Handle: RePEc:nbr:nberwo:4358
Template-Type: ReDIF-Paper 1.0
Title: Illicit Drug Use and Health: Analysis and Projections of New York City Birth Outcomes Using a Kalman Filter Model
Classification-JEL: I12
Author-Name: Naci H. Mocan
Author-Person: pmo270
Author-Name: Kudret Topyan
Note: EH
Number: 4359
Creation-Date: 1993-05
Order-URL: http://www.nber.org/papers/w4359
File-URL: http://www.nber.org/papers/w4359.pdf
File-Format: application/pdf
Publication-Status: published as Southern Economic Journal vol.62, no.1, pp.164-182. july 1995
Abstract: Using monthly data from New York City that span the years 19781990 we investigate the relationship between the incidence of drug use during pregnancy and the rate of low birth weight Estimation results indicate that the increase in pregnancies complicated by drug use accounts for 71 percent of the increase in the rate of Black low birth weight between 1983-84 and 1990. If the use of drugs among Black pregnant women is reduced to its 1978 level, this would reduce the number of Black low birth weight babies by 8% (40 births per month) with respect to the level that would have been observed in the absence of any intervention. This implies an annual $5.1 to $6.8 million (in 1990 dollars) savings in terms of avoided initial hospitalization and special education costs. We could not find a significant relationship between drug use and the rate of low birth weight for whites.
Handle: RePEc:nbr:nberwo:4359
Template-Type: ReDIF-Paper 1.0
Title: Contrarian Investment, Extrapolation, and Risk
Author-Name: Josef Lakonishok
Author-Name: Robert W. Vishny
Author-Person: pvi218
Author-Name: Andrei Shleifer
Author-Person: psh93
Note: AP
Number: 4360
Creation-Date: 1993-05
Order-URL: http://www.nber.org/papers/w4360
File-URL: http://www.nber.org/papers/w4360.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Finance, December 1994, Vol. XLIX, No. 5, pp. 1541-1578.
Abstract: For many years, stock market analysts have argued that value strategies outperform the market. These value strategies call for buying stocks that have low prices relative to earnings, dividends, book assets, or other measures of fundamental value. While there is some agreement that value strategies produce higher returns, the interpretation of why they do so is more controversial. This paper provides evidence that value strategies yield higher returns because these strategies exploit the mistakes of the typical investor and not because these strategies are fundamentally riskier.
Handle: RePEc:nbr:nberwo:4360
Template-Type: ReDIF-Paper 1.0
Title: The Endogeneity of Exchange Rate Regimes
Author-Name: Barry Eichengreen
Author-Person: pei2
Note: IFM
Number: 4361
Creation-Date: 1993-05
Order-URL: http://www.nber.org/papers/w4361
File-URL: http://www.nber.org/papers/w4361.pdf
File-Format: application/pdf
Publication-Status: published as Peter B. Kenen, ed., Understanding Interdependence, Princeton: Princeton University Press, 1995
Abstract: The international monetary system has passed through a succession of phases characterized alternatively by the dominance of fixed and flexible exchange rates. How are these repeated shifts between fixed and flexible rate regimes to be understood? The present paper specifies and tests six hypotheses with the capacity to explain the alternating phases of fixed and flexible exchange rates into which the last century can be partitioned. The evidence provides support for a number of the hypotheses considered. In this sense it confirms that monocausal explanations are unlikely to provide an adequate account of the endogeneity of exchange rate regimes.
Handle: RePEc:nbr:nberwo:4361
Template-Type: ReDIF-Paper 1.0
Title: Public Debt in the USA: How Much, How Bad and Who Pays?
Classification-JEL: E31; E41
Author-Name: Willem H. Buiter
Author-Person: pbu137
Note: EFG
Number: 4362
Creation-Date: 1993-05
Order-URL: http://www.nber.org/papers/w4362
File-URL: http://www.nber.org/papers/w4362.pdf
File-Format: application/pdf
Abstract: The USA is in the middle of the pack of industrial countries as regards the public debt-GOP and public deficit-GOP ratios. The period since 1980 is the only peace-time period outside the Great Depression to see a sustained increase in the debt-GOP ratio. The budgetary retrenchment planned by the Clinton administration is likely to prove insufficient to achieve a sustainable path. although the remaining permanent primary (noninterest) gap is small: between 0.1% and 1.0% of GOP. The maximal amount of seigniorage revenue that can be extracted at a constant rate of inflation is not far from the recent historical value of less that 0.5% of GOP. Subtracting net public sector investment from the conventional budget deficit is likely to overstate the government revenue producing potential of public sector investment. Public debt matters when markets are incomplete and/or lump-sum taxes are restricted. Future interest payments associated with the public debt are not equivalent to currently expected future transfer payments. Even ignoring the distortionary character of most real-world taxes and transfers. and holding constant the government's exhaustive spending program, the "generational accounts" are therefore not a sufficient statistic for the effect on aggregate consumption of the government's tax-transfer program. Solving the immediate budgetary problems still leaves the much more serious macroeconomic problems of an undersized US Federal government sector and an inadequate US national saving rate.
Handle: RePEc:nbr:nberwo:4362
Template-Type: ReDIF-Paper 1.0
Title: Start-Up Costs and Pecuniary Externalities as Barriers to Economic Development
Classification-JEL: L16; O11
Author-Name: Antonio Ciccone
Author-Person: pci47
Author-Name: Kiminori Matsuyama
Author-Person: pma143
Note: EFG
Number: 4363
Creation-Date: 1993-05
Order-URL: http://www.nber.org/papers/w4363
File-URL: http://www.nber.org/papers/w4363.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Development Economics, April, 1996.
Abstract: One critical aspect of economic development is that productivity growth and a rising standard of living are realized through more roundabout methods of production and increasing specialization of intermediate inputs and producer services. We use an extended version of the Judd-Grossman-Helpman model of dynamic monopolistic competition to show that an economy that inherits a small range of specialized inputs can be trapped into a lower stage of development. The limited availability of specialized inputs forces the final goods producers to use a labor intensive technology, which in turns implies a small inducement to introduce new intermediate products. The start-up costs, which make the intermediate goods producers subject to dynamic increasing returns, and pecuniary externalities that result from the factor substitution in the final goods sector, play essential roles in the model.
Handle: RePEc:nbr:nberwo:4363
Template-Type: ReDIF-Paper 1.0
Title: Multilateral Tarriff Cooperation During the Formation of Regional Free Trade Areas
Classification-JEL: F13; F15
Author-Name: Kyle Bagwell
Author-Person: pba409
Author-Name: Robert W. Staiger
Author-Person: pst85
Note: ITI
Number: 4364
Creation-Date: 1993-05
Order-URL: http://www.nber.org/papers/w4364
File-URL: http://www.nber.org/papers/w4364.pdf
File-Format: application/pdf
Publication-Status: published as International Economic Review, May 1997.
Abstract: We explore the impact of the formation of regional free trade agreements on the ability of countries to maintain low cooperative multilateral tariffs. We assume that countries can not make binding international commitments, but are instead limited to self-enforcing arrangements. Specifically, we model cooperation in multilateral trade policy as involving a constant balance between, on the one hand, the gains from deviating unilaterally from an agreed-upon trade policy, and on the other, the discounted expected future benefits of maintaining multilateral cooperation, with the understanding that the latter would be forfeited in the trade war which followed a unilateral defection in pursuit of the former. In this context, we explore the way in which the formation of regional free trade agreements upsets the balance between current and future conditions, and trace through the dynamic ramifications of these effects for multilateral cooperation. Our results suggest that the emergence of regional free trade areas will be accompanied by a temporary retreat from liberal multilateral trade policies. Eventually, however, as the full impact of the emerging free trade agreement on multilateral trade patterns is felt, the initial balance between current and expected future conditions tends to reemerge, and liberal multilateral trade policies can be restored.
Handle: RePEc:nbr:nberwo:4364
Template-Type: ReDIF-Paper 1.0
Title: Wage Dispersion, Returns to Skill, and Black-White Wage Differentials
Classification-JEL: J31; J71
Author-Name: David Card
Author-Person: pca271
Author-Name: Thomas Lemieux
Author-Person: ple92
Note: LS
Number: 4365
Creation-Date: 1993-05
Order-URL: http://www.nber.org/papers/w4365
File-URL: http://www.nber.org/papers/w4365.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Econometrics, vol.74, pp.319-361, October 1996.
Abstract: During the 1980s wage differentials between younger and older workers and between more and less educated workers expanded rapidly. Wage dispersion among individuals with the same age and education also rose. A simple explanation for both sets of facts is that earnings represent a return to a one-dimensional index of skill, and that the rate of return to skill rose over the decade. We explore a simple method for estimating and testing 'single index' models of wages. Our approach integrates 3 dimensions of skill: age, education, and unobserved ability. We find that a one-dimensional skill model gives a relatively successful account of changes in the structure of wages for white men and women between 1979 and 1989. We then use the estimated models for whites to analyze recent changes in the relative wages of black men and women.
Handle: RePEc:nbr:nberwo:4365
Template-Type: ReDIF-Paper 1.0
Title: Resource Allocation During the Transition to a Market Economy: Political Implications of Supply Bottlenecks and Adjustment Costs
Classification-JEL: F36; F43
Author-Name: Joshua Aizenman
Author-Person: pai8
Author-Name: Peter Isard
Note: ITI
Number: 4366
Creation-Date: 1993-05
Order-URL: http://www.nber.org/papers/w4366
File-URL: http://www.nber.org/papers/w4366.pdf
File-Format: application/pdf
Publication-Status: published as The Economics of Transition, "Production Bottlenecks and Resource Allocation During the Transition to a Market Economy," Vol 3(3), pp. 321-331, 1995.
Abstract: This paper explains why a laissez-faire approach may fail to account for externalities in transforming economies, focusing on externalities associated with supply bottlenecks and adjustment costs. Bottlenecks tend to arise whenever input requirements are stochastic and the opportunity cost of holding inventories is high. They are likely to become prevalent in the state industrial sector once budget constraints are hardened and credit markets begin to function properly, since the creditworthiness of state enterprises is limited by outdated production technologies. The analysis recognizes that producers have incentives to form pooling arrangements, supported potentially by market mechanisms, for reallocating stocks of critical inputs. It is shown, however, that such arrangements do not eliminate the externalities, and that the externalities rise in a nonlinear manner with the opportunity cost of holding inventories. The analysis suggests that once budget constraints are hardened, the externalities associated with bottlenecks and adjustment costs provide a case for subsidizing the costs of critical inputs for the state industrial sector, but not for the new private sector. This subsidy declines as the private sectors grows.
Handle: RePEc:nbr:nberwo:4366
Template-Type: ReDIF-Paper 1.0
Title: Macroeconomics After Two Decades of Rational Expectations
Classification-JEL: E32; O40
Author-Name: Bennett T. McCallum
Note: EFG ME
Number: 4367
Creation-Date: 1993-05
Order-URL: http://www.nber.org/papers/w4367
File-URL: http://www.nber.org/papers/w4367.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Economic Education, Vol. 25, no. 3, pp. 219-234, (Summer 1994).
Abstract: This expository paper describes major developments during the second decade of rational-expectations macroeconomics, roughly 1982-1991. Topics attracting the most attention from researchers differed from those of 1972-1981, with considerable emphasis being devoted to technical mailers. Here the discussion focuses on four prominent areas: real business cycle analysis, growth theory and its empirical application, issues involving unit roots in macroeconomic time series, and sticky-price models of aggregate supply. The paper concludes by arguing that the current state of knowledge in macroeconomics is not as bad as is often suggested.
Handle: RePEc:nbr:nberwo:4367
Template-Type: ReDIF-Paper 1.0
Title: Unit Roots in Macroeconomic Time Series: Some Critical Issues
Classification-JEL: C22; E32
Author-Name: Bennett T. McCallum
Note: EFG ME
Number: 4368
Creation-Date: 1993-05
Order-URL: http://www.nber.org/papers/w4368
File-URL: http://www.nber.org/papers/w4368.pdf
File-Format: application/pdf
Publication-Status: published as Economic Quarterly, Federal Reserve Bank of Richmond, Vol. 79, No. 2, pp. 13-44, (Spring 1993).
Abstract: This paper suggests that the relevant question concerning unit root' in the U.S. real GNP time series pertains to the relative importance of difference-stationary and trend-stationary components. Various analytical approaches indicate than an accurate answer is not obtainable with existing data. The paper next considers whether trending series should be differences prior to use in regression analysis and suggests it may not matter greatly if autocorrelated residuals are avoided. Finally, the paper argues that the absence of cointegration among variables does not imply the absence of any practically useful long-run relationship.
Handle: RePEc:nbr:nberwo:4368
Template-Type: ReDIF-Paper 1.0
Title: Myopic Loss Aversion and the Equity Premium Puzzle
Author-Name: Shlomo Benartzi
Author-Name: Richard H. Thaler
Note: AP
Number: 4369
Creation-Date: 1993-05
Order-URL: http://www.nber.org/papers/w4369
File-URL: http://www.nber.org/papers/w4369.pdf
File-Format: application/pdf
Publication-Status: published as Quarterly Journal of Economics, February 1995.
Abstract: The equity premium puzzle, first documented by Mehra and Prescott, refers to the empirical fact that stocks have greatly outperformed bonds over the last century. As Mehra and Prescott point out, it appears difficult to explain the magnitude of the equity premium within the usual economics paradigm because the level of risk aversion necessary to justify such a large premium is implausibly large. We offer a new explanation based on Kahneman and Tversky's 'prospect theory'. The explanation has two components. First, investors are assumed to be 'loss averse' meaning they are distinctly more sensitive to losses than to gains. Second, investors are assumed to evaluate their portfolios frequently, even if they have long-term investment goals such as saving for retirement or managing a pension plan. We dub this combination 'myopic loss aversion'. Using simulations we find that the size of the equity premium is consistent with the previously estimated parameters of prospect theory if investors evaluate their portfolios annually. That is, investors appear to choose portfolios as if they were operating with a time horizon of about one year. The same approach is then used to study the size effect. Preliminary results suggest that myopic loss aversion may also have some explanatory power for this anomaly.
Handle: RePEc:nbr:nberwo:4369
Template-Type: ReDIF-Paper 1.0
Title: How High are the Giants' Shoulders: An Empirical Assessment of Knowledge Spillovers and Creative Destruction in a Model of Economic Growth
Classification-JEL: O40
Author-Name: Ricardo J. Caballero
Author-Person: pca44
Author-Name: Adam B. Jaffe
Author-Person: pja49
Note: EFG PR
Number: 4370
Creation-Date: 1993-05
Order-URL: http://www.nber.org/papers/w4370
File-URL: http://www.nber.org/papers/w4370.pdf
File-Format: application/pdf
Publication-Status: published as How High Are the Giants' Shoulders: An Empirical Assessment of Knowledge Spillovers and Creative Destruction in a Model of Economic Growth, Ricardo J. Caballero, Adam B. Jaffe. in NBER Macroeconomics Annual 1993, Volume 8, Blanchard and Fischer. 1993
Abstract: The pace of industrial innovation and growth is shaped by many forces that interact in complicated ways. Profit-maximizing firms pursue new ideas to obtain market power, but the pursuit of the same goal by other means that even successful inventions art eventually superseded by others; this known as creative destruction. New ideas not only yield new goods but also enrich the stock of knowledge of society and its potential to produce new ideas. To a great extent this knowledge is non-excludable, making research and inventions the source of powerful spillovers. The extent of spillovers depends on the rate at which new ideas outdate old ones, that is on the endogenous technological obsolescence of ideas, and on the rate at which knowledge diffuses among inventors. In this paper we build a simple model that allows us to organize our search for the empirical strength of the concepts emphasized above. We then use data on patents and patent citations as empirical counterparts of new ideas and knowledge spillovers, respectively, to estimate the model parameters. We find estimates of the annual rate of creative destruction in the range of 2 to 7 percent for the decade of the 1970s, which rates for individual sectors as high as 25 percent. For technological obsolescence, we find an increase over the century from about 3 percent per year to about 12 percent per year in 1990, with a noticeable plateau in the l970s. We find the rate of diffusion of knowledge to be quite rapid, with the mean lag between I and 2 years. Lastly, we find that the potency of spillovers from old ideas to new knowledge generation (as evidenced by patent citation rate) has been declining over the century: the resulting decline in the effective public stock of knowledge available to new inventors is quite consistent with the observed decline in the average private productivity of research inputs
Handle: RePEc:nbr:nberwo:4370
Template-Type: ReDIF-Paper 1.0
Title: A Comparison of Formal and Informal Dispute Resolution in Medical Malpractice
Classification-JEL: K40
Author-Name: Henry S. Farber
Author-Name: Michelle J. White
Author-Person: pwh52
Note: LS EH
Number: 4371
Creation-Date: 1993-05
Order-URL: http://www.nber.org/papers/w4371
File-URL: http://www.nber.org/papers/w4371.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Legal Studies, June 1994, pp. 777-806.
Abstract: In this study we examine the experience of a single large hospital with an informal pre-litigation "complaint" process that resolves some cases outside of the legal system. The empirical results are generally consistent with an information structure where patients are poorly informed about the quality of medical care and the hospital does not know whether particular patients are litigious or not. The complaint process seems to resolve many complaints in a less costly manner than filing lawsuits. Almost half of all complaints are resolved before a lawsuit is filed. The large majority of these are dropped, and they are cases that would likely have been dropped even if they had been initiated as lawsuits. Very few cases are settled with a cash payment to patients before a lawsuit is filed, suggesting that patients must file lawsuits in order to convince the hospital that they are litigious enough to justify a settlement. Cases initiated through the complaint process are not resolved (dropped, settled, tried to a verdict) significantly differently from cases initiated as lawsuits, controlling for observable case characteristics. When settlements of lawsuits occur, the amounts paid do not vary depending on how the case originated, but settlements of complaints are much higher for cases settled after a lawsuit is filed, We conclude that the complaint process is a cost-effective "front-end" for the litigation process that provides information to patients regarding the quality of their medical care and, hence, the likelihood of negligence.
Handle: RePEc:nbr:nberwo:4371
Template-Type: ReDIF-Paper 1.0
Title: Corruption
Author-Name: Andrei Shleifer
Author-Person: psh93
Author-Name: Robert W. Vishny
Author-Person: pvi218
Note: PE EFG
Number: 4372
Creation-Date: 1993-05
Order-URL: http://www.nber.org/papers/w4372
File-URL: http://www.nber.org/papers/w4372.pdf
File-Format: application/pdf
Publication-Status: published as The Quarterly Journal of Economics, vol cviii, issue 3, August 1993, (MIT Press, Cambridge), p. 599
Abstract: This paper presents two propositions about corruption. First, the structure of government institutions and the political process are a very important determinant of the level of corruption. In particular, weak governments which do not control their agencies would lead to ultra-high corruption levels. Second, the illegality of corruption and the need for secrecy make it much more distortionary and costly than its sister activity, taxation. These results may explain why in some less developed countries, corruption is so high and so costly to development.
Handle: RePEc:nbr:nberwo:4372
Template-Type: ReDIF-Paper 1.0
Title: Prices and Trading Volume in the Housing Market: A Model with Downpayment Effects
Author-Name: Jeremy C. Stein
Author-Person: pst43
Note: AP
Number: 4373
Creation-Date: 1993-03
Order-URL: http://www.nber.org/papers/w4373
File-URL: http://www.nber.org/papers/w4373.pdf
File-Format: application/pdf
Publication-Status: published as Quarterly Journal of Economics, May 1995, pp. 379-406.
Abstract: This paper presents a simple model of trade in the housing market. The crucial feature is that a minimum downpayment is required for the purchase of a new home. The model has direct implications for the volatility of house prices, as well as for the correlation between prices and trading volume. The model can also be extended to address the correlation between prices and time-to-sale, as well as certain aspects of the cyclical behavior of housing starts.
Handle: RePEc:nbr:nberwo:4373
Template-Type: ReDIF-Paper 1.0
Title: Garbage, Recycling, and Illicit Burning or Dumping
Classification-JEL: H23; H42
Author-Name: Don Fullerton
Author-Person: pfu10
Author-Name: Thomas C. Kinnaman
Note: PE
Number: 4374
Creation-Date: 1993-05
Order-URL: http://www.nber.org/papers/w4374
File-URL: http://www.nber.org/papers/w4374.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Environmental Economics and Management, vol. 29, no. 1, pp. 78-91, (July 1995).
Abstract: Additional solid waste disposal imposes resource and environmental costs, but most residents still pay no additional fee per marginal unit of garbage collection. In a simple model with garbage and recycling as the only two disposal options, we show that the optimizing fee for garbage collection equals the resource cost plus environmental cost. When illicit burning or dumping is a third disposal option, however, the optimizing fee for garbage collection can change sign. Burning or dumping is not a market activity and cannot be taxed directly, but it can be discouraged indirectly by a system with a tax on all output plus a rebate on proper disposal either through recycling or garbage collection. This optimizing fee structure is essentially a deposit-refund system. The output tax helps achieve the first-best allocation even though it may affect the choice between consumption and untaxed leisure, because consumption leads to disposal problems while leisure does not.
Handle: RePEc:nbr:nberwo:4374
Template-Type: ReDIF-Paper 1.0
Title: State Responses to Fiscal Crisis: The Effects of Budgetary Institutionsand Politics
Classification-JEL: H72; H71
Author-Name: James M. Poterba
Author-Person: ppo19
Note: PE
Number: 4375
Creation-Date: 1993-05
Order-URL: http://www.nber.org/papers/w4375
File-URL: http://www.nber.org/papers/w4375.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Political Economy, 102 (August 1994), 799-821.
Abstract: This paper explores how state fiscal institutions and political circumstances affect the dynamics of state taxes and spending during periods of fiscal stress. The analysis focuses on the late 1980s, when sharp economic downturns in several regions, coupled with increased expenditure demands, led to substantial state budget deficits. State fiscal institutions, such as "no deficit carryover" rules and tax and expenditure limitations, appear to have real effects on the speed and nature of fiscal adjustment to unexpected deficits. Political factors are also important. When a single party controls the state house and the governorship, the reaction to state deficits is much faster than when party control is divided. In gubernatorial election years, tax increases and spending cuts are both significantly smaller than at other times.
Handle: RePEc:nbr:nberwo:4375
Template-Type: ReDIF-Paper 1.0
Title: Tobin's Q, Corporate Diversification and Firm Performance
Author-Name: Larry H.P. Lang
Author-Name: Rene M. Stulz
Note: CF
Number: 4376
Creation-Date: 1993-06
Order-URL: http://www.nber.org/papers/w4376
File-URL: http://www.nber.org/papers/w4376.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Political Economy, December 1994, 1248-1280
Abstract: In this paper, we show that Tobin's q and firm diversification are negatively related. This negative relation holds for different diversification measures and when we control for other known determinants of q. We show further that diversified firms have lower q's than equivalent portfolios of specialized firms. This negative relation holds throughout the 1980s in our sample. Finally, it holds for firms that have kept their number of segments constant over a number of years as well as for firms that have not. In our sample, firms that increase their number of segments have lower q's than firms that keep their number of segment constant. Our evidence is consistent with the view that firms seek growth through diversification when they have exhausted internal growth opportunities. We fail to find evidence supportive of the view that diversification provides firms with a valuable intangible asset
Handle: RePEc:nbr:nberwo:4376
Template-Type: ReDIF-Paper 1.0
Title: Are Forign Exchange Intervention and Monetary Policy Related and Does it Really Matter?
Author-Name: Karen K. Lewis
Author-Person: ple1119
Note: ME IFM
Number: 4377
Creation-Date: 1993-06
Order-URL: http://www.nber.org/papers/w4377
File-URL: http://www.nber.org/papers/w4377.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Business, April 1995, vol.68: pp.185-214.
Abstract: The relationship between foreign exchange intervention and monetary policy underlies the question of whether sterilized interventions can affect the exchange rate. In this paper, I examine this relationship using data on U.S. foreign exchange interventions from 1985 to 1990, recently made publicly available. I examine whether interventions could be viewed as "signaling" changes in future monetary policy variables. I also consider whether changes in monetary policy may induce interventions in an effort to "lean against the wind" of exchange rate movements. Interestingly, I find evidence both that interventions help predict monetary policy variables, and that monetary variables help predict interventions. These relationships matter for understanding exchange rate behavior only if monetary variables indeed affect the exchange rate. Therefore, I also study the response of exchange rates to shocks in various monetary policy variables. The results provide new evidence on the relationship between exchange rates, monetary policy, and foreign exchange interventions.
Handle: RePEc:nbr:nberwo:4377
Template-Type: ReDIF-Paper 1.0
Title: Investment in Manufacturing, Exchange-Rates and External Exposure
Author-Name: Jose Campa
Author-Person: pca393
Author-Name: Linda S. Goldberg
Author-Person: pgo256
Note: ITI IFM
Number: 4378
Creation-Date: 1993-06
Order-URL: http://www.nber.org/papers/w4378
File-URL: http://www.nber.org/papers/w4378.pdf
File-Format: application/pdf
Publication-Status: published as Journal of International Economics, (May 1995), vol 38, pp 297-320
Abstract: This paper studies the linkage between exchange rates and investment. emphasizing the role of producer exposure through export sales and through imported inputs into production. For two-digit United States manufacturing sectors we present time series of export shares and imported input shares. On average. manufacturing sectors have evolved from being primarily export exposed in the 1970s to being primarily import exposed by the early 1980s. Due to this pattern in exposure. exchange rate appreciations reduced investment in durable goods sectors in the 1970s and stimulated investment after 1983. By contrast nondurables sectors tended to absorb exchange rate changes in price over cost markups. Exchange rate volatility depressed investment but the effects were quantitatively small.
Handle: RePEc:nbr:nberwo:4378
Template-Type: ReDIF-Paper 1.0
Title: The Common Development of Institutional Change as Measured by Income Velocity: A Century of Evidence from Industrialized Countries
Classification-JEL: E41
Author-Name: Michael D. Bordo
Author-Person: pbo243
Author-Name: Lars Jonung
Author-Name: Pierre Siklos
Author-Person: psi78
Note: ME
Number: 4379
Creation-Date: 1993-06
Order-URL: http://www.nber.org/papers/w4379
File-URL: http://www.nber.org/papers/w4379.pdf
File-Format: application/pdf
Publication-Status: published as Economic Inquiry, 1996
Abstract: Previous evidence, most recently by Bordo and Jonung (1990) and Silclos (1988b, 1991), has shown on a country-by-country basis that proxies for institutional change significantly improve our understanding of the long-run behaviour of velocity and. consequently, of the demand for money. If institutional change is a common development across industrialized countries it should have a common influence on velocity whereas the same need not be true for the other principal determinants of velocity such as income and interest rates. In statistical terms, this implies that the institutional change process should be cointegrated across countries but the conventional velocity determinants need not be. The purpose of this study is to extend the existing evidence to study common features in velocity, income, and interest rates, across countries. The countries considered are Canada, the U.S., the U.K.. Norway. and Sweden. We are relying on a sample of annual observations from 1870. The recently developed and refined techniques of testing for conintegration are used to study the common features in the series of interest. Briefly, the evidence suggests support for the view that there exists a unique long-run relationship in velocity but not in income and interest rates and that the common feature in velocity is more apparent after rather than before World War 11. However, before World War II, common features in velocity are more apparent for the U.S. and Canada. and separately, for Norway and Sweden. Finally. we find that only a model which includes institutional change proxies possesses a single common stochastic trend in the pooled time series. as well as long-run elasticities consistent with theoretical predictions. We argue that the evidence can only be understood in the context of common historical developments in the respective countries' financial systems.
Handle: RePEc:nbr:nberwo:4379
Template-Type: ReDIF-Paper 1.0
Title: Economic Instability and Aggregate Investment
Classification-JEL: E22; D92
Author-Name: Robert S. Pindyck
Author-Person: ppi130
Author-Name: Andres Solimano
Note: EFG
Number: 4380
Creation-Date: 1993-06
Order-URL: http://www.nber.org/papers/w4380
File-URL: http://www.nber.org/papers/w4380.pdf
File-Format: application/pdf
Publication-Status: published as Economic Instability and Aggregate Investment, Robert S. Pindyck, Andrés Solimano. in NBER Macroeconomics Annual 1993, Volume 8, Blanchard and Fischer. 1993
Abstract: A recent literature suggests that because investment expenditures are irreversible and can be delayed, they may be highly sensitive to uncertainty. We briefly summarize the theory, stressing its empirical implications. We then use cross-section and time-series data for a set of developing and industrialized countries to explore the relevance of the theory for aggregate investment. We find that the volatility of the marginal profitability of capital - a summary measure of uncertainty - affects investment as the theory suggests, but the size of the effect is moderate, and is greatest for developing countries. We also find that this volatility has little correlation with indicia of political instability used in recent studies of growth, as well as several indicia of economic instability. Only inflation is highly correlated with this volatility, and is also a robust explanator of investment
Handle: RePEc:nbr:nberwo:4380
Template-Type: ReDIF-Paper 1.0
Title: Effciency and Equality in a Simple Model of Unemployment Insurance
Author-Name: Andrew Atkeson
Author-Person: pat52
Author-Name: Robert E. Lucas, Jr.
Note: EFG
Number: 4381
Creation-Date: 1993-06
Order-URL: http://www.nber.org/papers/w4381
File-URL: http://www.nber.org/papers/w4381.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Economic Theory, Vol. 66, no. 1 (June 1995): 64-88.
Abstract: This paper describes the efficient allocation of consumption and work effort in an economy in which workers face idiosyncratic employment risk and considerations of moral hazard prevent full insurance. We impose a lower bound on the expected discounted utility that can be assigned to any agent from any date onward, and show, with this feature added, that the efficient unemployment insurance scheme induces an invariant cross sectional distribution of individual entitlements to utility. The paper thus provides a simple prototype model suited to the study of the normative question: what is the tradeoff between equality and efficiency in resource allocation?
Handle: RePEc:nbr:nberwo:4381
Template-Type: ReDIF-Paper 1.0
Title: Efficiency of the Tokyo Housing Market
Classification-JEL: H20; R14
Author-Name: Takatoshi Ito
Author-Name: Keiko Nosse Hirono
Note: ME
Number: 4382
Creation-Date: 1993-06
Order-URL: http://www.nber.org/papers/w4382
File-URL: http://www.nber.org/papers/w4382.pdf
File-Format: application/pdf
Publication-Status: published as Bank of Japan Monetary and Economic Studies, vol. 11, no. 1, pp. 1-32 July 1993
Abstract: In analyzing the dynamics of Tokyo housing price, we have compiled annual micro data sets from individual listings in a widely-circulated real estate advertising magazine. A data set compiled from "properties for investment" lists both asking (sales) prices and rents for the same properties. With such data, a price-rent ratio is directly observable and expected capital gains before tax and commissions found to be just less than 90% in ten years. The "repeatedly-listed properties for investment" data set, a subset of the first, contains only those units in the same buildings after a one-year interval. In this data set, price, rent, and ex post capital gains are all observable. They are used to show that ex post returns on housing investment in the last four years were actually rather modest. The data sets for "housing for sale" and "housing for rent" sections were separately used for hedonic regressions, from which we constructed hedonic price and rent indexes. These regressions show the effects of various determinants of housing prices and rents. The time (year) dummy variables in the hedonic regressions give estimates of price and rent increases in the last 11 years in Tokyo. According to these estimates, prices increased 85-90% over the 1981-92 period, while rents increased about 65%. The price-(annual) rent ratio rents appears to have fluctuated between 17 and 32. Finally, the weak-form efficiency of excess returns on housing is rejected. However, the conclusion is tentative considering the short sample.
Handle: RePEc:nbr:nberwo:4382
Template-Type: ReDIF-Paper 1.0
Title: Timing is All: Elections and the Duration of United States Business Cycles
Classification-JEL: E3
Author-Name: Michael W. Klein
Author-Person: pkl9
Note: EFG
Number: 4383
Creation-Date: 1993-06
Order-URL: http://www.nber.org/papers/w4383
File-URL: http://www.nber.org/papers/w4383.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Money, Credit and Banking, vol. 28, no. 1, February 1996,pp. 84-101.
Abstract: Political business cycle theories predict that the occurrence and outcome of elections affect the timing of business cycle turning points. Opportunistic political business cycle theory predicts that a contraction is more likely to end soon after an election than at other times. Rational partisan political business cycle theory predicts differences in the likelihood of the end of an expansion after an election depending upon the party of newly-elected president. This paper directly tests the effect of elections on the turning points of the United States business cycle during analysis. The prediction that a contraction is more likely to end in the period before an election than in other periods is not supported by our empirical results. There is significant evidence. however. that an expansion is significantly more likely to end after the election of a Republican president but not after the election of a Democratic president in the post-World War I and post-World War II periods. This is consistent with the predictions of rational partisan political business cycle theory.
Handle: RePEc:nbr:nberwo:4383
Template-Type: ReDIF-Paper 1.0
Title: Did the Thatcher Reforms Change British Labour Performance?
Author-Name: David G. Blanchflower
Author-Person: pbl22
Author-Name: Richard B. Freeman
Author-Person: pfr23
Note: LS
Number: 4384
Creation-Date: 1993-06
Order-URL: http://www.nber.org/papers/w4384
File-URL: http://www.nber.org/papers/w4384.pdf
File-Format: application/pdf
Publication-Status: published as Is the British Labour Market Different, ed. R. Barrell, Cambridge University Press, 1994.
Abstract: In this paper we evaluate the success of policies that were implemented in the 1980s that were designed to improve the workings of the UK labour market. Our primary conclusion is that the Thatcherite reforms succeeded in their goals of weakening union power; may have marginally increased employment and wage responsiveness to market conditions and may have increased self-employment. They were accompanied by a substantial improvement in the labour market position of women. But the reforms failed to improve the responsiveness of real wages to unemployment; they were associated with a slower transition from nonemployment to employment for men; a devastating loss in full-time jobs for male workers and produced substantial seemingly noncompetitive increases in earnings inequality.
Handle: RePEc:nbr:nberwo:4384
Template-Type: ReDIF-Paper 1.0
Title: Effects of Alcohol Price Policy on Youth
Classification-JEL: I18
Author-Name: Michael Grossman
Author-Person: pgr107
Author-Name: Frank J. Chaloupka
Author-Person: pch236
Author-Name: Henry Saffer
Author-Person: psa935
Author-Name: Adit Laixuthai
Note: PE EH
Number: 4385
Creation-Date: 1993-06
Order-URL: http://www.nber.org/papers/w4385
File-URL: http://www.nber.org/papers/w4385.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Research on Adolescence, 4(2), pp. 347-364, (1994).
Abstract: In this paper we summarize research that deals with the effects of alcoholic beverage prices and excise taxes on a variety of outcomes for youth. These include alcohol consumption, excessive consumption, motor vehicle accident mortality, and college completion rates. The research employs six nationally representative data sets on individuals that span the period from 1974 through 1989 and two state level data sets for the years 1975-1981 and 19821988. The studies find that alcohol use and motor vehicle accident mortality are negatively related to the cost of alcohol. College completion rates are positively related to this variable. Clearly, these are policy-relevant findings since price is a policy-manipulable variable. Frequently, the effects of a variety of simulated excise tax hikes exceed those of the uniform minimum legal drinking age of 21 in all states.
Handle: RePEc:nbr:nberwo:4385
Template-Type: ReDIF-Paper 1.0
Title: The Allocation of Time: Young Versus Elderly Households in Japan
Classification-JEL: J22
Author-Name: Tadashi Yamada
Author-Name: Tetsuji Yamada
Note: LS
Number: 4386
Creation-Date: 1993-06
Order-URL: http://www.nber.org/papers/w4386
File-URL: http://www.nber.org/papers/w4386.pdf
File-Format: application/pdf
Abstract: Our study shows that the household production theory illuminates the behavior of households in the allocation of time and consumption expenditures. Among the noteworthy findings derived from our data, the various household non-market time allocations (consequently, market labor supply) cannot be separated from consumption expenditures. An increase in market wage rates for both young and elderly households reduces their time spent on household nonmarket activities, such as child care, medical care, and listening to the radio and watching TV. The high opportunity costs of waiting at the hospital clearly discourage working people from visiting the hospital. These results show not a few similarities between the household non-market time allocation in Japan and that to be found in the U.S.
Handle: RePEc:nbr:nberwo:4386
Template-Type: ReDIF-Paper 1.0
Title: Is A Value Added Tax Progressive? Annual Versus Lifetime Incidence Measures
Classification-JEL: H20; H22
Author-Name: Erik Caspersen
Author-Name: Gilbert Metcalf
Note: PE
Number: 4387
Creation-Date: 1993-06
Order-URL: http://www.nber.org/papers/w4387
File-URL: http://www.nber.org/papers/w4387.pdf
File-Format: application/pdf
Publication-Status: published as National Tax Journal, 47 (1994): pp. 731-746
Abstract: We measure the lifetime incidence of a value added tax (V AT) using income data from the Panel Study of Income Dynamics (PSID) and consumption data from the Consumer Expenditure Survey (CEX). When annual income is used as a measure of economic well-being, a VAT looks quite regressive. However, the results change significantly when the analysis is done using lifetime income. Using two different measures of lifetime income, we find that a VAT in the United States would be proportional to slightly progressive over the lifetime.
Handle: RePEc:nbr:nberwo:4387
Template-Type: ReDIF-Paper 1.0
Title: Health Insurance Provision and Labor Market Efficiency in the United States
Classification-JEL: D6; H51
Author-Name: Douglas Holtz-Eakin
Note: EH LS PE
Number: 4388
Creation-Date: 1993-06
Order-URL: http://www.nber.org/papers/w4388
File-URL: http://www.nber.org/papers/w4388.pdf
File-Format: application/pdf
Publication-Status: published as Douglas Holtz-Eakin, 1994. "Health Insurance Provision and Labor Market Efficiency in the United States and Germany," NBER Chapters, in: Social Protection versus Economic Flexibility: Is There a Trade-Off?, pages 157-188 National Bureau of Economic Research, Inc.
Publication-Status: published as Social Protection versus Economic Flexibility: Is There a Trade-Off?ed. Rebecca Blank, University of Chicago Press, 1994.
Abstract: Health Insurance has claimed a prominent place on the policy agenda in the United States. Critics argue that the status quo has lead to spiraling health care costs, an inequitable distribution of quality medical care, and that employer-provided health insurance has "locked" individuals into jobs, thereby interfering with the efficient matching of employers and employees. In contrast to the United States, Germany guarantees virtually all citizens health insurance. Insurance is portable, but the cost may change when an individual changes jobs, again leading to the potential for job-lock. This paper assesses the empirical magnitude of health insurance-related impediments to job mobility in the United States and Germany, The results show little evidence that health insurance provision interferes with job mobility in either the United States or Germany, thus suggesting that these employer-based systems for providing the health insurance portion of the social safety net do not alter this aspect of labor market efficiency.
Handle: RePEc:nbr:nberwo:4388
Template-Type: ReDIF-Paper 1.0
Title: Monopolistic Competition and International Trade: Reconsidering the Evidence
Classification-JEL: F1
Author-Name: David Hummels
Author-Person: phu100
Author-Name: James Levinsohn
Author-Person: ple386
Note: ITI
Number: 4389
Creation-Date: 1993-06
Order-URL: http://www.nber.org/papers/w4389
File-URL: http://www.nber.org/papers/w4389.pdf
File-Format: application/pdf
Publication-Status: published as Quarterly Journal of Economics, vol. CX, no. 3, pp 799-836, 1995.
Abstract: In this paper, we test some propositions about international trade flows that are derived from a model of monopolistic competition developed by Elhanan Helpman. We investigate whether the volume of trade between OECD countries is consistent with the predictions of a modal in which all trade is intra-industry trade in differentiated products. We then repeat the test with non-OECD countries. We also investigate whether the share of intra-industry trade is consistent with a more general theoretical model in which some, but not all, trade is intra-industry trade. Our results lead us to question the apparent empirical success of these models.
Handle: RePEc:nbr:nberwo:4389
Template-Type: ReDIF-Paper 1.0
Title: Does Employment Protection Inhibit Labor Market Flexibility? Lessons from Germany, France, and Belgium
Author-Name: Katharine G. Abraham
Author-Person: pab32
Author-Name: Susan N. Houseman
Author-Person: pho473
Note: LS
Number: 4390
Creation-Date: 1993-06
Order-URL: http://www.nber.org/papers/w4390
File-URL: http://www.nber.org/papers/w4390.pdf
File-Format: application/pdf
Publication-Status: published as Social Protection versus Economic Flexibility: Is There a Trade-Off? ed. Rebecca M. Blank, University of Chicago Press, 1994
Publication-Status: published as Does Employment Protection Inhibit Labor Market Flexibility? Lessons from Germany, France, and Belgium, Katharine G. Abraham, Susan N. Houseman. in Social Protection versus Economic Flexibility: Is There a Trade-Off?, Blank. 1994
Abstract: Laws in most Western European countries give workers strong job rights, including the right to advance notice of layoff and the right to severance pay or other compensation if laid off. Many of these same countries also encourage hours adjustment in lieu of layoffs by providing prorated unemployment compensation to workers on reduced hours. This paper compares the adjustment of manufacturing employment and hours in West Germany, France and Belgium, three countries with strong job security regulations and well-established short-time compensation systems, with that in the United States. Although the adjustment of employment to changes in output is much slower in the German, French and Belgian manufacturing sectors than in U.S. manufacturing, the adjustment of total hours worked is much more similar. The short-time system makes a significant contribution to observed adjustment in all three European countries. In addition, we find little evidence that the weakening of job security regulations that occurred in Germany, France and Belgium during the 1980s affected employers' adjustment to changes in output. These findings suggest that. given appropriate supporting institutions. strong job security need not inhibit employer adjustment to changing conditions.
Handle: RePEc:nbr:nberwo:4390
Template-Type: ReDIF-Paper 1.0
Title: Do 401(k) Contributions Crowd Out Other Persoanl Saving?
Classification-JEL: E21; G23
Author-Name: James M. Poterba
Author-Person: ppo19
Author-Name: Steven F. Venti
Author-Name: David A. Wise
Author-Person: pwi45
Note: AG PE
Number: 4391
Creation-Date: 1993-06
Order-URL: http://www.nber.org/papers/w4391
File-URL: http://www.nber.org/papers/w4391.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Public Economics, vol. 58, (1995), pp. 1-32
Abstract: During the late 1980s. contributions to 401(k) plans eclipsed contributions to Individual Retirement Accounts as the leading form of tax-deferred individual retirement saving. This paper uses data from the 1984. 1987. and 1991 Surveys of Income and Program Participation to describe patterns of participation in and contributions to 401(k) plans. and to evaluate the net impact of these contributions on personal saving. We find that 401(k) participation conditional on eligibility exceeds sixty percent at all income levels. This pattern contrasts with Individual Retirement Accounts in the early 1980s. which exhibited a sharply rising profile of participation across income groups. We study the net effect of 401(k) contributions on personal saving by comparing the growth of non-401(k) assets for contributors and noncontributors. and by comparing the level of wealth for families who are eligible for 401(k)s with that of those who are not. We find little evidence that 401(k) contributions substitute for other forms of private saving. We also explore the substitutability of 401(k) contributions for IRA contributions. and revisit the question of whether IRAs substitute for other types of saving. Our findings suggest little substitution on either margin.
Handle: RePEc:nbr:nberwo:4391
Template-Type: ReDIF-Paper 1.0
Title: Internal Finance and Firm Investment
Classification-JEL: E22; G31
Author-Name: R. Glenn Hubbard
Author-Person: phu97
Author-Name: Anil K. Kashyap
Author-Person: pka35
Author-Name: Toni M. Whited
Author-Person: pwh6
Note: CF
Number: 4392
Creation-Date: 1993-06
Order-URL: http://www.nber.org/papers/w4392
File-URL: http://www.nber.org/papers/w4392.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Money, Credit and Banking, vol. 27, no. 3, pp. 683-701, August 1995.
Abstract: We examine the neoclassical investment model using a panel of U.S. manufacturing firms. The standard model with no financing constraints cannot be rejected for firms with high (pre-sample) dividend payouts. However, it is decisively rejected for firms with low (pre-sample) payouts (firms we expect to face financing constraints). Hem, investment is sensitive to both firm cash flow and macroeconomic credit conditions, holding constant investment opportunities. Sample splits based on firm size or maturity do not produce such distinctions. The latter comparison identifies firms where "free-cash-flow" problems might be expected to produce correlations between investment and cash flow.
Handle: RePEc:nbr:nberwo:4392
Template-Type: ReDIF-Paper 1.0
Title: Ranking Mutual Funds on an After-Tax Basis
Classification-JEL: 314; 323; E
Author-Name: Joel M. Dickson
Author-Name: John B. Shoven
Note: PE CF
Number: 4393
Creation-Date: 1993-07
Order-URL: http://www.nber.org/papers/w4393
File-URL: http://www.nber.org/papers/w4393.pdf
File-Format: application/pdf
Abstract: This paper takes shareholder level taxes into account in determining the performance of growth and growth and income mutual funds over the 1963-1992 period. It ranks a sample of funds on a before and after-tax basis for investors in different income classes facing various investment horizons. The differences between the relative ranking of funds on a before and after-tax basis are dramatic. especially for middle and high income investors. For instance. one fund which ranks in the 19th percentile on a pre-tax basis ranks in the 61st percentile for an upper income. taxable investor.
Handle: RePEc:nbr:nberwo:4393
Template-Type: ReDIF-Paper 1.0
Title: Labor Demand and the Source of Adjustment Costs
Classification-JEL: J23
Author-Name: Daniel S. Hamermesh
Author-Person: pha78
Note: LS
Number: 4394
Creation-Date: 1993-07
Order-URL: http://www.nber.org/papers/w4394
File-URL: http://www.nber.org/papers/w4394.pdf
File-Format: application/pdf
Publication-Status: published as Economic Journal, vol. 105, no. 430, pp. 620-634, May 1995
Abstract: Most models of dynamic labor demand are written in terms of costs of adjusting employment (net adjustment costs). A few are based on the costs of hiring and firing (gross adjustment costs). This study derives several models containing both types of adjustment costs. A dynamic-programming model with quadratic adjustment costs generates an estimate of the lower bound on the fraction of adjustment costs that are gross costs. A model with lumpy costs of adjustment also estimates the relative sizes of the two types of costs. The models are estimated over two sets of short monthly time series obtained from private sources, one from a medium-size hospital, the other describing three plants operated by a small manufacturing firm, The quadratic-cost model is also estimated using data describing small industries. The estimates demonstrate that the importance of the two types of costs differs across establishments, though gross adjustment costs appear relatively larger. The results provide evidence on issues of asymmetry in business cycles and the role of human capital in generating externalities in economic growth.
Handle: RePEc:nbr:nberwo:4394
Template-Type: ReDIF-Paper 1.0
Title: Presidential Leadership and the Reform of Fiscal Policy: Learning from Reagan's Role in TRA 86
Classification-JEL: H11; H21
Author-Name: Robert P. Inman
Note: PE
Number: 4395
Creation-Date: 1993-07
Order-URL: http://www.nber.org/papers/w4395
File-URL: http://www.nber.org/papers/w4395.pdf
File-Format: application/pdf
Abstract: The institutions of federal fiscal-policy making seem incapable of confronting the central domestic issues of the day. This paper presents a model of congressional decision-making in which legislators' incentives are contrary to fiscal efficiency. In such an environment, a "strong" president may be able to lead congress away from inefficient budgets. The paper specifies a model of what constitutes a strong president, namely a president with resources to build congressional coalitions and a credible veto to force "all-or-nothing" choices between reform and the inefficient status quo. President Reagan's role in the passage of the Tax Reform Act of 1986 is detailed in the light of this model; the analysis reveals the role of executive resources and the importance of the veto strategy to major fiscal reform.
Handle: RePEc:nbr:nberwo:4395
Template-Type: ReDIF-Paper 1.0
Title: Aggregate Income Risks and Hedging Mechanisms
Author-Name: Robert J. Shiller
Author-Person: psh69
Note: EFG AP
Number: 4396
Creation-Date: 1993-07
Order-URL: http://www.nber.org/papers/w4396
File-URL: http://www.nber.org/papers/w4396.pdf
File-Format: application/pdf
Publication-Status: published as Shiller, Robert J. (1993) Macro Markets: Creating Institutions for Managing Society's Largest Economic Risks, Oxford University Press.
Publication-Status: published as The Quarterly Review of Economics and Finance, vol. 35, no. 2, Summer 1995, pp. 119-152
Abstract: Estimates are made, from time series data on real gross domestic products, of the standard deviations of returns in markets for perpetual claims on countries' incomes. The results indicate that the variability of returns is of a magnitude comparable to that of returns in stock markets. Evidence is shown that there may be only minimal possibility of cross hedging these returns in existing capital markets. Methods of establishing markets for perpetual claims on aggregate incomes are examined. Such markets, by allowing hedging of these aggregate income risks, might make for dramatically more effective international macroeconomic risk sharing than is possible today. Retail institutions are described that might develop around such markets and help the public with their risk management. However, the establishment of such markets would also incur the risk of major financial bubbles and panics.
Handle: RePEc:nbr:nberwo:4396
Template-Type: ReDIF-Paper 1.0
Title: Altered States: Taxes and the Location of Foreign Direct Investment in America
Classification-JEL: H87; H73
Author-Name: James R. Hines Jr.
Author-Person: phi111
Note: PE
Number: 4397
Creation-Date: 1993-07
Order-URL: http://www.nber.org/papers/w4397
File-URL: http://www.nber.org/papers/w4397.pdf
File-Format: application/pdf
Publication-Status: published as American Economic Review, December 1996, vol.86, no.5, pp.1076-1094.
Abstract: This paper examines the effect of taxation on foreign investment and on business location within the United States. The idea is to compare the inter-state distribution of investments from certain foreign countries (those with foreign tax credit systems) with the distribution of investments from other countries. Investors from countries with foreign tax credit systems receive home-country tax credits for income taxes paid to US states, so they are less likely than are other investors to avoid investing in high-tax states. The results indicate that 1% differences in state corporate tax rates are associated with 7-9% differences between the investment shares of foreign tax credit investors and the investment shares of all others, suggesting that state taxes significantly influence the pattern of foreign direct investment in the US.
Handle: RePEc:nbr:nberwo:4397
Template-Type: ReDIF-Paper 1.0
Title: Living Arrangements: Health and Wealth Effects
Classification-JEL: R31; J14
Author-Name: Axel Borsch-Supan
Author-Name: Daniel McFadden
Author-Name: Reinhold Schnabel
Author-Person: psc47
Note: AG
Number: 4398
Creation-Date: 1993-07
Order-URL: http://www.nber.org/papers/w4398
File-URL: http://www.nber.org/papers/w4398.pdf
File-Format: application/pdf
Publication-Status: published as Advances in the Economics of Aging, David A. Wise, pp. 193-212, (Chicago, University of Chicago Press, 1996).
Publication-Status: published as Living Arrangements: Health and Wealth Effects , Axel Borsch-Supan, Daniel L. McFadden, Reinhold Schnabel. in Advances in the Economics of Aging, Wise. 1996
Abstract: This paper investigates the choice of living arrangements among elderly Americans. It has two specific aims. First, because health is not directly measurable and can only be described by indicators such as ADLs and IADLs, it explores a new econometric approach to model the influence of the latent health status on living arrangements. Second, it exploits the NBER Economic Supplement of the Longitudinal Study on Aging to investigate the role of housing and financial wealth in the choice of living arrangements.
Handle: RePEc:nbr:nberwo:4398
Template-Type: ReDIF-Paper 1.0
Title: Market Share and Exchange Rate Pass-Through in World Automobile Trade
Classification-JEL: F12; F14
Author-Name: Robert C. Feenstra
Author-Person: pfe116
Author-Name: Joseph E. Gagnon
Author-Person: pga415
Author-Name: Michael M. Knetter
Note: ITI
Number: 4399
Creation-Date: 1993-07
Order-URL: http://www.nber.org/papers/w4399
File-URL: http://www.nber.org/papers/w4399.pdf
File-Format: application/pdf
Publication-Status: published as Journal of International Economics, vol. 40, no. 1-2, Feb. 1996, pp. 187-207
Abstract: This paper explores the relationship between exchange rate pass-through and market share for monopolistically competitive exporters. Under fairly general assumptions we show that pass-through should be high for exporters based in a country with a very large share of total destination market sales. For source countries with small and intermediate market shares, the theoretical relationship is potentially nonlinear and sensitive to assumptions about the nature of consumer demand and firm interactions. The model is estimated using a panel data set of automobile exports from France, Germany, Sweden, and the United States to a variety of destinations over the period 1970-1988. The empirical relationship between pass-through and market share is significantly non-linear: pass-through is the lowest when the source country's market share is around 45 percent and it is highest when the source country's share approaches 100 percent.
Handle: RePEc:nbr:nberwo:4399
Template-Type: ReDIF-Paper 1.0
Title: Reputation Formation in Early Bank Debt Markets
Classification-JEL: G2; N21
Author-Name: Gary Gorton
Author-Person: pgo458
Note: CF
Number: 4400
Creation-Date: 1993-07
Order-URL: http://www.nber.org/papers/w4400
File-URL: http://www.nber.org/papers/w4400.pdf
File-Format: application/pdf
Publication-Status: Published as "Reputation Formation in Early Bank Note Markets", Journal of Political Economy, Vol. 104, no. 2 (April 1996): 346-397.
Abstract: Two hypotheses concerning firms issuing debt for the first time are tested. The first is that new firms' debt will be discounted more heavily by lenders, compared to firms which have credit histories (but are otherwise identical), and that this excess discount declines over time as lenders observe defaults. The declining interest rate corresponds to the formation of a "reputation", a valuable asset which provides an incentive for firms to not choose risky projects. The second hypothesis is that prior to the establishment of a reputation new firms issuing debt are monitored more intensely. The sample studied consists of new banks issuing bank notes for the first time during the America Free Banking Era (1838-1860). The presence of a reputation effect in debt prices is confirmed: the debt of new banks is discounted more heavily than banks with credit histories. Note holders are then motivated to monitor new banks because the excess discount provides an incentive for notes of new banks to be redeemed. As lenders learn that new banks can redeem their notes, the discount declines as predicted for surviving banks. The precision of learning increases during the period due to technological improvements in information transmission, namely, the introduction of the telegraph and the railroad. The results explain why the pre-Civil War system of private money issuance by banks was not plagued by problems of overissuance (wildcat banking").
Handle: RePEc:nbr:nberwo:4400
Template-Type: ReDIF-Paper 1.0
Title: Measuring the Welfare Effect of Quality Change: Theory and Application of Japanese Autos
Author-Name: Robert C. Feenstra
Author-Person: pfe116
Note: ITI PR
Number: 4401
Creation-Date: 1993-07
Order-URL: http://www.nber.org/papers/w4401
File-URL: http://www.nber.org/papers/w4401.pdf
File-Format: application/pdf
Abstract: The purpose of this paper is to identify conditions under which hedonic price indexes provide an exact measure of consumer welfare, so that the welfare effects of quality change can be inferred. Our results are quite positive in providing a rational for existing practices, though the conditions needed to justify these practices are somewhat restrictive. An application of our results is provided to the increase in characteristics of Japanese autos sold in the United States following the imposition of quotas in 1981. We argue that consumers did not value the additional characteristics at their former shadow-values, but rather, attached a lower value to the increase in characteristics. We compute the exact index that reflects this lower imputed value, and compare it to the conventional quality adjustment. The deadweight loss associated with the quality change is between one-quarter and one-third of the value of upgrading.
Handle: RePEc:nbr:nberwo:4401
Template-Type: ReDIF-Paper 1.0
Title: Does Public Health Insurance Reduce Labor Market Flexibility or Encourage the Underground Economy? Evidence from Spain and the United States
Classification-JEL: I1; J3
Author-Name: Sara De La Rica
Author-Name: Thomas Lemieux
Author-Person: ple92
Note: LS
Number: 4402
Creation-Date: 1993-07
Order-URL: http://www.nber.org/papers/w4402
File-URL: http://www.nber.org/papers/w4402.pdf
File-Format: application/pdf
Publication-Status: published as Social Protection versus Economic Flexibility: Is There a Trade-Off?ed. Rebecca Blank, University of Chicago Press, 1994.
Publication-Status: published as Does Public Health Insurance Reduce Labor Market Flexibility or Encourage the Underground Economy? Evidence from Spain and the United States, Sara de la Rica, Thomas Lemieux. in Social Protection versus Economic Flexibility: Is There a Trade-Off?, Blank. 1994
Abstract: This paper compares the labor market implications of the health insurance system in Spain and in the United States. While most health insurance is privately provided to workers (by employers) in the United States, Spanish workers obtain health insurance coverage from the public social security system. The Spanish system is financed by a payroll (social security) tax shared between employers and employees. There is clear evidence, however, of widespread non-compliance with the social security tax. This paper empirically compares the incidence of health insurance coverage among U.S. workers to the pattern of compliance with the social security tax among Spanish workers. The main finding of this paper is that these two patterns are very similar. They both depend on the same supply and demand factors, which is consistent with basic economic models of private provision of benefits and of tax compliance. However, one important difference between the two systems is that in Spain, unlike the United States, essentially all heads of household work in the covered sector and thus have a full access to public health care for themselves and for their dependents.
Handle: RePEc:nbr:nberwo:4402
Template-Type: ReDIF-Paper 1.0
Title: Cattle Cycles
Author-Name: Sherwin Rosen
Author-Name: Kevin M. Murphy
Author-Person: pmu108
Author-Name: Jose A. Scheinkman
Author-Person: psc26
Note: LS EFG
Number: 4403
Creation-Date: 1993-07
Order-URL: http://www.nber.org/papers/w4403
File-URL: http://www.nber.org/papers/w4403.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Political Economy, June 1994, Vol. 102, No. 3, pp. 468-492.
Abstract: U.S. beef cattle stocks are among the most periodic time-series in economics. A theory of cattle cycles is constructed, based upon rational breeding stock inventory decisions in the presence of gestation and maturation delays between production and consumption. The low fertility rates of cows and substantial lags between fertility and consumption decisions cause the demographic structure of the herd to respond cyclically to exogenous shocks in demand for beef and in production costs. Known biotechnology of cattle demographics imply sharp numerical benchmarks for the dynamic system that describes the evolution of cattle stock and beef consumption. These compare very closely to structural econometric time-series estimates over the 1875-1990 period and prove that systematic cattle cycles have a wholly rational explanation.
Handle: RePEc:nbr:nberwo:4403
Template-Type: ReDIF-Paper 1.0
Title: U.S. Commercial Banking: Trends, Cycles, and Policy
Classification-JEL: E44; G2
Author-Name: John H. Boyd
Author-Name: Mark Gertler
Author-Person: pge11
Note: ME
Number: 4404
Creation-Date: 1993-07
Order-URL: http://www.nber.org/papers/w4404
File-URL: http://www.nber.org/papers/w4404.pdf
File-Format: application/pdf
Publication-Status: published as US Commercial Banking: Trends, Cycles, and Policy, John H. Boyd, Mark Gertler. in NBER Macroeconomics Annual 1993, Volume 8, Blanchard and Fischer. 1993
Abstract: This paper pinpoints sources of recent problems in U.S. commercial banking. The objective is to provide a context for evaluating policy options. There are three parts. The first documents how increased competition and financial innovation made banking less stable in the 1980s. The second part identifies the specific sources of the industry's difficulties over this decade. We find that the poor ex post performance by large banks provided the main stress on the system. From a variety of evidence, we conclude that this poor performance was the product of increased competition for the industry and a regulatory system that provides greater subsidies to risk-taking by large banks relative to the industry mean. The third part analyzes recent policy reforms and on-going policy options. in the light of our evidence on the main sources of problems in banking.
Handle: RePEc:nbr:nberwo:4404
Template-Type: ReDIF-Paper 1.0
Title: Reassessing the Social Returns to Equipment Investment
Classification-JEL: E22; H23
Author-Name: Alan J. Auerbach
Author-Person: pau33
Author-Name: Kevin A. Hassett
Author-Person: pha378
Author-Name: Stephen D. Oliner
Author-Person: pol82
Note: PE EFG
Number: 4405
Creation-Date: 1993-07
Order-URL: http://www.nber.org/papers/w4405
File-URL: http://www.nber.org/papers/w4405.pdf
File-Format: application/pdf
Publication-Status: published as Quarterly Journal of Economics, AUgust 1994
Abstract: The recent literature on the sources of economic growth has challenged the traditional growth accounting of the Solow model, which assigned a relatively limited role to capital deepening. As part of this literature, De Long and Summers have argued in two papers that the link between equipment investment and economic growth across countries is stronger than can be generated by the Solow model. Accordingly, they conclude that such investment yields important external benefits. However, their analysis suffers from two shortcomings. First, De Long and Summers have not conducted any formal statistical tests of the Solow model. Second, even their informal rejection of the model fails to survive reasonable tests of robustness. We formally test the predictions of the Solow model using De Long and Summers' data. Our results cast doubt on the existence of externalities to equipment investment. In particular, we find that the empirical link between investment and growth in the OECD countries is fully consistent with the Solow model. Moreover, for De Long and Summers' full sample, the evidence of excess returns to equipment investment is tenuous.
Handle: RePEc:nbr:nberwo:4405
Template-Type: ReDIF-Paper 1.0
Title: Does Head Start Make a Difference?
Classification-JEL: I38
Author-Name: Janet Currie
Author-Person: pcu13
Author-Name: Duncan Thomas
Author-Person: pth20
Note: EH LS
Number: 4406
Creation-Date: 1993-07
Order-URL: http://www.nber.org/papers/w4406
File-URL: http://www.nber.org/papers/w4406.pdf
File-Format: application/pdf
Publication-Status: published as The American Economic Review, June 1995.
Abstract: Although there is a broad hi-partisan support for Head Start, the evidence of positive longterm effects of the program is not overwhelming. Using data from the National Longitudinal Survey's Child-Mother file, we examine the impact of the program on a range of child outcomes. We compare non-parametric estimates of program effects with estimates from parametric models that control for selection by including mother fixed effects. This comparison suggests that studies that ignore selection can be substantially misleading; it also suggests that the impact of selection differs considerably across racial and ethnic groups. After controlling for selection, we find positive and persistent effects of participation in Head Start on the test scores of white and Hispanic children. These children are also less likely to have repeated a grade. We find no effects on the test scores or schooling attainment of African-American children. White children who attend Head Start are more likely to receive a measles shot, while African-American enrollees receive measles shots at an earlier age. African-American children who attend Head Start are also taller than their siblings. In a sample of the children's mothers, we find evidence that whites who attended Head Start as children are taller and have higher AFQT scores than their siblings who did not
Handle: RePEc:nbr:nberwo:4406
Template-Type: ReDIF-Paper 1.0
Title: Welfare Transfers in Two-Parent Families: Labor Supply and Welfare Participation Under AFDC-UP
Classification-JEL: I38
Author-Name: Hilary Hoynes
Author-Person: pho278
Note: PE
Number: 4407
Creation-Date: 1993-07
Order-URL: http://www.nber.org/papers/w4407
File-URL: http://www.nber.org/papers/w4407.pdf
File-Format: application/pdf
Publication-Status: published as Econometrica, 64 (2), pp. 295-332, (March 1996)
Abstract: This paper examines the effect of cash transfers and food stamp benefits on family labor supply and welfare participation among two-parent families. The Aid to Families with Dependent Children-Unemployed Parent Program has been providing cash benefits to two-parent households since 1961 and recent congressional action has increased its importance. In this model, the husband's and wife's labor supply decisions are constrained by a family budget constraint which is non-convex due to features of the AFDC-UP program. The husband's and wife's labor supply decisions are restricted to no work, part-time work and full-time work. Features of the tax and transfer programs are modeled formally using kinked budget restraints. Maximum likelihood techniques are used to estimate parameters of the underlying hours of work and welfare participation equations. The estimates from the model are used to determine the magnitude of the work disincentive effects of the AFDC-UP program, and to simulate the effects of changes in AFDC-UP benefit and eligibility rules on family labor supply and welfare participation. The results suggest that labor supply and welfare participation among two-parent families are highly responsive to changes in the benefit structure under the AFDC-UP program.
Handle: RePEc:nbr:nberwo:4407
Template-Type: ReDIF-Paper 1.0
Title: Corporate-Finance Benefits from Universal Banking: Germany and the United States, 1870-1914
Classification-JEL: N2; G2
Author-Name: Charles W. Calomiris
Author-Person: pca421
Note: CF DAE
Number: 4408
Creation-Date: 1993-07
Order-URL: http://www.nber.org/papers/w4408
File-URL: http://www.nber.org/papers/w4408.pdf
File-Format: application/pdf
Publication-Status: published as Charles W. Calomiris, 1993. "Corporate-finance benefits from universal banking: Germany and the United States, 1870-1917," Proceedings, Federal Reserve Bank of Chicago, issue May, pages 450-464.
Abstract: Limitations on bank consolidation and branching in the United States at an early date effectively limited the scope of commercial banks and their involvement in financing large-scale industry, and increased information and transaction costs of issuing securities. In contrast, German industry was financed by large-scale universal banks who maintained long-term relationships with firms, involving ongoing monitoring and disciplining of management, and underwriting. Low costs of German industrial finance are reflected in lower investment banking spreads on securities issues and a higher propensity to issue equity relative to the United States.
Handle: RePEc:nbr:nberwo:4408
Template-Type: ReDIF-Paper 1.0
Title: The Effect of Low Birthweight on the Health, Behavior, and School Performance of School-Aged Children
Classification-JEL: I12; I20
Author-Name: Hope Corman
Author-Name: Stephen Chaikind
Note: EH
Number: 4409
Creation-Date: 1993-07
Order-URL: http://www.nber.org/papers/w4409
File-URL: http://www.nber.org/papers/w4409.pdf
File-Format: application/pdf
Publication-Status: Published as "The Effect of Low Birthweight on the School Performance and Behavior of School-Aged Children", EEDR, Vol. 17, no. 2/3 (June 1998): 307-316.
Abstract: This study uses the 1988 Child Health Supplement of the National Health Interview Survey to examine the performance of school-aged children who were of low birthweight. We examine a number of indicators of school performance, health, and behavior. We examine these effects separately for children ages 6 to 10 and for children ages 11 to 15. In addition, we examine two sets of the age cohorts: one where all children are included, and one which excludes children who are attending special education. The latter category is meant to examine children who have not been identified as having problems in school which require special services. We find that low birthweight children are more likely to perform poorly in school than their normal birthweight peers, and they are more likely to experience health problems, even into their adolescence. We do not find significantly more behavior problems for low birthweight children compared to their normal birthweight peers.
Handle: RePEc:nbr:nberwo:4409
Template-Type: ReDIF-Paper 1.0
Title: Round-the-clock Trading: Evidence from U.K. Cross-Listed Securities
Classification-JEL: 430; 520; F; G
Author-Name: Allan W. Kleidon
Author-Name: Ingrid M. Werner
Note: IFM
Number: 4410
Creation-Date: 1993-07
Order-URL: http://www.nber.org/papers/w4410
File-URL: http://www.nber.org/papers/w4410.pdf
File-Format: application/pdf
Publication-Status: published as "Effects of Geography and stock-market structure: A comparison of cross-listed securities," Graduate school of Business, Stanford Univ. Research Paper No. 1348, 1995.
Publication-Status: published as became Werner, I.M. and A.W. Kleidon, 1996, "UK an US trading of british cross-listed stocks: an intraday analysis of market integration," in Review of Financial studies, vol.9, no.2: 615-659.
Abstract: This paper uses transactions data from the London Stock Exchange to characterize the intraday pattern of security prices and trading volume for securities trading on SEAQ. It focuses in more detail on a sample of U.K. firms that are cross-listed on the NYSE. Using additional data from the NYSE-AMEX (I5SM), we compare volatility, volume, and quotes as trading starts in London and then continues in New York. These firms have substantially longer trading hours than most singly-listed stocks, and are also traded in two markets with very different institutional setups. This is shown to have several important implications for theories on intraday behavior of prices, the organization of exchanges, and the general consequences of round-the-clock trading.
Handle: RePEc:nbr:nberwo:4410
Template-Type: ReDIF-Paper 1.0
Title: Social Insurance and Transition
Author-Name: Andrew Atkeson
Author-Person: pat52
Author-Name: Patrick J. Kehoe
Author-Person: pke4
Note: EFG
Number: 4411
Creation-Date: 1993-07
Order-URL: http://www.nber.org/papers/w4411
File-URL: http://www.nber.org/papers/w4411.pdf
File-Format: application/pdf
Publication-Status: published as International Economic Review. May 1996, vol. 37, no. 2.
Abstract: We study the general equilibrium effects of social insurance on the transition in a model in which the process of moving workers from matches in the state sector to new matches in the private sector takes time and involves uncertainty. We find that adding social insurance may slow transition. When there are incentive problems in this rematching process, the optimal social insurance scheme may involve forced layoffs and involuntary unemployment.
Handle: RePEc:nbr:nberwo:4411
Template-Type: ReDIF-Paper 1.0
Title: An Exact Soultion for the Investment and Market Value of a Firm Facing Uncertainty, Adjustment Costs, and Irreversibility
Classification-JEL: E22
Author-Name: Andrew B. Abel
Author-Person: pab10
Author-Name: Janice C. Eberly
Author-Person: peb3
Note: DAE AP
Number: 4412
Creation-Date: 1993-07
Order-URL: http://www.nber.org/papers/w4412
File-URL: http://www.nber.org/papers/w4412.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Economic Dynamics and Control, Vol. 21 (1997): 831-852.
Abstract: This paper derives closed-form solutions for the investment and market value, under uncertainty, of competitive firms with constant returns to scale production and convex costs of adjustment. Solutions are derived for the case of irreversible investment as well as for reversible investment. Optimal investment is a non-decreasing function of q, the shadow value of capital. The conditions of optimality imply that q cannot contain a bubble; thus, optimal investment depends only on fundamentals. However, the value of the firm may contain a bubble that does not affect investment behavior. Relative to the case of reversible investment, the introduction of irreversibility does not affect q, but it reduces the fundamental market value of the firm.
Handle: RePEc:nbr:nberwo:4412
Template-Type: ReDIF-Paper 1.0
Title: Post-Retirement Increases in Pensions in the 1980s: Did Plan Finances Matter?
Classification-JEL: E31; J14
Author-Name: Steven G. Allen
Author-Person: pal6
Author-Name: Robert L. Clark
Author-Name: Ann A. McDermed
Note: AG LS
Number: 4413
Creation-Date: 1993-08
Order-URL: http://www.nber.org/papers/w4413
File-URL: http://www.nber.org/papers/w4413.pdf
File-Format: application/pdf
Publication-Status: published as Research on Aging, Vol. 17, no. 2, June 1995, pp. 190-208.
Abstract: Many firms give post-retirement increases in pension benefits to retirees even though the pension contract does not require such increases. A leading explanation of this behavior is that benefit increases are part of an implicit contract where retirees accept lower initial benefits in return for the option of receiving a share of the plan's financial returns above the risk-free rate. The paper reports mixed evidence on the linkage between the financial performance of pension plans and post-retirement increases. Between 1980 and 1985, benefit increases were larger in plans with high funding ratios and lofty rates of return. However, the practice of giving post-retirement increases became much less widespread in the 1980s, despite dramatically improved financial performances across all pension plans.
Handle: RePEc:nbr:nberwo:4413
Template-Type: ReDIF-Paper 1.0
Title: Pattern in Regional Labor Market Adjustment: The United States vs. Japan
Classification-JEL: J21; E24
Author-Name: Edward B. Montgomery
Note: LS
Number: 4414
Creation-Date: 1993-08
Order-URL: http://www.nber.org/papers/w4414
File-URL: http://www.nber.org/papers/w4414.pdf
File-Format: application/pdf
Publication-Status: published as Social Protection versus Economic Flexibility: Is There a Trade-Off?ed. Rebecca Blank, University of Chicago Press, 1994
Abstract: In this paper I examine regional labor market behavior in the United States and Japan. In contrast with the picture at the aggregate level, Japanese labor markets at the prefectural (regional) level appear to exhibit substantially more persistence than state level labor markets in the United States. The distribution (and positions of regions within the distribution) of wages, unemployment, employment growth, and migration remain remarkably constant in Japan for periods of up to 15 years. Although wages, unemployment, and migration appear to be driven by similar factors in both countries, wages appear to be slightly more sensitive while unemployment is less sensitive to demand shifts in Japan than in the U.S.
Handle: RePEc:nbr:nberwo:4414
Template-Type: ReDIF-Paper 1.0
Title: Labor Productivity During the Great Depression
Classification-JEL: E3; N11
Author-Name: Michael D. Bordo
Author-Person: pbo243
Author-Name: Charles L. Evans
Author-Person: pev23
Note: DAE ME
Number: 4415
Creation-Date: 1993-08
Order-URL: http://www.nber.org/papers/w4415
File-URL: http://www.nber.org/papers/w4415.pdf
File-Format: application/pdf
Publication-Status: published as Economics Letters, Vol. 47, no. 1 (January 1995): p. 41-45
Abstract: In a recent paper, Bemanke and Parkinson (1991) studied interwar U.S. manufacturing data with the objective of assessing competing theories of the business cycle. An important finding was that short-run increasing returns to Labor (SRIRL), or procyclical labor productivity, was at least as strong during the Great Depression as in the postwar period. The authors conclude that this information casts further doubt on the real business cycle explanation of economic fluctuations. The purpose of this note is to point out that, within the data set analyzed by Bemanke and Parkinson (20% of the manufacturing sector), labor productivity during the Great Depression (1928:III to 1933:1) was procyclical in some industries and countercyclical in others. Furthermore, our measure of labor productivity for the entire manufacturing sector during this period was countercyclical. We conclude that the evidence is not favorable toward the hypothesis that large, negative aggregate demand shocks pushed the 1929-33 economy down a static, neoclassical production function. Another possibility is that firms which typically hoarded labor during recessions chose not to do so during the 1929-33 period.
Handle: RePEc:nbr:nberwo:4415
Template-Type: ReDIF-Paper 1.0
Title: Top Executives, Turnover and Firm Performance in Germany
Author-Name: Steven N. Kaplan
Note: CF
Number: 4416
Creation-Date: 1993-08
Order-URL: http://www.nber.org/papers/w4416
File-URL: http://www.nber.org/papers/w4416.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Law, Economics & Organization, Vol. 10, No. 1 (April 1994), pp. 142-159.
Abstract: This paper examines executive turnover -- both for management and supervisory boards - - and its relation to firm performance in the largest companies in Germany in the 1980s. The management board turns over slowly -- at a rate of 10% per year -- implying that top executives in Germany have longer tenures than their counterparts in the U.S. and Japan. Turnover of the management board increases significantly with stock performance and particularly poor (i.e. negative) earnings, but is unrelated to sales growth and earnings growth. Turnover of the supervisory board is not consistently related to any measure of performance.
Handle: RePEc:nbr:nberwo:4416
Template-Type: ReDIF-Paper 1.0
Title: Trade and Industrial Policy Reform in Developing Countries: A Review of Recent Theory and Evidence
Classification-JEL: F13; F43
Author-Name: Dani Rodrik
Author-Person: pro60
Note: ITI
Number: 4417
Creation-Date: 1993-08
Order-URL: http://www.nber.org/papers/w4417
File-URL: http://www.nber.org/papers/w4417.pdf
File-Format: application/pdf
Publication-Status: published as Rodrik, Rani, 1995. "Trade and industrial policy reform," Handbook of Development Economics, in: Hollis Chenery†& T.N. Srinivasan (ed.), Handbook of Development Economics, edition 1, volume 3, chapter 45, pages 2925-2982 Elsevier.
Publication-Status: published as J. Berhman and T.N. Snkivosan (eds.), Handbook of Development Economics, vol III, Amsterdam, North-Holland, 1996.
Abstract: This paper reviews recent theory and evidence on trade and industrial policy reform in developing countries. First, the theoretical and empirical basis of the rationales for policy reform are discussed. Next, two sources of heterodoxy are identified and evaluated: (a) the East Asian experience with interventionist industrial policies; (b) recent models of imperfect competition. The survey then turns on strategic issues in reform, and discusses the theory of piecemeal reform, tax or tariff uniformity, credibility, political economy, and interactions with stabilization policy. The penultimate section reviews the available evidence on the consequences of recent policy reform.
Handle: RePEc:nbr:nberwo:4417
Template-Type: ReDIF-Paper 1.0
Title: Environmental Costs Paid by the Polluter or the Beneficiary? The Case of CERCLA and Superfund
Classification-JEL: H23; Q2
Author-Name: Don Fullerton
Author-Person: pfu10
Author-Name: Seng-Su Tsang
Note: PE
Number: 4418
Creation-Date: 1993-08
Order-URL: http://www.nber.org/papers/w4418
File-URL: http://www.nber.org/papers/w4418.pdf
File-Format: application/pdf
Publication-Status: published as "Should Enviormental Costs Be Paid by the Polluter or the Benefeciary? Theof CERCLA and Superfund," Public Economics Review, vol.1, no.1,(June1996),pp.85-127.
Abstract: The Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA) of 1980 follows the "polluter pays" principle by placing retroactive liability on responsible firms. Yet this cost is borne by current shareholders who did not benefit from past low-cost waste management. This paper introduces a "beneficiary pays" principle that burdens consumers who benefited from lower prices. An input-output model is developed to calculate the effects of alternative tax rules on output prices. We find: (1) that the increase in commodity prices contributed by current Superfund taxes is only a small fraction of the price increase that would have fully covered the cost of controlling hazardous waste; and (2) current Superfund taxes do not raise the prices of goods associated with the most pollution.
Handle: RePEc:nbr:nberwo:4418
Template-Type: ReDIF-Paper 1.0
Title: Trade Liberalization in Disinflation
Classification-JEL: F13; F41
Author-Name: Dani Rodrik
Author-Person: pro60
Note: IFM ITI
Number: 4419
Creation-Date: 1993-08
Order-URL: http://www.nber.org/papers/w4419
File-URL: http://www.nber.org/papers/w4419.pdf
File-Format: application/pdf
Publication-Status: published as P.B. Kenen (ed.), Understanding Interdependence: The Macroeconomics of the Open Economy, Princeton, NJ, Princeton University Press, 1995
Abstract: There exists near-consensus among professional economists on the desirability of achieving macroeconomic stabilization prior to the removal of microeconomic distortions. Yet this advice was completely disregarded in some of the most important cases of reform during the last decade--Bolivia and Mexico since 1985, Poland since 1990, Argentina since 1991, for example. In these and many other cases, radical trade liberalization measures were put in place, or existing programs speeded up, in conjunction with macroeconomic stabilization packages. In this paper I revisit this issue by focusing on recent liberalizations in Latin America. I argue that the theoretical case for the existence of a policy dilemma in exchange-rate management when trade liberalization is implemented simultaneously with stabilization policies is weaker than is usually presupposed. A commitment to a pegged exchange rate can, if credible, actually solve rather than intensify the potential conflict between trade liberalization and exchange-rate stability. However, the credibility of disinflation may be endangered by early liberalization.
Handle: RePEc:nbr:nberwo:4419
Template-Type: ReDIF-Paper 1.0
Title: The Profitabality of Colonialism
Classification-JEL: F02; F21
Author-Name: Herschel I. Grossman
Author-Name: Murat Iyigun
Author-Person: piy4
Number: 4420
Creation-Date: 1993-08
Order-URL: http://www.nber.org/papers/w4420
File-URL: http://www.nber.org/papers/w4420.pdf
File-Format: application/pdf
Publication-Status: published as "The Profitability of Colonial Investment" Economics & Politics, vol. 7, November 1995, pp. 229-241.
Abstract: This paper develops an analytical framework for studying colonial investment from the perspective of neoclassical political economy. The distinguishing feature of colonial investment in this model is that the metropolitan government restricts the amount of investment in the colony in order to maximize the net profits earned in the colony. The model explicitly includes the threat of extralegal appropriative activities by the indigenous population in the colony. The analysis of this model identifies the conditions, where these conditions include both the technology of production and the technology of extralegal appropriation, that determine the profitability of colonialism. The analysis suggests why historically some countries but not others became colonies and why many colonies that were initially profitable subsequently become unprofitable and were abandoned. The model also has implications for the amount of investment. the allocation of resources between productive and appropriative activities, and the distribution of income in colonies.
Handle: RePEc:nbr:nberwo:4420
Template-Type: ReDIF-Paper 1.0
Title: The Choice Between Public and Private Debt: An Analysis of Post-Deregulation Corporate Financing in Japan
Classification-JEL: G3; G2
Author-Name: Takeo Hoshi
Author-Person: pho107
Author-Name: Anil Kashyap
Author-Person: pka35
Author-Name: David Scharfstein
Author-Person: psc177
Note: CF ME
Number: 4421
Creation-Date: 1993-08
Order-URL: http://www.nber.org/papers/w4421
File-URL: http://www.nber.org/papers/w4421.pdf
File-Format: application/pdf
Abstract: As a result of deregulation, there was a dramatic shift during the 1980s in Japan away from bank debt financing towards public debt financing: in 1975, more than 90% of the corporate debt of public companies was bank debt; in 1992 it was less than 50%. This paper presents a theory of the choice between bank debt and public debt and then examines the theory using firm level data on borrowing sources in Japan. We find that high net worth companies are more prone to use public debt. We also find that the more successful members of industrial groups (or keiretsu) and less successful owner-managed firms tended to access the public debt markets. We offer a number of interpretations of these results in light of the theory.
Handle: RePEc:nbr:nberwo:4421
Template-Type: ReDIF-Paper 1.0
Title: Inflation and Growth in an Integrated Approach
Author-Name: Michael Bruno
Note: IFM
Number: 4422
Creation-Date: 1993-08
Order-URL: http://www.nber.org/papers/w4422
File-URL: http://www.nber.org/papers/w4422.pdf
File-Format: application/pdf
Publication-Status: published as With William Easterly, published as "Inflation and Growth: In Search of a Stable Relationship", FRBSL, Vol. 78, no. 3 (May/June 1996): 139-146.
Abstract: Macroeconomic factors in general, and the macropolicy response to common external shocks (such as oil prices and real interest rates) in particular, have in recent decades played a dominant role in countries' protracted growth crises as well as in growth renewal and its long-run sustainability. The paper attempts to construct and apply a simple framework for the joint empirical analysis of growth and inflation, starting from a rudimentary short-term AS and AD framework that is 'averaged' into the medium and long run. For the industrial countries through the 1970s and 1980s such analysis highlights the existence of a marked 20 year inflation and growth 'loop', extending beyond the conventional business cycles, with well identifiable phases of crisis entry, disinflation and partial growth recovery. The interaction of macropolicy response to shocks with structural (mainly labor market) features of economies account for differences across countries both in the depth of the deterioration phase as well as in the gradual recovery, for which a panel regression provides some of the links between inflation, economic activity, profits and investment renewal. The second part of the paper (Section IV) applies similar tools and uncovers analogous, though much more dramatic, 15-20 year loops, in the crisis and recovery of a group of countries in Latin America (as well as Israel). Likewise the strong macro path-dependence of growth in middle-income countries (with cross-country differences in structure and social cohesion) is borne out by comparisons with countries (both in the same region and outside it) that faced similar external shocks yet exhibited much milder 'loops'. The paper ends with a brief reference to some analogies with the sequencing of the cycle of growth crisis, adjustment and structural reform in Eastern Europe.
Handle: RePEc:nbr:nberwo:4422
Template-Type: ReDIF-Paper 1.0
Title: Innovations and Technological Spillovers
Classification-JEL: O3
Author-Name: M. Ishaq Nadiri
Note: PR
Number: 4423
Creation-Date: 1993-08
Order-URL: http://www.nber.org/papers/w4423
File-URL: http://www.nber.org/papers/w4423.pdf
File-Format: application/pdf
Abstract: In this paper we analyze the evidence from a large number of studies on three specific questions pertaining to R&D investment: (1) Are there diminishing returns to inventive activities? (2) What is the relationship between R&D and productivity and what are the magnitudes of the returns to a firm's or industry's R&D investment? (3) What are the magnitudes of the benefits from R&D undertaken by other firms, industries and countries and the vehicles by which they are transmitted to the recipients? The evidence on the first issue is still controversial, basically because of the lack of an adequate measure of output and precise measurement of the inputs to the inventive process. Patent counts are often considered as a measure of output while expenditures on R&D are used as a measure of input in this process. If proper adjustments are made and the significant spillover effects of R&D documented in this paper are taken into account, the possibility of diminishing returns to inventive activities seems implausible. On the second question, the results clearly suggest a positive and strong relationship between R&D expenditures and growth of output or total factor productivity. The relation is pervasive, though the magnitudes of the contribution of R&D vary among firms, industries and countries. On the average, net rates of return on own R&D are about 20% to 30%. There is no clear cut evidence of decline in the potency of R&D investment in the late 1970s. However, there is evidence that R&D as a factor of production affects not only productivity growth but also the demand for conventional inputs and is influenced by changes in input prices and the level of demand. The evidence points to sizable R&D spillover effects both at the firm and industry levels; the social rates of return of R&D often vary from 20% to over 100% in various industry, with an average somewhere close to 50%. The channels of diffusion of the spillovers vary considerably and their effects on productivity growth are sizable. These results suggest a substantial underinvestment in R&D activities. International technology trade among the OECD countries has increased substantially in recent years. The diffusion of new technologies has been very rapid; the channels of transmissions have been exports, foreign direct investment, and multinational enterprises' research operations, the latter being the most dynamic agents of technology transfer. With the further globalization of business activities, international technology transfers will be a major source of new R&D spillovers.
Handle: RePEc:nbr:nberwo:4423
Template-Type: ReDIF-Paper 1.0
Title: Retirement Systems in Developed and Developing Countries: Institutional Features, Economic Effects, and Lessons for Economies in Transition
Author-Name: Olivia S. Mitchell
Author-Person: pmi73
Note: LS
Number: 4424
Creation-Date: 1993-08
Order-URL: http://www.nber.org/papers/w4424
File-URL: http://www.nber.org/papers/w4424.pdf
File-Format: application/pdf
Publication-Status: published as In Labor Market Policies for Managing the Social Costs of Economic Adjustment, ed. A. Van Adams, E King and Z. Tzannatos. The World Bank. 1994
Abstract: Multiple-pillar retirement systems have widely differing roles for private retirement savings, government regulation and insurance of private savings vehicles, and government provision of old-age income support. Despite their diversity, and despite the fact that public and private sector retirement systems command a great deal of wealth and have potentially powerful effects on labor and capital markets, they are often overlooked in structural analyses of country problems and prospects. This paper examines important institutional features of retirement systems in developed and developing countries, and outlines what is known about their economic effects. Also identified are ways in which public and private retirement systems affect the process of economic adjustment, with special attention to the costs and benefits of encouraging early retirement. The review shows that a coherent reform plan for a retirement system must identify how much old-age income security is affordable, how the government and private sector can address private market failures in providing this security, and how these objectives can be attained given available financing mechanisms. There is evidence that many retirement systems will be forced to change a great deal in the next few decades. In some cases, retirement benefits will have to be reduced (perhaps by imposing a means test), the age for early retirement will have to be raised, multiple-pillar plans must be integrated and streamlined so as to rationalize work incentives, and the incentives and opportunities for private saving will be increased. In any case, using high-cost long-term retirement systems to mitigate short- and medium-term unemployment problems will probably prove costly and inefficient as a solution to problems faced by economies in transition.
Handle: RePEc:nbr:nberwo:4424
Template-Type: ReDIF-Paper 1.0
Title: Who Should Abate Carbon Emissions? An International Viewpoint
Classification-JEL: Q2; H4
Author-Name: Graciela Chichilnisky
Author-Person: pch386
Author-Name: Geoffrey Heal
Author-Person: phe40
Number: 4425
Creation-Date: 1993-08
Order-URL: http://www.nber.org/papers/w4425
File-URL: http://www.nber.org/papers/w4425.pdf
File-Format: application/pdf
Publication-Status: published as Chichilnisky, G. and G. Heal. "Who Should Abate Carbon Emissions? An International Viewpoint," Economics Letters, 1994, v44(4), 443-450.
Abstract: We review the optimal pattern of carbon emission abatements across countries in a simple multi-country world. We model explicitly the fact that the atmosphere is a public good. Within this framework we establish conditions for it to be necessary for optimality that the marginal cost of abatement be the same in all countries. These condition are quite restrictive, and amount to either ignoring distributional issues between countries or operating within a framework within which lump-sum transfers can be made between countries. These results have implications for the use of tradeable emission permits, which as normally advocated will lead to the equalization of marginal abatement costs across countries. The observation that the atmosphere is a public good implies that we may need to look at a Lindahl equilibrium rather than a Walrasian equilibrium in tradeable permits.
Handle: RePEc:nbr:nberwo:4425
Template-Type: ReDIF-Paper 1.0
Title: Growth Effects of Flat-Rate Taxes
Classification-JEL: H24; H31
Author-Name: Nancy L. Stokey
Author-Name: Sergio Rebelo
Note: EFG
Number: 4426
Creation-Date: 1993-08
Order-URL: http://www.nber.org/papers/w4426
File-URL: http://www.nber.org/papers/w4426.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Political Economy, vol 103, no 3, pp 519-550, June 1995.
Abstract: Recent estimates of the potential growth effects of tax reform vary widely, ranging from zero (Lucas 1990) to eight percentage points (Jones, Manuelli, and Rossi 1993). Using an endogenous growth model, we assess which model features and parameter values are important for determining the quantitative impact of tax reform. We find that the critical parameters are factor shares, depreciation rates, the elasticity of intertemporal substitution, and the elasticity of labor supply. The elasticities of substitution in production, on the other hand, are relatively unimportant. The quantitative estimates in several recent papers are compared with each other and with some of the evidence from U.S. experience.
Handle: RePEc:nbr:nberwo:4426
Template-Type: ReDIF-Paper 1.0
Title: Favoritism in Organizations
Author-Name: Canice Prendergast
Author-Name: Robert H. Topel
Author-Person: pto111
Note: LS
Number: 4427
Creation-Date: 1993-08
Order-URL: http://www.nber.org/papers/w4427
File-URL: http://www.nber.org/papers/w4427.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Political Economy, Vol. 104 (October 1996): 958-78.
Abstract: Performance evaluations for workers are typically subjective impressions held by supervisors rather than easily quantifiable measures of output. We argue that perhaps the most important aspect this is that it gives supervisors the opportunity to exercise their personal preference towards their employees in a way that is detrimental for performance. both for incentive reasons and through misallocation of workers to jobs. We illustrate that firms will respond to this problem in a number of ways. First, they will make compensation less sensitive to performance, even when workers are risk neutral. Furthermore, firms will typically use bureaucratic procedures for allocating rewards, even though these are known to be ex post inefficient. In addition, firms may tie wages to jobs as a means of credibly rewarding the best performers. These organizational changes are used because directly monitoring supervisors' decisions is fraught with problems, among them the creation of 'yes men,' so that the indirect mechanisms described above are likely to be optimal responses to favoritism.
Handle: RePEc:nbr:nberwo:4427
Template-Type: ReDIF-Paper 1.0
Title: Assessing Clinton's Program on Job Training, Workfare, and Education in the Workplace
Author-Name: James Heckman
Note: LS
Number: 4428
Creation-Date: 1993-08
Order-URL: http://www.nber.org/papers/w4428
File-URL: http://www.nber.org/papers/w4428.pdf
File-Format: application/pdf
Abstract: The Clinton administration has made job training and skill upgrading a major priority. Secretary of Labor Robert Reich has already presented a bold program for skill enhancement drawing on a new consensus in certain circles of the social science and policy communities about the need to upgrade the nation's skills. An apparently new approach to training and education has been proposed and Secretary Reich is now busy selling it to the Congress and the Nation. This paper provides background on the problems in the labor market that motivate the new Clinton-Reich initiatives on training and schooling. It briefly summarizes the proposed strategies and the background philosophy for the Clinton-Reich agenda. It then considers the evidence that supports or contradicts assumptions of their plan. There is a lot of evidence about many of the 'new' proposals because some are reworked versions of old programs that have been carefully evaluated. Other proposals borrow ideas from Germany. I compare the rhetoric that accompanies these proposals in the context of the U.S. labor market. Still other proposals have been evaluated in demonstration projects but the lessons from these evaluations have not yet influenced administration thinking. This is unfortunate because many current plans are based on assumptions that have been discredited in careful empirical studies. This research has not yet caught the attention of the policy makers in Washington.
Handle: RePEc:nbr:nberwo:4428
Template-Type: ReDIF-Paper 1.0
Title: When Do Women Use AFDC & Food Stamps? The Dynamics of Eligibility vs. Participation
Classification-JEL: I38
Author-Name: Rebecca M. Blank
Author-Person: pbl56
Author-Name: Patricia Ruggles
Note: LS
Number: 4429
Creation-Date: 1993-08
Order-URL: http://www.nber.org/papers/w4429
File-URL: http://www.nber.org/papers/w4429.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Human Resources, Vol.31, No.1, pp.57-89, Winter 1996.
Abstract: This paper investigates dynamic patterns in the relationship between eligibility and participation in the AFDC and food stamp programs, using monthly longitudinal data from the Survey of Income and Program Participation. The results indicate that the majority of eligibility spells are relatively short, do not result in program participation, and end with increases in income. Participation is most likely to occur among women with lower current and future earning opportunities, and is also affected by locational and policy parameters. Those who elect to participate in these programs tend to start receiving benefits almost immediately upon becoming eligible. with little evidence of delayed program entry. A substantial number of women exit these programs before their eligibility ends; among at least some of these women it seems likely that there are unreported changes in income occurring. In 1989, if all eligible single-parents families had participated in AFDC and food stamps, benefit payments would have been $13.5 billion higher.
Handle: RePEc:nbr:nberwo:4429
Template-Type: ReDIF-Paper 1.0
Title: Sustainable Growth and the Green Golden Rule
Classification-JEL: D90; Q20
Author-Name: Andrea Beltratti
Author-Name: Graciela Chichilnisky
Author-Person: pch386
Author-Name: Geoffrey Heal
Author-Person: phe40
Number: 4430
Creation-Date: 1993-08
Order-URL: http://www.nber.org/papers/w4430
File-URL: http://www.nber.org/papers/w4430.pdf
File-Format: application/pdf
Publication-Status: Published as "The Green Golden Rule", EL, Vol. 49, no. 2 (1995): 175-179.
Abstract: We study a growth model with an environmental asset which is a source of utility and an input to consumption and production. The stock of this asset follows its own ecological dynamics, which are affected by economic activity. We study the implications of an approach to ranking sequences of consumption and environment over time that place weight both on the characteristics of the sequence over any finite period and on its very long run or limiting characteristics. Chichilnisky [5] has called these "sustainable preferences". The criterion shows more intertemporal symmetry than the discounted utilitarian approach. which clearly emphasizes the immediate future at the expense of the long run. In this respect Chichilniskys criterion captures some of the concerns of those who argue for sustainability and for a heightened sense of responsibility to the future. To characterize optimal paths we define the "green golden rule", the path which maximizes long-run sustainable utility from consumption and environment.
Handle: RePEc:nbr:nberwo:4430
Template-Type: ReDIF-Paper 1.0
Title: Did Criminal Activity Increase During the 1980s? Comparisons Across Data Sources
Classification-JEL: K42
Author-Name: Scott Boggess
Author-Name: John Bound
Author-Person: pbo406
Note: LS
Number: 4431
Creation-Date: 1993-08
Order-URL: http://www.nber.org/papers/w4431
File-URL: http://www.nber.org/papers/w4431.pdf
File-Format: application/pdf
Publication-Status: published as SSQ, Vol. 78, no. 3 (September 1997): 725-739.
Abstract: There is a widely held belief that the level of serious criminal activity increased during the 1980s. particularly among the urban underclass, This increase has been mentioned as both a cause and consequence of the increasingly poor labor market prospects of less skilled workers. Significant increases in both Federal and State incarceration rates would seem to support this view. However. data from the Uniform Crime Reports (UCR) suggests only a mild increase in crime over this period, while the National Crime Survey (NCS) actually depicts lower levels of criminal activity. This paper carefully analyzes data from all three sources in an attempt to understand the nature of the series and to come to an informed opinion regarding the apparent differences in their trends. What we discover is that the large increase in the incarceration rate is attributable primarily to an increase in the likelihood of incarceration given arrest. During the latter part of the 1980s a dramatic increase in the number of arrests and incarcerations for drug law violations also played an important role. The increase in drug related activity was not registered by either the UCR or NCS because neither series measures the incidence of victimless crime.
Handle: RePEc:nbr:nberwo:4431
Template-Type: ReDIF-Paper 1.0
Title: Restrictions on Medicaid Funding of Abortion: Effects on Pregnancy Resolutions and Birth Weight
Author-Name: Janet Currie
Author-Person: pcu13
Author-Name: Lucia Nixon
Author-Name: Nancy Cole
Note: LS
Number: 4432
Creation-Date: 1993-08
Order-URL: http://www.nber.org/papers/w4432
File-URL: http://www.nber.org/papers/w4432.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Human Resources (Winter 1996).
Abstract: Previous research suggests that restricting the availability of abortion reduces average birth weight by increasing the number of unhealthy fetuses that are carried to term. In this paper we use data from the National Longitudinal Survey of Youth to ask whether restrictions on Medicaid funding of abortion have this effect. We attempt to account for the potential endogeneity of abortion laws by comparing the effects of liberal statutes to those of court injunctions ordering states to fund abortion. Our results suggest that restrictions do increase the probability that African-American and low income women carry a pregnancy to term, but that they have no direct effect on birth weight. In contrast, community-level measures of the availability of abortion, contraception, and prenatal care do affect birth weight among African-Americans but not among whites.
Handle: RePEc:nbr:nberwo:4432
Template-Type: ReDIF-Paper 1.0
Title: Growth in a Dual Economy
Classification-JEL: O2; O4
Author-Name: Magnus Blomstrom
Author-Person: pbl88
Author-Name: Edward N. Wolff
Note: EFG ITI
Number: 4433
Creation-Date: 1993-08
Order-URL: http://www.nber.org/papers/w4433
File-URL: http://www.nber.org/papers/w4433.pdf
File-Format: application/pdf
Publication-Status: published as World Development, Vol. 25, no. 10 (October 1997): 1627-1637.
Abstract: Growth and structural transformation of the manufacturing sector in developing countries are generally considered to be the result of the expansion of the "modem" (large-scale) sector relative to the "traditional" (small-scale) sector. Examining the sources of labor productivity growth in Mexican manufacturing, however, does not provide support for such a conclusion. Although we find that labor productivity levels vary almost in direct relation to establishment size, labor productivity growth shows no systematic variation by size class. In fact, small establishments have had the same rate of labor productivity growth as larger ones, partly because of the "excise-effect" (i.e. the exiting of low-productivity, small plants). Moreover, most of the variation in labor productivity across plant class sizes is found to be due to differences in capital intensity. The variation in TFP levels across size classes tends to be small. Thus, our results remove some justification of the policy measures that favor large firms in developing countries.
Handle: RePEc:nbr:nberwo:4433
Template-Type: ReDIF-Paper 1.0
Title: Unemployment Benefits, Labor Market Transitions, and Spurious Flows: A Multinational Logit Model with Errors in Classification
Classification-JEL: J64; C25
Author-Name: James M. Poterba
Author-Person: ppo19
Author-Name: Lawrence H. Summers
Author-Person: psu137
Note: PE
Number: 4434
Creation-Date: 1993-08
Order-URL: http://www.nber.org/papers/w4434
File-URL: http://www.nber.org/papers/w4434.pdf
File-Format: application/pdf
Publication-Status: published as Review of Economics & Statistics, vol. LXXVII, no. 2, pp. 207-216, (May 1995).
Abstract: This paper develops an algorithm for analyzing discrete events, such as labor market transitions, when some of these transitions are spurious because of measurement errors. Our algorithm extends the standard multinomial logit model, although our basic approach could be used with other stochastic models as well. We apply this algorithm to study the effect of unemployment insurance (UI) on transitions from unemployment to employment and out of the labor force. Our results suggest that VI lengthens unemployment spells by reducing both transition rates, and show that correcting for measurement error strengthens the apparent effect of VI on spell durations.
Handle: RePEc:nbr:nberwo:4434
Template-Type: ReDIF-Paper 1.0
Title: Tax Incentives and the Decision to Purchase Health Insurance: Evidence from the Self-Employed
Author-Name: Jonathan Gruber
Author-Person: pgr20
Author-Name: James M. Poterba
Author-Person: ppo19
Note: AG EH PE
Number: 4435
Creation-Date: 1993-08
Order-URL: http://www.nber.org/papers/w4435
File-URL: http://www.nber.org/papers/w4435.pdf
File-Format: application/pdf
Publication-Status: published as Quarterly Journal of Economics 109 (August 1994), 701-733.
Abstract: The Tax Reform Act of 1986 introduced a new tax subsidy for health insurance purchases by self-employed persons. This paper analyzes the changing patterns of insurance demand before and after this reform to generate new estimates of how the after tax price of insurance affects the discrete choice of whether to buy insurance. We employ both traditional regression models for insurance demand, in which after-tax price of insurance is an explanatory variable. as well as nonparametric tests that compare changes in insurance purchases by self-employed individuals with the coincident changes for other groups. Our analysis suggests that I one percent increase in the cost of insurance coverage reduces the probability that a self-employed household will be insured by as much as 1.8 percentage points.
Handle: RePEc:nbr:nberwo:4435
Template-Type: ReDIF-Paper 1.0
Title: Is Fixed Investment the Key to Economic Growth?
Classification-JEL: O4; O5
Author-Name: Magnus Blomstrom
Author-Person: pbl88
Author-Name: Robert E. Lipsey
Author-Person: pli259
Author-Name: Mario Zejan
Note: ITI
Number: 4436
Creation-Date: 1993-08
Order-URL: http://www.nber.org/papers/w4436
File-URL: http://www.nber.org/papers/w4436.pdf
File-Format: application/pdf
Publication-Status: published as Quarterly Journal of Economics, vol CXI, Issue 1, Feb 1996, pp. 269-276.
Abstract: This paper examines shares of fixed capital formation in GOP and rates of economic growth for more than 100 countries over successive 5-year periods between 1965 and 1985 to determine the direction of causality between them. Simple regressions and multiple regressions including several standard determinants of growth, as well as a simple causality test, provide more evidence that increases in growth precede rises in rates of capital formation than that increases in capital formation precede increases in growth. High rates of fixed capital formation accompany rapid growth in per capita income, but we find no evidence that fixed investment is the only or main source of ignition for economic growth.
Handle: RePEc:nbr:nberwo:4436
Template-Type: ReDIF-Paper 1.0
Title: Permanent Income, Import Prices, and the Demand for Imported Consumer Durbales: A Structural Econometric Investigation
Classification-JEL: F41
Author-Name: Richard H. Clarida
Author-Person: pcl69
Note: ITI
Number: 4437
Creation-Date: 1993-08
Order-URL: http://www.nber.org/papers/w4437
File-URL: http://www.nber.org/papers/w4437.pdf
File-Format: application/pdf
Publication-Status: published as (Published as "Consumption, Import Prices, and the Demand for Imported Consumer Durables: A Structural Economic Investigation") Review of Economics and Statistics, LXVIII (August 1996).
Abstract: This paper derives a rational expectations, permanent income model of the demand for imported consumer durable goods. Assuming that the preferences of the representative household are addilog, our model implies that the log of the exact but unobservable utility index of permanent income must in equilibrium be cointegrated with log consumption of nondurables. Using nondurables consumption as our noisy proxy for permanent income, we estimate that log nondurables consumption, the log relative price of durables imports, and log spending on durables imports are cointegrated, and that this cointegrating vector exactly identifies the model's structural parameters. We are unable to reject the essential empirical implications of the model, and obtain sensible estimates of the price and income elasticities of the demand for imported consumer durables. In particular, we find that consumer durables imports are quite price elastic in the long run, and that the permanent income elasticity of imported durable goods demand averages 2.3.
Handle: RePEc:nbr:nberwo:4437
Template-Type: ReDIF-Paper 1.0
Title: International Evidence on Tradables and Nontradable Inflation
Classification-JEL: F40; F31
Author-Name: Jose De Gregorio
Author-Person: pde80
Author-Name: Alberto Giovannini
Note: IFM
Number: 4438
Creation-Date: 1993-08
Order-URL: http://www.nber.org/papers/w4438
File-URL: http://www.nber.org/papers/w4438.pdf
File-Format: application/pdf
Publication-Status: published as European Economic Review, Vol. 38, no. 6, pp. 1225, (June 1994).
Abstract: Using 1970-1985 sectoral data for the OECD we find that inflation in nontradable goods is higher than in tradables, We identify a demand shift towards nontradables and faster growth of total factor productivity in the tradable goods sector as the prime causes of higher nontradables inflation. In addition. disinflation attempts and the exchange rate regime appear to have had significant influence on the relative inflation rate.
Handle: RePEc:nbr:nberwo:4438
Template-Type: ReDIF-Paper 1.0
Title: Nominal Income Targeting
Author-Name: Robert E. Hall
Author-Name: N. Gregory Mankiw
Note: ME EFG
Number: 4439
Creation-Date: 1993-08
Order-URL: http://www.nber.org/papers/w4439
File-URL: http://www.nber.org/papers/w4439.pdf
File-Format: application/pdf
Publication-Status: published as Monetary Policy, N. Gregory Mankiw, ed., (Chicago: University of Chicago Press: 1994).
Publication-Status: published as Nominal Income Targeting, Robert E. Hall, N. Gregory Mankiw. in Monetary Policy, Mankiw. 1994
Abstract: This paper discusses nominal income targeting as a possible rule for the conduct of monetary policy. We begin by discussing why a rule for monetary policy may be desirable and the characteristics that a good rule should have. We emphasize, in particular, three types of nominal income targets, which differ in how they respond to past shocks, to prices, and real economic activity. A key question is how any of these rules might be implemented in practice. We suggest that the consensus forecast of future nominal income could playa role in ensuring that the central bank does not deviate from its announced target. To show how economic performance might have differed historically if the Fed had been committed to some type of nominal income target, we offer simulations of a simple model of the economy. According to the simulations, the primary benefit of nominal income targeting would have been reduced volatility in the price level and the inflation rate. Whether real economic activity would have been less volatile is unclear.
Handle: RePEc:nbr:nberwo:4439
Template-Type: ReDIF-Paper 1.0
Title: Equity and Nonequity Determinants of FHA Single-Family Mortgage Foreclosures in the 1980s
Classification-JEL: G21
Author-Name: Patric H. Hendershott
Author-Name: William R. Schultz
Note: PE
Number: 4440
Creation-Date: 1993-08
Order-URL: http://www.nber.org/papers/w4440
File-URL: http://www.nber.org/papers/w4440.pdf
File-Format: application/pdf
Publication-Status: published as Patric H. Hendershott & William R. Schultz, 1993. "Equity and Nonequity Determinants of FHA Single-Family Mortgage Foreclosures in the 1980s," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 21(4), pages 405-430.
Abstract: We examine foreclosures on FHA single family mortgages insured during 1975-87. The importance of the market value of borrower equity, and of the dispersion of national house prices support much earlier work emphasizing the key role of negative equity in triggering default. The lower the "mean" market value of equity is, and the greater dispersion is, the more borrowers will be likely to have negative equity. The unemployment rate and the book value of borrower equity also are significant determinants of default. Unemployment is one event that can force borrowers to move. The decision to move increases the likelihood of default, because moving costs no longer deter default, and the costs of selling the house reduce the effective equity in the house. The book value of equity also is relevant to this decision, because it is what sellers will receive if they move without defaulting. Both of these variables are significant determinants of default, but the employment impact rises as book equity declines (with large book equity, unemployment should not matter, because selling the house is preferred to default).
Handle: RePEc:nbr:nberwo:4440
Template-Type: ReDIF-Paper 1.0
Title: The Life-Cycle of a Competitive Industry
Classification-JEL: L6
Author-Name: Boyan Jovanovic
Author-Name: Glenn MacDonald
Note: PR
Number: 4441
Creation-Date: 1993-08
Order-URL: http://www.nber.org/papers/w4441
File-URL: http://www.nber.org/papers/w4441.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Political Economy, 102, no. 2, (April 1994)
Abstract: Firm numbers first rise, and then fall as the typical industry evolves. This nonmonotonicity in the number of producers is explained in this paper using a competitive model in which innovation opportunities induce firms to enter, but in which a firm's failure to implement new technology causes it to exit. The model is estimated with data from the U.S. Automobile Tire Industry, a particularly dramatic example of the nonmonotonicity in firm numbers: A big shakeout took place during the 1920s. The number of automobiles sold in the U.S. does not appear to explain this shakeout. Instead, the data point to the invention of the Banbury mixer in 1916 as the event that caused the big exit wave. There were, of course, other major inventions in the tire industry, but none seems to have raised the optimal scale of its adopters by enough to cause further shakeouts.
Handle: RePEc:nbr:nberwo:4441
Template-Type: ReDIF-Paper 1.0
Title: The Term Structure of Forward Exchange Premia and the Forecastibility of Spot Exchange Rates: Correcting the Errors
Classification-JEL: F41
Author-Name: Richard H. Clarida
Author-Person: pcl69
Author-Name: Mark P. Taylor
Note: IFM
Number: 4442
Creation-Date: 1993-08
Order-URL: http://www.nber.org/papers/w4442
File-URL: http://www.nber.org/papers/w4442.pdf
File-Format: application/pdf
Publication-Status: published as Review of Economics and Statistics, LXXIX (August 1997).
Abstract: We present theory and evidence that challenges the view that forward premia contain little information regarding subsequent spot rate movements. Using weekly dollar-mark and dollar sterling data, we find that spot and forward exchange rates together are well represented by a vector error correction model; that there exists exactly the number of cointegrating relationships predicted by a simple theoretical framework and that a basis for this cointegrating space is the vector of forward premia. Dynamic forecasts indicate that the information in the forward premia can be used to reduce the root mean squared forecast error for the spot rate (relative to a random walk forecast) by at least 33 percent at a 6-month horizon and by some 50 to 90 percent at a 1year horizon.
Handle: RePEc:nbr:nberwo:4442
Template-Type: ReDIF-Paper 1.0
Title: Optimality of the Friedman Rule in Economies with Distorting Taxes
Author-Name: V. V. Chari
Author-Person: pch40
Author-Name: Lawrence J. Christiano
Author-Person: pch45
Author-Name: Patrick J. Kehoe
Author-Person: pke4
Note: EFG
Number: 4443
Creation-Date: 1993-08
Order-URL: http://www.nber.org/papers/w4443
File-URL: http://www.nber.org/papers/w4443.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Monetary Economics, vol. 37, no. 2 (April 1996).
Abstract: We find conditions for the Friedman rule to be optimal in three standard models of money. These conditions are homotheticity and separability assumptions on preferences similar to those in the public finance literature on optimal uniform commodity taxation. We show that there is no connection between our results and the result in the standard public finance literature that intermediate goods should not be taxed.
Handle: RePEc:nbr:nberwo:4443
Template-Type: ReDIF-Paper 1.0
Title: International R&D Spillovers
Classification-JEL: O4; F1
Author-Name: David T. Coe
Author-Name: Elhanan Helpman
Author-Person: phe205
Note: ITI
Number: 4444
Creation-Date: 1993-08
Order-URL: http://www.nber.org/papers/w4444
File-URL: http://www.nber.org/papers/w4444.pdf
File-Format: application/pdf
Publication-Status: published as European Economic Review, vol. 39, no. 5, pp. 859-887, (1995)
Abstract: Investment in research and development (R&D) affects a country's total factor productivity. Recently new theories of economic growth have emphasized this link and have also identified a number of channels through which a country's R&D affects total factor productivity of its trade partners. Following these theoretical developments we estimate the effects of a country's R&D capital stock and the R&D capital stocks of its trade partners on the country's total factor productivity. We find large effects of both domestic and foreign R&D capital stocks on total factor productivity. The foreign R&D capital stocks have particularly large effects on the smaller countries in our sample (that consists of 22 countries). Moreover, we find that about one quarter of the worldwide benefits of investment in R&D in the seven largest economies are appropriated by their trade partners.
Handle: RePEc:nbr:nberwo:4444
Template-Type: ReDIF-Paper 1.0
Title: Trade Blocs, Currency Blocs and the Disintegration of World Trade in the 1930s
Classification-JEL: O40
Author-Name: Barry Eichengreen
Author-Person: pei2
Author-Name: Douglas A. Irwin
Author-Person: pir25
Note: ITI
Number: 4445
Creation-Date: 1993-08
Order-URL: http://www.nber.org/papers/w4445
File-URL: http://www.nber.org/papers/w4445.pdf
File-Format: application/pdf
Publication-Status: published as Journal of International Economics, February 1995
Abstract: The dramatic implosion and regionalization of international trade during the 1930s has often been blamed on the trade and foreign exchange policies that emerged in the interwar period. We provide new evidence on the impact of trade and currency blocs on trade flows from 1928 1938 that suggests a blanket indictment of interwar trade policies and payments arrangements is not warranted. Discriminatory trade policies and international monetary arrangements had neither a uniformly favorable nor unfavorable implication for world trade; instead the balance of trade-creating and trade-diverting effects depended on the motivations of policymakers and hence on the structure of their policies. We find, for example, that British Commonwealth tariff preferences affected trade more significantly than the sterling-bloc currency area, but both promoted within-group trade without diverting trade away from non-members. Exchange controls and bilateral clearing arrangements enacted by German and Central and Eastern European countries, by contrast, dominated other commercial policies in altering trade patterns, but curtailed trade with non-members with no offsetting trade-creating effects. We also find support for Ragnar Nurkse 's famous hypothesis that exchange-rate volatility in the interwar period diminished trade. Our results speak to the emerging regional trade and currency areas of today, such as the North American Free Trade Agreement and the EC's Single Market and European Monetary System, and suggest that their impact lies not in the regional or global character of the policy initiative, but in the structure and design of the underlying policies.
Handle: RePEc:nbr:nberwo:4445
Template-Type: ReDIF-Paper 1.0
Title: Partial- Vs. General-Equilibrium Models of the International Capital Market
Author-Name: Bernard Dumas
Author-Person: pdu519
Note: AP IFM
Number: 4446
Creation-Date: 1993-09
Order-URL: http://www.nber.org/papers/w4446
File-URL: http://www.nber.org/papers/w4446.pdf
File-Format: application/pdf
Publication-Status: published as R. van der Ploeg, ed., Handbook of International Macroeconomics,(Basil Blackwell Publishers), 1994.
Abstract: In this essay, I discuss and compare two ways of modeling international capital market equilibrium: the orthodox, general-equilibrium approach and the heterodox, partial-equilibrium CAPM (Capital Asset Pricing Model) approach. The benchmark for this comparison is the model's ability to provide an explanation for, or take into account, a number of stylized facts of international finance: UIRP deviations, home-equity preference, PPP deviations and their persistence, consumption behavior in relation to wealth. In addition, I ask which approach is more likely in future research to help us identify the relevant state variables of the economy. None of the models satisfactorily explains the stylized facts but the CAPM approach affords the most productive avenue for empirical research in the immediate future.
Handle: RePEc:nbr:nberwo:4446
Template-Type: ReDIF-Paper 1.0
Title: Lawyers as Agents of the Devil in a Prisoner's Dilemma Game
Author-Name: Orley Ashenfelter
Author-Person: pas9
Author-Name: David Bloom
Author-Person: pbl79
Note: LS
Number: 4447
Creation-Date: 1993-09
Order-URL: http://www.nber.org/papers/w4447
File-URL: http://www.nber.org/papers/w4447.pdf
File-Format: application/pdf
Publication-Status: published as Orley Ashenfelter & David E. Bloom & Gordon B. Dahl, 2013. "Lawyers as Agents of the Devil in a Prisoner's Dilemma Game," Journal of Empirical Legal Studies, vol 10(3), pages 399-423.
Abstract: The goal of this paper is to explore the possibility that the costs and benefits of legal representation are structured so that each individual party seeks legal representation in the hope of exploiting the other party, while knowing full well that failing to do so will open up the possibility .of being exploited. The first part of the paper shows how the structure of the incentives faced by the parties may be estimated, and the second describes the results of empirical tests in several different settings. The empirical results strongly suggest that the parties do face "prisoner's dilemma" incentives, although no attempt is made to determine whether the parties respond to these interviews.
Handle: RePEc:nbr:nberwo:4447
Template-Type: ReDIF-Paper 1.0
Title: Credibility of Policies versus Credibility of Policymakers
Classification-JEL: E60; F33
Author-Name: Allan Drazen
Author-Person: pdr25
Author-Name: Paul R. Masson
Author-Person: pma135
Note: IFM
Number: 4448
Creation-Date: 1993-09
Order-URL: http://www.nber.org/papers/w4448
File-URL: http://www.nber.org/papers/w4448.pdf
File-Format: application/pdf
Publication-Status: published as Quarterly Journal of Economics, vol.109, no.3, August 1994.
Abstract: Standard models of policy credibility. defined as the expectation that an announced policy will be carried out. emphasize the preferences of the policymaker (his "type") and the role of policies in signaling type. Whether a policy is carried out. however. should also reflect the state of the economy. so that even a "tough" policymaker may renege on an announced policy in adverse circumstances. We investigate this alternative notion of credibility, using an "escape clause" model of devaluation. in which a policymaker maintains a fixed parity in good times, but devalues if the unemployment rate gets too high. Our main conclusion is that if there is persistence in the process driving unemployment, following a tough policy in a given period may lower rather than raise the credibility of a no-devaluation pledge in subsequent periods. in contrast to the results in the earlier literature. We test this implication on EMS interest rates and find support for our hypothesis.
Handle: RePEc:nbr:nberwo:4448
Template-Type: ReDIF-Paper 1.0
Title: Specification and Analysis of a Monetary Policy Rule for Japan
Classification-JEL: E30; E58
Author-Name: Bennett T. McCallum
Note: EFG ME
Number: 4449
Creation-Date: 1993-09
Order-URL: http://www.nber.org/papers/w4449
File-URL: http://www.nber.org/papers/w4449.pdf
File-Format: application/pdf
Publication-Status: published as Bank of Japan Monetary and Economic Studies, vol. 1, no. 2, November 1993p. 1-45
Abstract: This paper investigates the performance, in several small-scale models of the Japanese economy, of an operational monetary policy rule related to ones previously considered for the United States. The rule dictates settings of the monetary base that are designed to produce values of nominal GNP close to targets that grow smoothly at a noninflationary rate. Simulations with quarterly data for the period 1972-1992 yield predominantly favorable results. Experiments with an interest rate instrument are also conducted but the simulated performance is less desirable. One section discusses issues concerning monetary base control in Japan.
Handle: RePEc:nbr:nberwo:4449
Template-Type: ReDIF-Paper 1.0
Title: Independent Living and Homeownership: An Analysis of Australian Youth
Classification-JEL: R21
Author-Name: Steven C. Bourassa
Author-Name: Donald R. Haurin
Author-Person: pha178
Author-Name: R. Jean Haurin
Author-Name: Patric H. Hendershott
Note: PE
Number: 4450
Creation-Date: 1993-09
Order-URL: http://www.nber.org/papers/w4450
File-URL: http://www.nber.org/papers/w4450.pdf
File-Format: application/pdf
Publication-Status: published as Australian Economic Review, July-September 1994, pp. 29-44.
Abstract: This study extends recent work that developed and tested economic models of the joint decisions of household formation and homeownership. The cost of shelter is an important determinant of whether youth live independently (apart from parents and other nonrelated adults), and the cost of homeownership relative to renting is important to the tenure decision. Simulations suggest that the post-1985 decline and eventual removal of the Australian subsidy for first time homeowners has lowered the homeownership rate among young households by 23 percent, which is equivalent to slowing the time to first ownership by two years for such households.
Handle: RePEc:nbr:nberwo:4450
Template-Type: ReDIF-Paper 1.0
Title: Do Low-Income Countries have a High-Wage Option?
Classification-JEL: F12; O30
Author-Name: Dani Rodrik
Author-Person: pro60
Note: ITI IFM
Number: 4451
Creation-Date: 1993-09
Order-URL: http://www.nber.org/papers/w4451
File-URL: http://www.nber.org/papers/w4451.pdf
File-Format: application/pdf
Publication-Status: published as "Coordination Failures and Government Policy: A Model with Applications to East Asia and Eastern Europe," Journal of International Economics, 1996.
Abstract: Poor countries must specialize in standardized. labor-intensive commodities. Middle income countries may have a richer menu of options available to them if their labor force is reasonably well-educated and skilled. This paper is motivated by the possibility that there may exist multiple specialization patterns for countries of the second type. What creates the multiplicity of equilibria is a coordination problem inherent in high-tech activities. It is assumed that high-tech production requires a range of differentiated intermediate inputs that are nontradable. For the high-tech sector to become viable. a sufficiently large number of intermediaries has to be produced domestically. But if none is currently being produced. there is little incentive for any single firm to do so on its own. The economy may get stuck in a low-wage. low-tech equilibrium--even though the high-tech sector is viable. As long as the high-tech sector is more capital-intensive than the low-tech sector, a high-wage policy would get the high-tech sector going and be welfare-enhancing.
Handle: RePEc:nbr:nberwo:4451
Template-Type: ReDIF-Paper 1.0
Title: New Goods, Old Theory, and the Welfare Costs of Trade Restrictions
Classification-JEL: O10; F12
Author-Name: Paul M. Romer
Author-Person: pro45
Note: EFG
Number: 4452
Creation-Date: 1993-09
Order-URL: http://www.nber.org/papers/w4452
File-URL: http://www.nber.org/papers/w4452.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Development Economics Vol. 43, pp. 5-38, 1994
Abstract: The typical economic model implicitly assumes that the set of goods in an economy never changes. As a result, the predicted efficiency loss from a tariff is small, on the order of the square of the tariff rate. If we loosen this assumption and assume that international trade can bring new goods into an economy, the fraction of national income lost when a tariff is imposed can be much larger, as much as two times the tariff rate. Much of this paper is devoted to explaining why this seemingly small change in the assumptions of a model can have such important positive and normative implications. The paper also asks why the implications of new goods have not been more extensively explored, especially given that the basic economic issues were identified more than 150 years ago. The mathematical difficulty of modeling new goods has no doubt been part of the problem. An equally, if not more important stumbling block has been the deep philosophical resistance that humans feel toward the unavoidable logical consequence of assuming that genuinely new things can happen at every juncture: the world as we know it is the result of a long string of chance outcomes.
Handle: RePEc:nbr:nberwo:4452
Template-Type: ReDIF-Paper 1.0
Title: Consumption over the Life Cycle and over the Business Cycle
Classification-JEL: D30; D91
Author-Name: Orazio P. Attanasio
Author-Person: pat7
Author-Name: Martin Browning
Author-Person: pbr221
Note: EFG
Number: 4453
Creation-Date: 1993-09
Order-URL: http://www.nber.org/papers/w4453
File-URL: http://www.nber.org/papers/w4453.pdf
File-Format: application/pdf
Publication-Status: published as Attanasio, Orazio P. and Martin Browning. "Consumption Over The Life Cycle And Over The Business Cycle," American Economic Review, 1995, v85(5,Dec), 1118-1137.
Abstract: The main aim of this paper is to assess the validity of the life cycle model of consumption. In particular, we address an issue that has recently received much attention, especially in the macroeconomic literature: that of "excess sensitivity" of consumption growth to income growth. We do this using a time series of cross sections and a novel and flexible parameterization of preferences. The former allows us to' address aggregation issues directly, while with the latter we can allow both the discount factor and the elasticity of intertemporal substitution eis to be affected by various observable variables and lifetime wealth. The main findings can be summarized as follows: (i) the excess sensitivity of consumption growth to labor income disappears when we control for demographic variables. This is true both at life cycle and business cycle frequencies. (ii) estimation of a flexible specification of preferences indicates that the elasticity of intertemporal substitution is a function of several variables, including the level of consumption. The eis increases with the level of consumption, as expected. (iii) the variables that change the eis are also important in explaining why we observe excess sensitivity over the business cycle. (iv) we are able to reconcile our results with those reported both in the macro and micro literature. (v) in our specification the elasticity of intertemporal substitution is not very well determined. This result, however, should be taken with care, as we have not made an effort to construct a 'preferred' specification, which would probably include additional controls for labor supply behavior. The evidence presented shows that the life cycle model cannot be easily dismissed. Indeed, we believe that the model does a good job at representing consumption behavior both over the life cycle and over the business cycle.
Handle: RePEc:nbr:nberwo:4453
Template-Type: ReDIF-Paper 1.0
Title: A Cohort Analysis of Saving Behavior by U.S. Households
Classification-JEL: E21; D12
Author-Name: Orazio P. Attanasio
Author-Person: pat7
Note: EFG PE
Number: 4454
Creation-Date: 1993-09
Order-URL: http://www.nber.org/papers/w4454
File-URL: http://www.nber.org/papers/w4454.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Human Resources, Vol. 33, no. 3 (Summer 1998): 575-609.
Abstract: In this paper I analyze the pattern of saving behavior by U.S. households, using the Consumer Expenditure (CEX) Survey. The analysis' main goal is to explain the decline in aggregate personal saving in the United States in the 1980s. I estimate a typical' saving-age profile and identify systematic movements of the profile across different cohorts of U.S. households. In addition, I consider different definitions of saving and control for a number of factors that figure in popular explanations fo the decline in saving. The main results can be summarized as follows: 1) the typical' saving-age profile presents a pronounced hump' and peaks around age 60; 2) this typical' age profile was, at least during the 1980s, shifted down for those cohorts born between 1925 and 1939. This is consistent with the low level of aggregate saving because these cohort were, in the 1980s, in that part of their life cycle when saving is highest; 3) this results holds for various definition of saving with one notable exception; the decline is less pronounced when expenditure on durables is considered as saving; and 4) some other popular explanations of the decline in saving are rejected by the data, including those appealing to the presence of capital gains on real or financial assets.
Handle: RePEc:nbr:nberwo:4454
Template-Type: ReDIF-Paper 1.0
Title: Diffusion Lags and Aggregate Fluctuations. New Name: Product Innovation and the Business Cycle.
Classification-JEL: E3
Author-Name: Boyan Jovanovic
Author-Name: Saul Lach
Author-Person: pla110
Note: EFG PR
Number: 4455
Creation-Date: 1993-09
Order-URL: http://www.nber.org/papers/w4455
File-URL: http://www.nber.org/papers/w4455.pdf
File-Format: application/pdf
Publication-Status: published as International Economic Review, Vol. 38, No.1, February 1997, pp.3-22.
Abstract: This paper studies how random product innovations affect the time series properties of aggregates. It posits that recurring inventions of new intermediate goods differ in quality, and that their usage spreads gradually through the economy. It examines how fluctuations in per capita GNP are affected by these features of the innovation process. Micro data from the U.S. show, first, that the dispersion of products' qualities is quite large: Its coefficient of variation is 0.56. More importantly, they also show that the rate of diffusion of new products is relatively slow; Only 4.3% of the potential market size is realized in every year. Because diffusion is so slow, the model explains only low frequency movements in per capita GNP in the G-7 countries.
Handle: RePEc:nbr:nberwo:4455
Template-Type: ReDIF-Paper 1.0
Title: Zoning and the Political Economy of Local Redistribution
Classification-JEL: H2; H7
Author-Name: Raquel Fernandez
Author-Person: pfe17
Author-Name: Richard Rogerson
Author-Person: pro53
Number: 4456
Creation-Date: 1993-09
Order-URL: http://www.nber.org/papers/w4456
File-URL: http://www.nber.org/papers/w4456.pdf
File-Format: application/pdf
Publication-Status: published as Cuadernos Economicos, 61, 1996
Abstract: This paper examines the effects of a zoning regulation on local redistribution in a multicommunity model. Each community chooses, by majority vote within the community, a property tax rate. The proceeds from this tax are then redistributed within the community on a per capita basis. Individuals that differ in their initial income choose a community in which to reside and how much housing to purchase. We examine the effects on allocations and welfare of a zoning regulation that allows one of the communities to set a minimum housing purchase for each of its residents. Two cases are analyzed: In the first, the zoning regulation is taken as exogenous. In the second, the level of zoning is endogenously determined via majority vote. Some of our findings are: (i) Contrary to results obtained in a model with no zoning, wealthy communities may engage in greater redistribution than do poorer communities. (ii) Zoning may cause the wealthy community to become less, rather than more, exclusive. (iii) Welfare effects are not monotone in income. (iv) It is possible for the wealthiest individuals to be made worse off by the imposition of zoning.
Handle: RePEc:nbr:nberwo:4456
Template-Type: ReDIF-Paper 1.0
Title: The Efficiency of the Legal System versus the Income Tax in Redistributing Income
Classification-JEL: K00; H20
Author-Name: Louis Kaplow
Author-Person: pka44
Author-Name: Steven Shavell
Author-Person: psh42
Note: LE
Number: 4457
Creation-Date: 1993-09
Order-URL: http://www.nber.org/papers/w4457
File-URL: http://www.nber.org/papers/w4457.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Legal Studies, Vol. XXIII, no. 2, pp. 667-681, (June 1994).
Abstract: Should legal rules be chosen only on the basis of their efficiency or also on the basis of their distributional effects? This article demonstrates that redistribution accomplished through legal rules is systematically less efficient than redistribution accomplished through the income tax system -- even though the latter distorts incentives to work. In particular. a regime with an inefficient legal rule can be replaced by a regime with an efficient legal rule and a modified income tax system designed so that every person is made better off.
Handle: RePEc:nbr:nberwo:4457
Template-Type: ReDIF-Paper 1.0
Title: Realignment Risk and Currency Option Pricing in Target Zones
Classification-JEL: F31; G13
Author-Name: Bernard Dumas
Author-Person: pdu519
Author-Name: L. Peter Jennergren
Author-Name: Bertil Naslund
Note: AP IFM
Number: 4458
Creation-Date: 1993-09
Order-URL: http://www.nber.org/papers/w4458
File-URL: http://www.nber.org/papers/w4458.pdf
File-Format: application/pdf
Publication-Status: published as European Economic Review, Vol. 39, (1995), pp. 1523-1566.
Abstract: This paper extends the Krugman target zone model by including a realignment mechanism. Various properties of that realignment mechanism are discussed. The movement of the exchange rate is governed both by a Wiener process on fundamental and by a Poisson jump process with endogenous realignment size. The realignment mechanism is such that (except in cases where a speculative attack occurs) no jump in fundamental is needed to accompany the jump in the exchange rate. A risk neutral valuation of currency options is constructed. Some properties of option values under realignment risk are illustrated by numerical results.
Handle: RePEc:nbr:nberwo:4458
Template-Type: ReDIF-Paper 1.0
Title: The World Price of Foreign Exchange Risk
Classification-JEL: G11; G12
Author-Name: Bernard Dumas
Author-Person: pdu519
Author-Name: Bruno Solnik
Note: AP IFM
Number: 4459
Creation-Date: 1993-09
Order-URL: http://www.nber.org/papers/w4459
File-URL: http://www.nber.org/papers/w4459.pdf
File-Format: application/pdf
Publication-Status: published as BERNARD DUMAS & BRUNO SOLNIK, 1995. "The World Price of Foreign Exchange Risk," The Journal of Finance, vol 50(2), pages 445-479.
Abstract: We consider a world capital market in which the investor population is heterogenous. Investors of different countries differ in the prices of goods at which they consume the income from their investments. In such a setting, the international CAPM incorporates rewards for exchange rate risk, in addition to the traditional reward for market-covariance risk. The aim of the paper is to determine whether these additional risk premia empirically playa significant role in the pricing of securities. The test being conducted is a test of a conditional version of the CAPM. It builds on the recent empirical literature which points out that stock market returns may, to some extent, be predicted on the basis of a number of instrumental variables, such as interest rates and dividend yields. All previous tests of the international CAPM with exchange risk premia have been tests of the unconditional version and have been inconclusive.
Handle: RePEc:nbr:nberwo:4459
Template-Type: ReDIF-Paper 1.0
Title: Uncertain Demand, The Structure of Hospital Costs, and the Cost of EmptyHospital Beds
Classification-JEL: I11; D24
Author-Name: Martin Gaynor
Author-Person: pga1
Author-Name: Gerard F. Anderson
Note: EH
Number: 4460
Creation-Date: 1993-09
Order-URL: http://www.nber.org/papers/w4460
File-URL: http://www.nber.org/papers/w4460.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Health Economics, vol. 14, (August 1995)., pp. 291-317
Abstract: One of the fundamental facts of the environment hospitals face is uncertainty over demand for their services. This uncertainty leads hospitals to hold excess standby capacity to avoid turning away patients. In this paper we reformulate the theory of cost and production to take account of this uncertainty. We then use this model to calculate the cost of empty hospital beds. Utilized capacity in the hospital industry, as measured by the inpatient hospital bed occupancy rate, has gradually declined since 1980 and was approximately 65 percent in 1992. Congress and the Administration are concerned that the costs associated with empty beds represent wasteful expense and some have proposed an adjustment to Medicare payment rates which will penalize hospitals with low occupancy rates. We estimate a short run cost function for a hospital facing uncertain demand using data from a national sample of over 5000 hospitals for the years 1983-1987. The traditional cost model is strongly rejected in favor of the reformulated model. We calculate the cost of an empty hospital bed as $61,395 in 1987 dollars. We estimate that a one percent decrease in the number of hospital beds would decrease hospital costs by slightly over one-half of one percent. These costs are substantial, but smaller than some others have indicated.
Handle: RePEc:nbr:nberwo:4460
Template-Type: ReDIF-Paper 1.0
Title: Bilateral Search as an Explanation for Labor Market Segmentation and Other Anomalies
Classification-JEL: J31
Author-Name: Kevin Lang
Author-Person: pla83
Author-Name: William T. Dickens
Note: LS
Number: 4461
Creation-Date: 1993-09
Order-URL: http://www.nber.org/papers/w4461
File-URL: http://www.nber.org/papers/w4461.pdf
File-Format: application/pdf
Abstract: Since applying for jobs is costly, workers prefer applying where their employment probability is high and, therefore, to jobs attracting fewer higher quality applicants. Since creating vacancies is expensive, firms create more vacancies when job-seeking is high. Our model captures these ideas and accounts for worker heterogeneity by assuming three types of nearly identical workers. These infinitesimal quality differences generate a discrete wage distribution. For some parameter values lower quality workers have discretely lower wages and higher unemployment than better workers. Moreover, increasing the number of the lowest quality workers can make all workers better off.
Handle: RePEc:nbr:nberwo:4461
Template-Type: ReDIF-Paper 1.0
Title: The Effect of Labor Market Rigidities on the Labor Force Behavior of Older Workers
Classification-JEL: J14; J26
Author-Name: Michael D. Hurd
Author-Person: phu137
Note: AG
Number: 4462
Creation-Date: 1993-09
Order-URL: http://www.nber.org/papers/w4462
File-URL: http://www.nber.org/papers/w4462.pdf
File-Format: application/pdf
Publication-Status: published as Advanced in the Economics of Aging, David A. Wise, ed., pp. 11-58, (Chicago The University of Chicago Press, 1996)
Publication-Status: published as The Effect of Labor Market Rigidities on the Labor Force Rigidities on the Labor Force, Michael D. Hurd. in Advances in the Economics of Aging, Wise. 1996
Abstract: Most older workers retire completely from full-time work with no intervening spell of part-time work. This is incompatible with a model of retirement in which tastes for work gradually shift with age toward leisure and hours may be freely chosen. A survey of institutional arrangements such as pensions and Social Security and of normal business practices resulting from fixed costs of employment and team production leads to the conclusion that most workers face rather limited choices consisting of a high-paying year-round job and low-paying part-time work. Therefore, someone approaching retirement who wants to retire gradually from a career type job will have to change jobs, losing job-related skills, and to compete for low-paying, easy entry jobs. Faced with that option most retire completely.
Handle: RePEc:nbr:nberwo:4462
Template-Type: ReDIF-Paper 1.0
Title: Competitive Diffusion
Classification-JEL: L1
Author-Name: Boyan Jovanovic
Author-Name: Glenn MacDonald
Note: PR
Number: 4463
Creation-Date: 1993-09
Order-URL: http://www.nber.org/papers/w4463
File-URL: http://www.nber.org/papers/w4463.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Political Economy, 102, no. 1, (February 1994), p. 24-52
Abstract: The usual explanation for why the producers of a given product use different technologies involves "vintage-capital": A firm understands the frontier technology, but can still prefer an older, less efficient technology in which it has made specific physical and human capital investments. This paper develops an alternative. "information-barrier" hypothesis: Firms differ in the technologies they use because it is costly for them to overcome the informational barriers that separate them. The paper endogenizes both innovative and imitative effort. The industry life-cycle implications -- declining price and increasing output -- broadly agree with the Gort-Klepper data. Empirically, the paper focuses on the slow spread of Diesel locomotives, which can not be explained by the vintage-capital hypothesis alone. For instance, contrary to that hypothesis, railroads were buying new steam locomotives long after the Diesel first came into use -- exactly as the information-barrier hypothesis would imply.
Handle: RePEc:nbr:nberwo:4463
Template-Type: ReDIF-Paper 1.0
Title: Getting Together and Breaking Apart: The Decline of Centralised Collective Bargaining
Author-Name: Richard B. Freeman
Author-Person: pfr23
Author-Name: Robert Gibbons
Author-Person: pgi283
Note: LS
Number: 4464
Creation-Date: 1993-09
Order-URL: http://www.nber.org/papers/w4464
File-URL: http://www.nber.org/papers/w4464.pdf
File-Format: application/pdf
Publication-Status: published as Differences and Changes in Wage Structures, ed. L. Katz and R. Freeman, University of Chicago Press, 1995.
Publication-Status: published as Getting Together and Breaking Apart: The Decline of Centralized Collective Bargaining , Richard B. Freeman, Robert S. Gibbons. in Differences and Changes in Wage Structures, Freeman and Katz. 1995
Abstract: This paper studies the stability of centralized wage-setting systems in light of the on-going decentralization of labor relations in much of the Western world. It takes the decline of peak level bargaining in Sweden, the traditional archetype of centralized collective bargaining, as its key case for study, but is intended to speak to other cases as well. Like many earlier analysts, we argue that centralization offers potential economic gains by internalizing the costs of inefficient wage inflation. With this potential benefit, however, comes a cost: centralized decisions are not sufficiently responsive to local conditions. To avoid excessive inflexibility, the center can allow for "wage drift" at the local level (i.e., local wage settlements above the central agreement), but once the center allows wage drift, it becomes difficult to distinguish between justifiable drift due to local economic conditions and unjustifiable drift in the self-interest of local bargaining pairs. Thus, centralized wage-setting systems face a tradeoff: allowing less drift makes it easier to monitor local bargaining pairs but harder to achieve the appropriate responsiveness to local conditions. We develop a game-theoretic model of this tradeoff, and consider how the center's optimal policy moves towards decentralization (i.e., towards allowing more drift) as the cost of inflexibility rises. We then interpret the evolution of centralized bargaining in Sweden in light of the model. We argue that centralized bargaining flourished when the private-sector blue-collar workers (represented by LO) dominated the workforce, but began to wane as public-sector and white-collar unions grew in strength, as skill differentials in decentralized labor markets grew in size, and as product-market competition intensified (especially through the shortening of product lifecycles).
Handle: RePEc:nbr:nberwo:4464
Template-Type: ReDIF-Paper 1.0
Title: A Domino Theory of Regionalism
Classification-JEL: F01; F13
Author-Name: Richard Baldwin
Author-Person: pba124
Note: ITI
Number: 4465
Creation-Date: 1993-09
Order-URL: http://www.nber.org/papers/w4465
File-URL: http://www.nber.org/papers/w4465.pdf
File-Format: application/pdf
Publication-Status: published as Expanding European Regionalism: The EU's New Members, Baldwin, R., P. Haaparanta and J. Kiander (eds.), Cambridge University Press: 1995.
Abstract: Regional liberalization sweeps the globe like wildfire while multilateral trade talks proceed at a glacial pace. Why are countries eager to liberalize regionally but reluctant to do so multilaterally? The answer of the GATT-is-dead school is that multilateralism is too cumbersome for contemporary trade issues. This paper proposes a very different answer. Recent regionalism is caused by two idiosyncratic events multiplied by a domino effect. The triggering events – the U.S.-Mexico FTA and the EC's 1992 programme – had nothing to do with GATT's health. The domino effect is simple. Political equilibria, which balance anti- and pro-membership forces, determine governments' stances on regional liberalization. Domestic exporters to regional blocs are a powerful pro-membership constituency. An event that triggers closer integration within an existing bloc harms the profits of nonmember exporters, thus stimulating them to boost their pro-membership political activity. The extra activity alters the political equilibrium, leading some countries to join. This enlargement further harms nonmember exporters since they now face a disadvantage in a greater number of markets. This second round effect brings forth more pro-membership political activity and a further enlargement of the bloc. The new political equilibrium is marked by larger regional trading blocs. In the meantime regionalism appears to spread like wildfire.
Handle: RePEc:nbr:nberwo:4465
Template-Type: ReDIF-Paper 1.0
Title: Scale, Scope and Spillovers: The Determinants of Research Productivity in the Pharmaceutical Industry
Classification-JEL: O3; L65
Author-Name: Rebecca Henderson
Author-Name: Iain Cockburn
Author-Person: pco166
Note: PR
Number: 4466
Creation-Date: 1993-09
Order-URL: http://www.nber.org/papers/w4466
File-URL: http://www.nber.org/papers/w4466.pdf
File-Format: application/pdf
Publication-Status: published as Rand Journal of Economics, Spring 1996, 27(1), pp.32-59.
Abstract: This paper presents the results of a study of the determinants of research productivity in the pharmaceutical industry. Using disaggregated, internal firm data at the research program level from ten major pharmaceutical companies, we find no evidence of increasing returns to scale at either the firm or the research program level. However our results suggest that there are three benefits to running research programs within the context of larger and more diversified R&D efforts: economies of scale arising from sharing fixed costs; economies of scope arising from the opportunity to exploit knowledge across program boundaries within the firm; and the enhanced ability to absorb internal and external spillovers. We also find that spillovers between firms may playa major role in increasing research productivity. The paper also speaks directly to the question of firm heterogeneity. A significant proportion of the "firm effect" identified in previous studies can be explained by the slowly changing composition of the research portfolio, as well as by less easily measured aspects of innovative capability.
Handle: RePEc:nbr:nberwo:4466
Template-Type: ReDIF-Paper 1.0
Title: Optimal Transparency in a Dealership Market with an Application to Foreign Exchange
Classification-JEL: G15; G14
Author-Name: Richard K. Lyons
Author-Person: ply9
Note: IFM
Number: 4467
Creation-Date: 1993-09
Order-URL: http://www.nber.org/papers/w4467
File-URL: http://www.nber.org/papers/w4467.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Financial Intermediation, July 1996, vol. 5, pp. 225-254, withtitle change: "Optimal Transparency in a Dealer Market with an Applicationto Foreign Exchange."
Abstract: This paper addresses the issue of optimal transparency in a multiple-dealer market. In particular, we examine the question: Would risk-averse dealers prefer ex-ante that signed order flow were observable? We answer this question with the solution to a mechanism design problem. The resulting incentive-efficient mechanism is one in which signed order flow is not observable. Rather, dealers prefer a slower pace of price discovery because it induces additional risk-sharing. Specifically, slower price discovery permits additional trading with customers prior to revelation; this reduces the variance of unavoidable position disturbances, thereby reducing the market making risk inherent in price discovery. We then apply the framework to the spot foreign exchange market in order to understand better the current degree of transparency in that market.
Handle: RePEc:nbr:nberwo:4467
Template-Type: ReDIF-Paper 1.0
Title: Firms' Use of Outside Contractors: Theory and Evidence
Classification-JEL: J41; L14
Author-Name: Katharine G. Abraham
Author-Person: pab32
Author-Name: Susan K. Taylor
Note: LS
Number: 4468
Creation-Date: 1993-09
Order-URL: http://www.nber.org/papers/w4468
File-URL: http://www.nber.org/papers/w4468.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Labor Economics, Vol. 14, no. 3 (July 1996): 394-424.
Abstract: A firm's decision to contract out for business support services may be influenced by the wage and benefit savings it could realize, the volatility of its output demand and the availability of specialized skills possessed by the outside contractor. Analysis of newly-available establishment-level data shows that all three of these factors help to explain observed contracting behavior. The reported empirical findings are relevant both for understanding the recent growth in business support service contracting and for understanding firms' relationships with their own employees.
Handle: RePEc:nbr:nberwo:4468
Template-Type: ReDIF-Paper 1.0
Title: Health Insurance Availability and the Retirement Decision
Classification-JEL: H51; I10
Author-Name: Jonathan Gruber
Author-Person: pgr20
Author-Name: Brigitte C. Madrian
Author-Person: pma384
Note: AG EH
Number: 4469
Creation-Date: 1993-09
Order-URL: http://www.nber.org/papers/w4469
File-URL: http://www.nber.org/papers/w4469.pdf
File-Format: application/pdf
Publication-Status: published as American Economic Review, September 1995, vol. 84, no. 4, pp. 938-948.
Abstract: Because individuals aged 55-64 face large and uncertain medical expenditures without the guarantee of public insurance coverage provided by Medicare, the availability of post-retirement health insurance could be an important determinant in the retirement decisions of this group. We investigate the effect of health insurance on retirement by focusing on state and federal "continuation of coverage" mandates which grant the retiree the right to continue purchasing health insurance through a previous employer for a specified number of months after leaving the firm. We exploit variation in the timing and generosity of these laws to identify the effect of the availability of continuation coverage on retirement decisions, using data on 55-64 year-old males from the Current Population Survey and the Survey of Income and Program Participation. We find a sizeable and significant effect of continuation coverage on retirement; one year of mandated continuation benefits raises retirement rates by 20%. The effect appears to be uniform at all ages rather that larger near the age of Medicare eligibility. There is also a large increase in the insurance coverage of individuals who would have retired in the absence of continuation benefits. Our findings have important implications for policies which change the insurance coverage of early retirees, such as national health insurance.
Handle: RePEc:nbr:nberwo:4469
Template-Type: ReDIF-Paper 1.0
Title: Saving and Growth: A Reinterpretation
Classification-JEL: E21; O40
Author-Name: Christopher D. Carroll
Author-Person: pca45
Author-Name: David N. Weil
Author-Person: pwe24
Note: EFG
Number: 4470
Creation-Date: 1993-09
Order-URL: http://www.nber.org/papers/w4470
File-URL: http://www.nber.org/papers/w4470.pdf
File-Format: application/pdf
Publication-Status: published as Carnegie-Rochester Conference Series on Public Policy, Vol. 40, June 1994,pp. 133-192
Abstract: We examine the relationship between income growth and saving using both cross-country and household data. At the aggregate level, we find that growth Granger causes saving, but that saving does not Granger cause growth. Using household data, we find that households with predictably higher income growth save more than households with predictably low growth. We argue that standard Permanent Income models of consumption cannot explain these findings, but that a model of consumption with habit formation may. The positive effect of growth on saving implies that previous estimates of the effect of saving on growth may be overstated.
Handle: RePEc:nbr:nberwo:4470
Template-Type: ReDIF-Paper 1.0
Title: Tests of Microstructural Hypotheses in the Foreign Exchange Market
Classification-JEL: F31; G15
Author-Name: Richard K. Lyons
Author-Person: ply9
Note: IFM
Number: 4471
Creation-Date: 1993-09
Order-URL: http://www.nber.org/papers/w4471
File-URL: http://www.nber.org/papers/w4471.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Financial Economics, October 1995, vol. 39, pp. 321-351
Publication-Status: published as Microstructure: The Organization of Trading and Short-Term Price Behavior, Stoll, E., ed.: Elgar Publishing, April 1999, pp. 409-439.
Abstract: This paper introduces a three-part transactions dataset to test various microstructural hypotheses about the spot foreign exchange market. In particular, we test for effects of trading volume on quoted prices through the two channels stressed in the literature: the information channel and the inventory-control channel. We find that trades have both a strong information effect and a strong inventory-control effect, providing support for both strands of microstructure theory. The bulk of equity-market studies also find an information effect; however, these studies typically interpret this as evidence of inside information. Since there are no insiders in the foreign exchange market, this finding suggests a broader conception of the information environment, at least in this context.
Handle: RePEc:nbr:nberwo:4471
Template-Type: ReDIF-Paper 1.0
Title: Cross Sectional Efficiency and Labor Hoarding in an Matching Model of Unemployment
Classification-JEL: E24; J63
Author-Name: Giuseppe Bertola
Author-Person: pbe54
Author-Name: Ricardo J. Caballero
Author-Person: pca44
Note: EFG
Number: 4472
Creation-Date: 1993-09
Order-URL: http://www.nber.org/papers/w4472
File-URL: http://www.nber.org/papers/w4472.pdf
File-Format: application/pdf
Publication-Status: published as Review of Economic Studies, vol 61, no 3, pp 435-456, July 1994
Abstract: We study positive and normative aspects of steady-state equilibrium in a market where firms of endogenous size experience idiosyncratic shocks and undergo a costly search process to hire their workers. The stylized model we propose highlights interactions between job-security provisions and sectoral shocks in determining the natural rate of unemployment, the allocation of labor, and the extent of labor hoarding, and rationalizes cross-sectional asymmetries of gross employment flows at the firm level. In our model, where productivity and search costs are dynamically heterogeneous across firms, decentralized wage bargains imply important cross-sectional inefficiencies, which overshadow the static search inefficiencies on which simpler models focus.
Handle: RePEc:nbr:nberwo:4472
Template-Type: ReDIF-Paper 1.0
Title: Better Late Than Early: Vertical Differentiation in the Adoption of a New Technology
Classification-JEL: O3; L15
Author-Name: Prajit K. Dutta
Author-Name: Saul Lach
Author-Person: pla110
Author-Name: Aldo Rustichini
Number: 4473
Creation-Date: 1993-09
Order-URL: http://www.nber.org/papers/w4473
File-URL: http://www.nber.org/papers/w4473.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Economics and Management Strategy, vol. 4, no. 4, Winter 1995, pp.563-589.
Abstract: After the initial breakthrough in the research phase of R&D a new product undergoes a process of change, improvement and adaptation to market conditions. We model the strategic behavior of firms in this development phase of R&D. We emphasize that a key dimension to this competition is the innovations that lead to product differentiation and quality improvement. In a duopoly model with a single adoption choice, we derive endogeneously the level and diversity of product innovations. We demonstrate the existence of equilibria in which one firm enters early with a low quality product while the other continues to develop the technology and eventually markets a high quality good. In such an equilibrium, no monopoly rent is dissipated and the later innovator makes more profits. Incumbent firms may well be the early innovators, contrary to the predictions of the hypothesis.
Handle: RePEc:nbr:nberwo:4473
Template-Type: ReDIF-Paper 1.0
Title: Good Policy or Good Luck? Country Growth Performance and Temporary Shocks
Classification-JEL: 040
Author-Name: William Easterly
Author-Person: pea1
Author-Name: Michael Kremer
Author-Person: pkr20
Author-Name: Lant Pritchett
Author-Person: ppr27
Author-Name: Lawrence H. Summers
Author-Person: psu137
Note: EFG
Number: 4474
Creation-Date: 1993-09
Order-URL: http://www.nber.org/papers/w4474
File-URL: http://www.nber.org/papers/w4474.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Monetary Economics, Vol. 32 (1993).
Abstract: Much of the new growth literature stresses country characteristics, such as education levels or political stability, as the dominant determinant of growth. However, growth rates are highly unstable over time, with a correlation across decades of .1 to .3, while country characteristics are stable, with cross-decade correlations of .6 to .9. Shocks, especially those to terms of trade, play a large role in explaining variance in growth. These findings suggest either that shocks are important relative to country characteristics in determining long-run growth, or that worldwide technological change determines long-run growth while country characteristics determine relative income levels.
Handle: RePEc:nbr:nberwo:4474
Template-Type: ReDIF-Paper 1.0
Title: Patent Protection: Of What Value and for How Long?
Classification-JEL: 612; 621; L
Author-Name: Jean Olson Lanjouw
Note: PR
Number: 4475
Creation-Date: 1993-09
Order-URL: http://www.nber.org/papers/w4475
File-URL: http://www.nber.org/papers/w4475.pdf
File-Format: application/pdf
Publication-Status: published as The Review of Economic Studies, Vol 65 (1998): 671-710.
Abstract: Empirical estimates of the private value of patent protection are found for four technology area - computers, textiles, combustion engines, and pharmaceuticals - using new patent data for West Germany, 1953-1988. Patentees must pay to keep their patents in force. A dynamic stochastic discrete choice model of optimal renewal decisions is developed incorporating both learning about an innovation and the market as well as the possibility of infringements. The evolution of the distribution of returns over the life of a group of patents is calculated for each technology using a minimum distance simulation estimator. Results indicate that learning is completed within 6 years, that obsolescence is rapid, and that the distributions of patent value are very skewed. Research and development (R&D) expenditures are calculated and patent protection as an implicit subsidy to investment in R&D discussed.
Handle: RePEc:nbr:nberwo:4475
Template-Type: ReDIF-Paper 1.0
Title: Employment-Based Health Insurance and Job Mobility: Is There Evidence of Job-Lock?
Classification-JEL: H51; I10
Author-Name: Brigitte C. Madrian
Author-Person: pma384
Note: PE
Number: 4476
Creation-Date: 1993-09
Order-URL: http://www.nber.org/papers/w4476
File-URL: http://www.nber.org/papers/w4476.pdf
File-Format: application/pdf
Publication-Status: published as Quarterly Journal of Economics, February 1994, 109: p. 27-54
Abstract: This paper assesses the impact of employer-provided health insurance on job mobility by exploring the extent to which workers are 'locked' into their jobs because preexisting conditions exclusions make it expensive for individuals with medical problems to relinquish their current health insurance. I estimate the degree of job-lock by comparing the difference in the turnover rates of those with high and low medical expenses for those with and without employer-provided health insurance. Using data from the 1987 National Medical Expenditure Survey, I estimate that job-lock reduces the voluntary turnover rate of those with employer-provided health insurance by 25 percent, from 16 percent to 12 percent per year.
Handle: RePEc:nbr:nberwo:4476
Template-Type: ReDIF-Paper 1.0
Title: Intergenerational Transfers, Aging, and Uncertainty
Classification-JEL: E12; J14
Author-Name: David N. Weil
Author-Person: pwe24
Note: AG
Number: 4477
Creation-Date: 1993-09
Order-URL: http://www.nber.org/papers/w4477
File-URL: http://www.nber.org/papers/w4477.pdf
File-Format: application/pdf
Publication-Status: published as Advances in the Economics of Aging, David A. Wise, ed., pp. 321-339, (Chicago: University of Chicago Press, 1996).
Publication-Status: published as Intergenerational Transfers, Aging, and Uncertainty, David N. Weil. in Advances in the Economics of Aging, Wise. 1996
Abstract: Research on intergenerational transmission of wealth has pointed to uncertainty -- about the date of one's own death, for example -- as a potential source of significant bequest flows. In this paper I examine the effects of this same uncertainty on the behavior of those who expect to receive bequests. Potential heirs who are prudent will consume less than would be warranted by the size of their expected bequests, and so on average consumption will rise at the age when actual bequests are received. I examine the effect of this uncertainty on the outcome of population aging. Population aging, by changing the relative sizes of the bequeathing generation and those receiving bequests, raises the average size of bequests received and reduces the saving of the bequest-receiving generation. I show that accounting for the effects of uncertainty slows down the reduction in saving that results from population aging.
Handle: RePEc:nbr:nberwo:4477
Template-Type: ReDIF-Paper 1.0
Title: Trade, Jobs, and Wages
Classification-JEL: F00
Author-Name: Paul Krugman
Author-Person: pkr10
Author-Name: Robert Lawrence
Author-Person: pla608
Note: IFM ITI
Number: 4478
Creation-Date: 1993-09
Order-URL: http://www.nber.org/papers/w4478
File-URL: http://www.nber.org/papers/w4478.pdf
File-Format: application/pdf
Publication-Status: published as Paul R. Krugman & Robert Z. Lawrence, 1994. "Trade, Jobs and Wages," Scientific American, vol 270(4), pages 44-49.
Abstract: There is a broad consensus among US opinion leaders that our economic problem is largely one of failures of international competition -- that trade deficits have eroded our manufacturing base, that inability to sell on world markets has been a major drag on economic growth, and that imports from low-wage countries have caused a widening of income inequality. This paper summarizes recent evidence on these issues, and shows that while there may be a grain of truth to each complaint, in each case the effect is quantitatively minor. The arithmetic of 'competitiveness' just doesn't work.
Handle: RePEc:nbr:nberwo:4478
Template-Type: ReDIF-Paper 1.0
Title: Limited Insurance Portability and Job Mobility: The Effects of Public Policy on Job-Lock
Classification-JEL: H51; I10
Author-Name: Jonathan Gruber
Author-Person: pgr20
Author-Name: Brigitte C. Madrian
Author-Person: pma384
Note: PE LS EH
Number: 4479
Creation-Date: 1993-09
Order-URL: http://www.nber.org/papers/w4479
File-URL: http://www.nber.org/papers/w4479.pdf
File-Format: application/pdf
Publication-Status: published as Industrial and Labor Relations Review, (October 1994), 48: p. 86-102new title: "Health Insurance and Job Mobility: The Effects of Public Policy on Job-Lock"
Abstract: The link between health insurance and the workplace in the U.S. has led to concern over the possibility of insurance-induced reductions in job mobility or 'job-lock". Designing health insurance reforms which retain employer-based insurance coverage but mitigate the extent of job-lock requires an understanding of the policy dimensions to which job-lock is most receptive. We study a policy of limited insurance portability which has been adopted by a number of states and the federal government over the last 20 years. These "continuation of coverage' mandates grant individuals the right to continue purchasing health insurance through their former employers for some period of time after leaving their jobs. We find that the passage of these mandates caused a significant increase in the job mobility of prime age male workers. This suggests that a sizeable share of job-lock arises from short run concerns over portability rather than from long run problems.
Handle: RePEc:nbr:nberwo:4479
Template-Type: ReDIF-Paper 1.0
Title: Subjective Performance Measures in Optimal Incentive Contracts
Classification-JEL: J33; J4
Author-Name: George Baker
Author-Name: Robert Gibbons
Author-Person: pgi283
Author-Name: Kevin J. Murphy
Author-Person: pmu108
Note: LS
Number: 4480
Creation-Date: 1993-09
Order-URL: http://www.nber.org/papers/w4480
File-URL: http://www.nber.org/papers/w4480.pdf
File-Format: application/pdf
Publication-Status: published as Quarterly Journal of Economics, Vo. 109, No. 4, 1994, pp. 1125-1156.
Abstract: Objective measures of performance are seldom perfect. In response, incentive contracts often include important subjective components that mitigate incentive distortions caused by imperfect objective measures. This paper explores the combined use of subjective and objective performance measures in (respectively) implicit and explicit incentive contracts. Naturally, objective and subjective measures often are substitutes, sometimes strikingly so: we show that if objective measures are sufficiently close to perfect then no implicit contracts are feasible (because the firm's fallback position after reneging on an implicit contact is too attractive). We also show, however, that objective and subjective measures can reinforce each other: if objective measures become more accurate then in some circumstances the optimal contract puts more weight on subjective measures (because the improved objective measures increase the value of the ongoing relationship, and so reduce the firm's incentive to renege). We also analyze the use of subjective weights on objective performance measures, and provide case-study evidence consistent with our analyses.
Handle: RePEc:nbr:nberwo:4480
Template-Type: ReDIF-Paper 1.0
Title: Could Stable Money Have Averted The Great Contraction?
Classification-JEL: E50
Author-Name: Michael D. Bordo
Author-Person: pbo243
Author-Name: Ehsan U. Choudhri
Author-Person: pch482
Author-Name: Anna J. Schwartz
Note: ME
Number: 4481
Creation-Date: 1993-10
Order-URL: http://www.nber.org/papers/w4481
File-URL: http://www.nber.org/papers/w4481.pdf
File-Format: application/pdf
Publication-Status: published as Economic Inquiry, vol. XXXIII, no. 3, pp. 484-505, (July 1995).
Abstract: We test the hypothesis that the Great Contraction would have been attenuated had the Fed not allowed the money stock to decline. We do so by simulating a model that estimates separate relations for output and the price level and assumes that output and price dynamics are not especially sensitive to policy changes. The simulations include a strong and a weak form of Friedman's constant money growth rule. The results support the hypothesis that the Great Contraction would have been mitigated and shortened had the Fed followed a constant money growth rule.
Handle: RePEc:nbr:nberwo:4481
Template-Type: ReDIF-Paper 1.0
Title: Lessons from the East Asian NICs: A Contrarian View
Classification-JEL: 111; 112; E
Author-Name: Alwyn Young
Note: EFG
Number: 4482
Creation-Date: 1993-10
Order-URL: http://www.nber.org/papers/w4482
File-URL: http://www.nber.org/papers/w4482.pdf
File-Format: application/pdf
Publication-Status: published as European Economic Review 38 (1994): 964-973.
Abstract: The unusually rapid and prolonged growth of both output and exports in the Newly Industralizing Countries of East Asia has led many economists to believe that productivity growth in these economies, particularly in their manufacturing sectors, has been extraordinarily high. This view has, in turn, led to a growing belief in the 'dynamic' (i.e. total factor productivity) gains from an outward orientation. This view fails to take into account the equally unusual rapid growth of both capital and labour input in these economies. Using the Summers & Heston and OECD data sets, this paper uses simple back of the envelope calculations to show that, as regards productivity growth in the aggregate economy and in manufacturing in particular, the East Asian NICs are not, in general, substantial outliers. The principal lessons to be drawn from the NICs are likely to be those concerning the potential gains from factor accumulation and the sectoral reallocation of resources, i.e. 'static' neoclassical gains which have fueled the dynamic growth of these economies for more than 20 years.
Handle: RePEc:nbr:nberwo:4482
Template-Type: ReDIF-Paper 1.0
Title: Using Geographic Variation in College Proximity to Estimate the Return to Schooling
Classification-JEL: J24; I21
Author-Name: David Card
Author-Person: pca271
Note: LS
Number: 4483
Creation-Date: 1993-10
Order-URL: http://www.nber.org/papers/w4483
File-URL: http://www.nber.org/papers/w4483.pdf
File-Format: application/pdf
Publication-Status: published as Aspects of Labour Economics: Essays in Honour of John Vanderkamp, edited by Louis Christofides, E. Kenneth Grant and Robert Swindinsky. University of Toronto Press, 1995
Abstract: A convincing analysis of the causal link between schooling and earnings requires an exogenous source of variation in education outcomes. This paper explores the use of college proximity as an exogenous determinant of schooling. Analysis of the NLS Young Men Cohort reveals that men who grew up in local labor markets with a nearby college have significantly higher education and earnings than other men. The education and earnings gains are concentrated among men with poorly-educated parents -- men who would otherwise stop schooling at relatively low levels. When college proximity is taken as an exogenous determinant of schooling the implied instrumental variables estimates of the return to schooling are 25-60% higher than conventional ordinary least squares estimates. Since the effect of a nearby college on schooling attainment varies by family background it is possible to test whether college proximity is a legitimately exogenous determinant of schooling. The results affirm that marginal returns to education among children of less-educated parents are as high and perhaps much higher than the rates of return estimated by conventional methods.
Handle: RePEc:nbr:nberwo:4483
Template-Type: ReDIF-Paper 1.0
Title: Self-Defeating Regional Concentration
Classification-JEL: F12; O11
Author-Name: Kiminori Matsuyama
Author-Person: pma143
Author-Name: Takaaki Takahashi
Author-Person: pta700
Note: ITI
Number: 4484
Creation-Date: 1993-10
Order-URL: http://www.nber.org/papers/w4484
File-URL: http://www.nber.org/papers/w4484.pdf
File-Format: application/pdf
Publication-Status: published as Matsuyama, Kiminori & Takahashi, Takaaki, 1998. "Self-Defeating Regional Concentration," Review of Economic Studies, Blackwell Publishing, vol. 65(2), pages 211-34, April.
Abstract: We present a simple model of a two-region economy in which undesirable concentration may occur. With freedom to choose where to live, individuals in this economy concentrate into one region in their pursuit of better life, and end up becoming worse off. We characterize the conditions under which such self-defeating concentration occurs in terms of a few key parameters, such as economies of scale in nontradeable service sectors, regional differences in labor productivity in tradeable goods sectors, and substitutability of tradeable goods in consumption.
Handle: RePEc:nbr:nberwo:4484
Template-Type: ReDIF-Paper 1.0
Title: Credit Channel or Credit Actions? An Interpretation of the Postwar Transmission Mechanism
Classification-JEL: E52; E58
Author-Name: Christina D. Romer
Author-Person: pro407
Author-Name: David H. Romer
Author-Person: pro406
Note: ME EFG
Number: 4485
Creation-Date: 1993-10
Order-URL: http://www.nber.org/papers/w4485
File-URL: http://www.nber.org/papers/w4485.pdf
File-Format: application/pdf
Publication-Status: published as Changing Capital Markets: Implications for Monetary Policy: The Federal Reserve Bank of Kansas City, Jackson Hole, Wyoming, August 19-21, 1993.pp. 71-116
Publication-Status: published as Christina D. Romer & David H. Romer, 1993. "Credit channel or credit actions? an interpretation of the postwar transmission mechanism," Proceedings - Economic Policy Symposium - Jackson Hole, Federal Reserve Bank of Kansas City, pages 71-149.
Abstract: This paper shows that the disproportionate impact of tight monetary policy on banks' ability to lend is largely the consequence of Federal Reserve actions aimed at reducing bank loans directly, rather than an inherent feature of the monetary transmission mechanism. We provide two types of evidence for this conclusion. First, a detailed examination of nine postwar episodes of contractionary monetary policy shows that while short-term interest rates always rose in response to tight policy, banks typically found ways of maintaining lending despite the falls in reserves. Banks' ability to lend was particularly affected by tight policy only when the Federal Reserve undertook actions, such as special reserve requirements, moral suasion, or explicit credit controls, to restrain bank lending directly. Second, simple regressions show that Federal Reserve credit actions have large and significant effects on the composition of external finance between bank loans and commercial paper and on the spread between the prime bank loan rate and the commercial paper rate, and that a bank credit channel of monetary transmission is not needed to explain the movements in these variables in response to tight policy.
Handle: RePEc:nbr:nberwo:4485
Template-Type: ReDIF-Paper 1.0
Title: Income Distribution, Political Instability, and Investment
Author-Name: Alberto Alesina
Author-Person: pal207
Author-Name: Roberto Perotti
Author-Person: ppe66
Number: 4486
Creation-Date: 1993-10
Order-URL: http://www.nber.org/papers/w4486
File-URL: http://www.nber.org/papers/w4486.pdf
File-Format: application/pdf
Publication-Status: published as Alesina, Alberto and Roberto Perotti. "Income Distribution, Political Instability, And Investment," European Economic Review, 1996, v40(6,Jun), 1203-1228.
Abstract: This paper successfully tests on a sample of 70 countries for the period 1960-85 the following hypotheses. Income inequality, by fueling social discontent, increases socio-political instability. The latter, by creating uncertainty in the politico-economic environment, reduces investment. As a consequence, income inequality and investment are inversely related. Since investment is a primary engine of growth, this paper identifies a channel for an inverse relationship between income inequality and growth. We measure socio-political instability with indices which capture the occurrence of more or less violent phenomena of political unrest and we test our hypotheses by estimating a two-equation model in which the endogenous variables are investment and an index of socio-political instability. Our results are robust to sensitivity analysis on the specification of the model and the measure of political instability, and are unchanged when the model is estimated using robust regression techniques.
Handle: RePEc:nbr:nberwo:4486
Template-Type: ReDIF-Paper 1.0
Title: Measuring Noise in Inventory Models
Classification-JEL: E22
Author-Name: Steven N. Durlauf
Author-Person: pdu117
Author-Name: Louis J. Maccini
Author-Person: pma554
Note: EFG
Number: 4487
Creation-Date: 1993-10
Order-URL: http://www.nber.org/papers/w4487
File-URL: http://www.nber.org/papers/w4487.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Monetary Economics, Vol. 36, no. 1 (1995): 65-89.
Abstract: This paper has two purposes. One is to assess different models of inventory behavior in terms of their ability to well approximate the realized data on inventories. We do this initially for the pure production smoothing model and then for a sequence of generalizations of the model. Our analysis both performs specification tests as well as measures the deviations of the data from each null model, which we refer to as model noise. This involves the introduction of a noise ratio which provides a metric for measuring the magnitude of the noise component of the data. A second purpose is to explore whether observed cost shocks, including in particular carefully measured series on raw materials prices, can be helpful in explaining inventory movements. We find that the basic production level smoothing model of inventories, augmented by buffer stock motives, observed cost shocks, properly measured, and to a lesser extent stockout avoidance motives, appears to well approximate monthly inventory data.
Handle: RePEc:nbr:nberwo:4487
Template-Type: ReDIF-Paper 1.0
Title: Population Increase, Extralegal Appropriation, and the End of Colonialism
Classification-JEL: F02; J22
Author-Name: Herschel I. Grossman
Author-Name: Murat Iyigun
Author-Person: piy4
Number: 4488
Creation-Date: 1993-10
Order-URL: http://www.nber.org/papers/w4488
File-URL: http://www.nber.org/papers/w4488.pdf
File-Format: application/pdf
Publication-Status: published as Economica, Vol. 64 (August 1997): 483-493.
Abstract: Between 1946 and 1976, the European powers granted independence to all of their large colonies in Africa and Southeast Asia. This paper attempts to provide an economic explanation for this remarkable ending to the era of colonialism. The main theoretical innovation is to consider the effect of population increase on the allocation of time by the indigenous population between productive and subversive activities. The analysis suggests that the increase in population during the colonial period increased the potential return to extralegal appropriation of the profits of colonial companies until the colonies became a net burden on the metropolitan governments. The analysis also suggests that there was less subversive activity in colonies in which the market for indigenous labor was monopsonized because monopsonistic employers internalized the potential negative effect of extralegal appropriation on net profits.
Handle: RePEc:nbr:nberwo:4488
Template-Type: ReDIF-Paper 1.0
Title: Dynamic Pricing in Retail Gasoline Markets
Author-Name: Severin Borenstein
Author-Person: pbo78
Author-Name: Andrea Shepard
Note: IO
Number: 4489
Creation-Date: 1993-10
Order-URL: http://www.nber.org/papers/w4489
File-URL: http://www.nber.org/papers/w4489.pdf
File-Format: application/pdf
Publication-Status: published as Rand Journal of Economics, Autumn 1996, Vol. 27, no. 3, pp. 429-451
Abstract: This paper tests for price patterns in retail gasoline markets consistent with those predicted by models of implicit collusion among firms. Recent supergame models show that the highest supportable collusive price is a function of today's profit relative to expected future profit: collusive prices are higher when predictable changes in demand or cost lead firms to expect that collusive profits are increasing rather than declining. Ceteris paribus, collusive profits will be expected to increase when demand is expected to increase and/or costs are expected to decline. Using panel data on sales volume, and retail and wholesale prices in 59 cities over 72 months, we find results consistent with these predictions. Controlling for current demand and input price, the elasticity of current retail margins with respect to expected next-month demand is about 0.37. The elasticity of current margins with respect to next-month wholesale price is about -0.37. The results are inconsistent with inventory effects.
Handle: RePEc:nbr:nberwo:4489
Template-Type: ReDIF-Paper 1.0
Title: Optimal Fiscal Policy in a Business Cycle Model
Author-Name: V. V. Chari
Author-Person: pch40
Author-Name: Lawrence J. Christiano
Author-Person: pch45
Author-Name: Patrick J. Kehoe
Author-Person: pke4
Note: EFG
Number: 4490
Creation-Date: 1993-10
Order-URL: http://www.nber.org/papers/w4490
File-URL: http://www.nber.org/papers/w4490.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Political Economy, vol. 102, no. 3, August 1994
Abstract: This paper develops the quantitative implications of optimal fiscal policy in a business cycle model. In a stationary equilibrium the ex ante tax rate on capital income is approximately zero. There is an equivalence class of ex post capital income tax rates and bond policies that support a given allocation. Within this class the optimal ex post capital tax rates can range from being close to i.i.d. to being close to a random walk. The tax rate on labor income fluctuates very little and inherits the persistence properties of the exogenous shocks and thus there is no presumption that optimal labor tax rates follow a random walk. The welfare gains from smoothing labor tax rates and making ex ante capital income tax rates zero are small and most of the welfare gains come from an initial period of high taxation on capital income.
Handle: RePEc:nbr:nberwo:4490
Template-Type: ReDIF-Paper 1.0
Title: Estimates of the Returns to Schooling From Sibling Data: Fathers, Sons and Brothers
Classification-JEL: J31
Author-Name: Orley Ashenfelter
Author-Person: pas9
Author-Name: David J. Zimmerman
Author-Person: pzi72
Note: LS
Number: 4491
Creation-Date: 1993-10
Order-URL: http://www.nber.org/papers/w4491
File-URL: http://www.nber.org/papers/w4491.pdf
File-Format: application/pdf
Publication-Status: published as Review of Economics & Statistics, Vol. 79, no. 1, (February 1997), pp. 1-9.
Abstract: In this paper we use data on brothers, and fathers and sons, to estimate the economic returns to schooling. Our goal is to determine whether the correlation between earnings and schooling is due, in part, to the correlation between family backgrounds and schooling. The basic idea is to contrast the differences between the schooling of brothers, and fathers and sons, with the differences in their respective earnings. Since individuals linked by family affiliation are more likely to have similar innate ability and family backgrounds than randomly selected individuals our procedure provides a straightforward control for unobserved family attributes. Our empirical results indicate that in the sample of brothers the ordinary least squares estimates of the return to schooling may be biased upward by some 25% by the omission of family background factors. Adjustments for measurement error, however, imply that the intrafamily estimate of the returns to schooling is biased downward by about 25% also, so that the ordinary least squares estimate suffers from very little overall bias. Using data on fathers and sons introduces some ambiguity into these findings, as commonly used specification tests reject our simplest models of the role of family background in the determination of earnings.
Handle: RePEc:nbr:nberwo:4491
Template-Type: ReDIF-Paper 1.0
Title: Small Business and Job Creation: Dissecting the Myth and Reassessing theFacts
Classification-JEL: J63; J21
Author-Name: Steven J. Davis
Author-Person: pda15
Author-Name: John Haltiwanger
Author-Person: pha231
Author-Name: Scott Schuh
Author-Person: psc769
Note: EFG LS
Number: 4492
Creation-Date: 1993-10
Order-URL: http://www.nber.org/papers/w4492
File-URL: http://www.nber.org/papers/w4492.pdf
File-Format: application/pdf
Publication-Status: published as Labor Markets, Employment Policy and Job Creation. Lewis Solmon and Alec Levenson, eds. Westview Press, 1994.
Publication-Status: published as Davis, Steven J., John Haltiwanger and Scott Schuh. "Small Business And Job Creation: Dissecting The Myth And Reassessing The Facts," Small Business Economics, 1996, v8(4,Aug), 297-315.
Abstract: This paper investigates how job creation and destruction behavior varies by employer size in the U.S. manufacturing sector during the period 1972 to 1988. The paper also evaluates the empirical basis for conventional claims about the job-creating prowess of small businesses. The chief findings and conclusions fall into five categories: (1) Conventional wisdom about the job-creating prowess of small businesses rests on misleading interpretations of the data. (2) Many previous studies of the job creation process rely upon data that are not suitable for drawing inferences about the relationship between employer size and job creation. (3) Large plants and firms account for most newly-created and newly- destroyed manufacturing jobs. (4) Survival rates for new and existing manufacturing jobs increase sharply with employer size. (5) Smaller manufacturing firms and plants exhibit sharply higher gross rates of job creation but not higher net rates.
Handle: RePEc:nbr:nberwo:4492
Template-Type: ReDIF-Paper 1.0
Title: International Business Cycles: Theory and Evidence
Classification-JEL: F11; F30
Author-Name: David Backus
Author-Person: pba242
Author-Name: Patrick J. Kehoe
Author-Person: pke4
Author-Name: Finn E. Kydland
Author-Person: pky2
Note: IFM
Number: 4493
Creation-Date: 1993-10
Order-URL: http://www.nber.org/papers/w4493
File-URL: http://www.nber.org/papers/w4493.pdf
File-Format: application/pdf
Publication-Status: published as Quarterly Review of the Federal Reserve Bank of Minneapolis, Fall 1993
Publication-Status: published as T. Cooley, ed.: Frontiers in Business Cycle Research. Princeton University Press 1995
Abstract: We review recent work comparing properties of international business cycles with those of dynamic general equilibrium models, emphasizing two discrepancies between theory and data that we refer to as anomalies. The first is the consumption/output/productivity anomaly: in the data we generally find that the correlation across countries of output fluctuations is larger than the analogous consumption and productivity correlations. In theoretical economies we find, for a wide range of parameter values, that the consumption correlation exceeds the productivity and output correlations. The second anomaly concerns relative price movements: the standard deviation of the terms of trade is considerably larger in the data than it is in theoretical economies. We speculate on changes in theoretical structure that might bring theory and data closer together.
Handle: RePEc:nbr:nberwo:4493
Template-Type: ReDIF-Paper 1.0
Title: Sticking it Out: Entrepreneurial Survival and Liquidity Constraints
Classification-JEL: H30
Author-Name: Douglas Holtz-Eakin
Author-Name: David Joulfaian
Author-Person: pjo3
Author-Name: Harvey S. Rosen
Author-Person: pro55
Note: PE
Number: 4494
Creation-Date: 1993-10
Order-URL: http://www.nber.org/papers/w4494
File-URL: http://www.nber.org/papers/w4494.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Political Economy, February 1994, pp. 53-75.
Abstract: This paper analyzes the role of liquidity constraints in the formation of new entrepreneurial enterprises. The basic empirical strategy is to determine whether an individual's wealth affects the probability of becoming an entrepreneur, and the conditional amounts of depreciable assets, ceteris paribus. If so, liquidity constraints are likely to be present. To be successful, such a research strategy requires a measure of asset variation that is both precisely measured and exogenous to the entrepreneurial decision. Our data are uniquely well-suited for this purpose. The sample consists of the 1981 and 1985 federal income tax returns of a group of people who received inheritances in 1982 and 1983, along with information on the size of those inheritances from a matched set of estate tax returns. Hence, we can examine how the exogenous receipt of capital affects the decision to become an entrepreneur and important financial characteristics of new enterprises. Our results suggest that the size of the inheritance has a substantial effect on the probability of becoming an entrepreneur, and that conditional on becoming an entrepreneur, the size of the inheritance has a statistically significant and quantitatively important effect on the amount of capital employed. These findings are consistent with the presence of liquidity constraints.
Handle: RePEc:nbr:nberwo:4494
Template-Type: ReDIF-Paper 1.0
Title: European Exchange Rate Credibility Before the Fall
Classification-JEL: F31
Author-Name: Andrew K. Rose
Author-Person: pro71
Author-Name: Lars E.O. Svensson
Author-Person: psv2
Note: IFM
Number: 4495
Creation-Date: 1993-10
Order-URL: http://www.nber.org/papers/w4495
File-URL: http://www.nber.org/papers/w4495.pdf
File-Format: application/pdf
Publication-Status: published as European Economic Review, Vol. 38, no. 6, pp. 1185, (June 1994).
Abstract: Realignment expectations which measure exchange rate credibility are analyzed for European exchange rates, using daily financial data since the inception of the EMS. It is difficult to find economically meaningful relationships between realignment expectations and macroeconomic variables, although there are signs that lower inflation improves credibility. Statistically, many movements to realignment expectations are common to ERM participants. There were few indications of poor ERM credibility before late August 1992; the dimensions of the currency crisis of September 1992 appear to have taken both policy-makers and private agents largely by surprise.
Handle: RePEc:nbr:nberwo:4495
Template-Type: ReDIF-Paper 1.0
Title: The Effect of Marginal Tax Rates on Taxable Income: A Panel Study of the1986 Tax Reform Act
Classification-JEL: H2
Author-Name: Martin Feldstein
Author-Person: pfe112
Note: PE
Number: 4496
Creation-Date: 1993-10
Order-URL: http://www.nber.org/papers/w4496
File-URL: http://www.nber.org/papers/w4496.pdf
File-Format: application/pdf
Publication-Status: published as Feldstein, Martin, 1995. "The Effect of Marginal Tax Rates on Taxable Income: A Panel Study of the 1986 Tax Reform Act," Journal of Political Economy, University of Chicago Press, vol. 103(3), pages 551-72, June.
Abstract: This paper reports new estimates of the sensitivity of taxable income to changes in tax rates based on a comparison of the tax returns of the same individual taxpayers before and after the 1986 tax reform. This comparison is done by using a panel of more than 4000 individual tax returns created by the Treasury that matches tax returns for the same taxpayers in different years. The analysis emphasizes that the response of taxable income is much more general than the response of traditional measures of labor supply and is likely to be much more sensitive to tax rates. The evidence shows a substantial response of taxable income to changes in marginal tax rates. The differences-of-differences calculations imply an elasticity of taxable income with respect to the marginal net-of-tax rate that is at least one and could be substantially higher. There is a brief discussion and simulation analysis of the implications of these estimates for the likely impact of the 1993 tax rate increases on tax revenues. Even the lowest estimated elasticity implies that the tax rate changes enacted in 1993 will lead to little additional personal income tax revenue.
Handle: RePEc:nbr:nberwo:4496
Template-Type: ReDIF-Paper 1.0
Title: The Impact of Alcohol Consumption and Marijuana Use on High School Graduation
Classification-JEL: I10
Author-Name: Tetsuji Yamada
Author-Name: Michael Kendix
Author-Name: Tadashi Yamada
Note: EH
Number: 4497
Creation-Date: 1993-10
Order-URL: http://www.nber.org/papers/w4497
File-URL: http://www.nber.org/papers/w4497.pdf
File-Format: application/pdf
Publication-Status: published as Yamada, Tetsuji, Michael Kendix, and Tadashi Yamada. "The Impact of Alcohol Consumption and Marijuana Use on High School Graduation." Health Economics 5, 1 (January-February 1996): 77-92.
Abstract: In this study we use data from the National Longitudinal Survey of Youth (NLSY). We estimate the relationship between high school graduation, and alcohol and marijuana use among the sample of high school students. We also estimate these students' demand determinants for each of these substances. Our results show that there are significant adverse effects of alcohol and marijuana use on high school graduation. In addition, we find that beer taxes, minimum drinking age laws and marijuana decriminalization have a significant impact on the demand for these substances. Our findings have important policy implications. We find that a ten percent increase in beer tax, reduces alcohol consumption among high school students, which in turn raises the probability of high school graduation by about 3.7 percent. Further, a ten percent increase in liquor prices, raises the probability of high school graduation by 6.6 to 8.2 percent. Raising the minimum drinking age for liquor also reduces liquor and wine consumption, and consequently, improves the probability of high school graduation.
Handle: RePEc:nbr:nberwo:4497
Template-Type: ReDIF-Paper 1.0
Title: Fiscal Anarchy in the U.K.: Modelling Poll Tax Noncompliance
Classification-JEL: H26; H71
Author-Name: Timothy Besley
Author-Person: pbe46
Author-Name: Ian Preston
Author-Person: ppr2
Author-Name: Michael Ridge
Note: PE
Number: 4498
Creation-Date: 1993-10
Order-URL: http://www.nber.org/papers/w4498
File-URL: http://www.nber.org/papers/w4498.pdf
File-Format: application/pdf
Publication-Status: published as Besley, Timothy, Ian Preston and Michael Ridge. "Fiscal Anarchy In The UK: Modelling Poll Tax Noncompliance," Journal of Public Economics, 1997, v64(2,May), 137-152.
Abstract: The U.K.'s experience with the poll tax reminds us that even in an economy with a relatively well developed detection and legal system, one cannot take tax compliance for granted. The experience of the poll tax provides a unique opportunity to study many dimensions of tax compliance. We model nonpayment rates in a short panel of data on the 366 English local authorities. The transparent observability of individual and aggregate liabilities makes reliable measurement of rates of nonpayment possible. Moreover, these rates rose to unprecedented levels as well as exhibiting considerable variation across authorities. This, together with the variation in local taxes both between districts and over time, creates an ideal opportunity for empirical investigation. Our empirical specification allows us to investigate the determinants of compliance as a function of authority characteristics from census and other geographical data. Moreover, the analysis takes seriously the possibility of neighbourhood influences across authority boundaries. Our empirical results confirm the idea that higher taxes lead to larger compliance problems and that attempts to enforce compliance have a positive effect. Neighbourhood effects on non-compliance were less conspicuous, figuring significantly, if at all, only in the final year.
Handle: RePEc:nbr:nberwo:4498
Template-Type: ReDIF-Paper 1.0
Title: Fiscal Policy and Economic Growth: An Empirical Investigation
Classification-JEL: O40; E62
Author-Name: William Easterly
Author-Person: pea1
Author-Name: Sergio Rebelo
Note: EFG
Number: 4499
Creation-Date: 1993-10
Order-URL: http://www.nber.org/papers/w4499
File-URL: http://www.nber.org/papers/w4499.pdf
File-Format: application/pdf
Publication-Status: published as Easterly, William & Rebelo, Sergio. "Fiscal policy and economic growth: An empirical investigation," Journal of Monetary Economics, Elsevier, vol. 32(3), pages 417-458, December 1993
Abstract: This paper describes the empirical regularities relating fiscal policy variables, the level of development and the rate of growth. We employ historical data, recent cross-section data, and newly constructed public investment series. Our main findings are: (i) there is a strong association between the development level and the fiscal structure: poor countries rely heavily on international trade taxes, while income taxes are only important in developed economies; (ii) fiscal policy is influenced by the scale of the economy, measured by its population; (iii) investment in transport and communication is consistently correlated with growth while the effects of taxation are difficult to isolate empirically.
Handle: RePEc:nbr:nberwo:4499
Template-Type: ReDIF-Paper 1.0
Title: The Dependent Economy Model with Both Traded and Non-Traded Capital Goods
Classification-JEL: F21; F41
Author-Name: Philip L. Brock
Author-Name: Stephen J. Turnovsky
Author-Person: ptu5
Note: ITI IFM
Number: 4500
Creation-Date: 1993-10
Order-URL: http://www.nber.org/papers/w4500
File-URL: http://www.nber.org/papers/w4500.pdf
File-Format: application/pdf
Publication-Status: published as Brock, Philip L & Turnovsky, Stephen J, 1994. "The Dependent-Economy Model with Both Traded and Nontraded Capital Goods," Review of International Economics, Blackwell Publishing, vol. 2(3), pages 306-25, October.
Abstract: This paper resolves a long-standing obstacle in the development and use of the dependent economy model with investment. This obstacle derives from the fact that models of the dependent economy with investment have been criticized for arbitrarily assuming that capital is either tradable or nontradable, and for choosing either the traded or nontraded sector to be capital intensive. The model incorporates both types of capital and shows that it is the relative sectoral intensity of nontraded capital that matters for the dynamic adjustment of the relative price of nontradables. When the traded sector is relatively intensive in nontraded capital, the saddlepath is flat (at the long-run value of the relative price of nontradables). When the nontraded sector is relatively intensive in nontraded capital, the saddlepath is negatively sloped. The relative sectoral intensity of traded capital primarily affects the adjustment of the current account. In particular, we consider the role of the complementarity or substitutability of traded and nontraded capital in the production structure on the behavior of the current account. The dynamic behavior of the model is illustrated by considering a permanent increase in foreign transfers.
Handle: RePEc:nbr:nberwo:4500
Template-Type: ReDIF-Paper 1.0
Title: Did 401(k) Plans Replace Other Employer Provided Pensions?
Classification-JEL: H24; G23
Author-Name: Leslie E. Papke
Author-Person: ppa153
Author-Name: Mitchell Petersen
Author-Person: ppe42
Author-Name: James M. Poterba
Author-Person: ppo19
Note: AG PE
Number: 4501
Creation-Date: 1993-10
Order-URL: http://www.nber.org/papers/w4501
File-URL: http://www.nber.org/papers/w4501.pdf
File-Format: application/pdf
Publication-Status: published as Advances in the Economics of Aging, David A. Wise, editor. (Chicago: University of Chicago Press, 1996), pp. 219-236.
Publication-Status: published as Do 401(k) Plans Replace Other Employer-Provided Pensions?, Leslie E. Papke, Mitchell A. Petersen, James M. Poterba. in Advances in the Economics of Aging, Wise. 1996
Abstract: This paper reports the findings from a new survey of firms that provide 401(k) plans for their employees. Our results suggest that few 401(k) plans replaced pre-existing defined benefit pension plans, although a substantial fraction replaced previous defined contribution thrift and profit sharing plans. Our survey results also provide new evidence on patterns of 401(k) participation. We find significant persistence in firm-level participation rates from one year to the next, which supports the view that 401(k) participants are not making marginal decisions of whether or not to contribute to the plan in a given month, or even year, but rather make long-term commitments to participate in these plans.
Handle: RePEc:nbr:nberwo:4501
Template-Type: ReDIF-Paper 1.0
Title: Dynamic General Equilibrium Models with Imperfectly Competitive Product Markets
Author-Name: Julio J. Rotemberg
Author-Person: pro30
Author-Name: Michael Woodford
Author-Person: pwo3
Note: EFG
Number: 4502
Creation-Date: 1993-10
Order-URL: http://www.nber.org/papers/w4502
File-URL: http://www.nber.org/papers/w4502.pdf
File-Format: application/pdf
Publication-Status: published as Frontiers of Business Cycle Research, Cooley, T., ed., Princeton: Princeton University Press, 1995.
Abstract: This paper discusses the consequences of introducing imperfectly competitive product markets into an otherwise standard neoclassical growth model. We pay particular attention to the consequences of imperfect competition for the explanation of fluctuations in aggregate economic activity. Market structures considered include monopolistic competition, the 'customer market' model of Phelps and Winter, and the implicit collusion model of Rotemberg and Saloner. Empirical evidence relevant to the numerical calibration of imperfectly competitive models is reviewed. The paper then analyzes the effects of imperfect competition upon the economy's response to several kinds of real shocks, including technology shocks, shocks to the level of government purchases, and shocks that change individual producers' degree of market power. It also discusses the role of imperfect competition in allowing for fluctuations due solely to self-fulfilling expectations.
Handle: RePEc:nbr:nberwo:4502
Template-Type: ReDIF-Paper 1.0
Title: Fixing Exchange Rates: A Virtual Quest for Fundamentals
Author-Name: Robert P. Flood
Author-Person: pfl25
Author-Name: Andrew K. Rose
Author-Person: pro71
Note: IFM
Number: 4503
Creation-Date: 1993-10
Order-URL: http://www.nber.org/papers/w4503
File-URL: http://www.nber.org/papers/w4503.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Monetary Economics, 1995
Abstract: Fixed exchange rates are less volatile than floating rates. But the volatility of macroeconomic variables such as money and output does not change very much across exchange rate regimes. This suggests that exchange rate models based only on macroeconomic fundamentals are unlikely to be very successful. It also suggests that there is no clear tradeoff between reduced exchange rate volatility and macroeconomic stability.
Handle: RePEc:nbr:nberwo:4503
Template-Type: ReDIF-Paper 1.0
Title: Fixed Exchange Rates as a Means to Price Stability: What Have We Learned
Classification-JEL: F31; F33
Author-Name: Lars E.O. Svensson
Author-Person: psv2
Note: IFM
Number: 4504
Creation-Date: 1993-10
Order-URL: http://www.nber.org/papers/w4504
File-URL: http://www.nber.org/papers/w4504.pdf
File-Format: application/pdf
Publication-Status: published as European Economic Review, vol. 38, no. 1, pp. 447-468, January 1994 EEA Alfred Marshall Lecture
Abstract: The paper discusses what we have learned from last year's currency crises in ERM and the Nordic countries about fixed exchange rates as a means to achieve price stability. After discussing the explanations for the crises, the paper concludes that fixed exchange rates are not a shortcut to price stability. Monetary stability and credibility have to be built at home and cannot easily be imported from abroad. Fixed exchange rates are more fragile and difficult to maintain than previously thought. They may even be in conflict with price stability, by inducing a procyclical destabilizing monetary policy, and by inducing an inflation bias. Building monetary credibility is even more important with flexible exchange rates.
Handle: RePEc:nbr:nberwo:4504
Template-Type: ReDIF-Paper 1.0
Title: The Consumer Price Index as a Measure of Inflation
Classification-JEL: E31; E52
Author-Name: Michael F. Bryan
Author-Name: Stephen G. Cecchetti
Author-Person: pce4
Note: ME
Number: 4505
Creation-Date: 1993-10
Order-URL: http://www.nber.org/papers/w4505
File-URL: http://www.nber.org/papers/w4505.pdf
File-Format: application/pdf
Publication-Status: published as Economic Review of the Federal Reserve, Bank of Cleveland, vol. 29, no. 4 1993, Quarter 4, p. 15-24
Abstract: As inflation approaches zero, it becomes increasingly important to examine the price indices on which monetary policy is based. The most popularly used aggregate price statistic in the U.S. is the Consumer Price Index (CPI), a statistic that appears to be a focal point in monetary policy deliberations. A problem associated with using the CPI, a fixed weight index of the cost-of-living, is that there are likely to be biases in the index as a measure of inflation. In this paper we use a simple statistical framework to compute a price index that is immune to one of the potentially important biases inherent in the CPI as a measure of inflation--weighting bias. Utilizing a dynamic factor model we are able to compute the common inflation element in a broad cross-section of consumer price changes. Our conclusion is that, although there was a large positive weighting bias during the fifteen years beginning in 1967, since 1981 the weighting bias in the CPI as a measure of inflation has been insignificant.
Handle: RePEc:nbr:nberwo:4505
Template-Type: ReDIF-Paper 1.0
Title: International Capital Mobility, Public Investment and Economic Growth
Classification-JEL: F41
Author-Name: Richard H. Clarida
Author-Person: pcl69
Note: IFM
Number: 4506
Creation-Date: 1993-10
Order-URL: http://www.nber.org/papers/w4506
File-URL: http://www.nber.org/papers/w4506.pdf
File-Format: application/pdf
Publication-Status: published as With Ronald Findlay, published as "After Maastricht: Public Investment, Economic Integration and International Capital Mobility", Economica, Vol. 61, no. 243 (1994): 319-329.
Abstract: This paper presents a neoclassical model of international capital flows, public investment, and economic growth. Because public capital is non-traded and is imperfectly substitutable for private capital, the open economy converges only gradually to the Solow steady-state notwithstanding the fact that international capital mobility is perfect. Along the convergence path, the economy initially runs a current account deficit that reflects a consumption boom and a surge in public spending. Over time, the rate of public investment declines as does the rate of growth in the standard measure of multifactor productivity in the private sector, the Solow residual.
Handle: RePEc:nbr:nberwo:4506
Template-Type: ReDIF-Paper 1.0
Title: Optimal Awards and Penalties when the Probability of Prevailing Varies Among Plaintiffs
Classification-JEL: K41
Author-Name: A. Mitchell Polinsky
Author-Person: ppo94
Author-Name: Daniel L. Rubinfeld
Note: LE
Number: 4507
Creation-Date: 1993-10
Order-URL: http://www.nber.org/papers/w4507
File-URL: http://www.nber.org/papers/w4507.pdf
File-Format: application/pdf
Publication-Status: published as RAND Journal of Economics, Summer 1996, Vol.27, no.2, pp.269-280.
Abstract: This article derives the optimal award to a winning plaintiff and the optimal penalty on a losing plaintiff when the probability of prevailing varies among plaintiffs. Optimality is defined in terms of achieving a specified degree of deterrence of potential injurers with the lowest litigation cost. Our main result is that the optimal penalty on a losing plaintiff is positive, in contrast to common practice in the United States. By penalizing losing plaintiffs and raising the award to winning plaintiffs (relative to what it would be if losing plaintiffs were not penalized), it is possible to discourage relatively low-probability-of-prevailing plaintiffs from suing without discouraging relatively high-probability plaintiffs, and thereby to achieve the desired degee of deterrence with lower litigation costs. This result is developed first in a model in which all suits are assumed to go to trial and then in a model in which settlements are possible.
Handle: RePEc:nbr:nberwo:4507
Template-Type: ReDIF-Paper 1.0
Title: The Selection Hypothesis and the Relationship between Trial and Plaintiff Victory
Classification-JEL: K41; K13
Author-Name: Joel Waldfogel
Author-Person: pwa46
Note: LE
Number: 4508
Creation-Date: 1993-10
Order-URL: http://www.nber.org/papers/w4508
File-URL: http://www.nber.org/papers/w4508.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Political Economy, Vol. 103, no. 2 (April 1995): 229-260.
Abstract: The selection hypothesis of Priest and Klein explains the selection of cases for trial, from the underlying population of filed cases, based on the position of the legal standard, the degree of stake asymmetry, and the predictability of trial outcomes. This paper develops implications of the selection hypothesis for the relationship between trial rates and plaintiff win rates. We find strong evidence for the selection hypothesis in estimated relationships between trial rates and plaintiff win rates at trial across case types and judges. We then structurally estimate the model on judge data, yielding estimates of the model's major parameters (the decision standard, the degree of stake asymmetry, and the uncertainty parameter) for each of three major case types, contracts, property rights, and torts. We are able to infer that tried cases are unrepresentative of filed cases and that stakes are higher for plaintiffs in contract and property rights cases and higher for defendants in tort cases. Finally, we infer that the uncertainty surrounding case outcomes is higher for tort cases than for the others, supporting the view of tort system critics that legal standards in tort cases are not clearly understood.
Handle: RePEc:nbr:nberwo:4508
Template-Type: ReDIF-Paper 1.0
Title: Minimum Wages and Employment: A Case Study of the Fast Food Industry in New Jersey and Pennsylvania
Classification-JEL: J3
Author-Name: David Card
Author-Person: pca271
Author-Name: Alan B. Krueger
Author-Person: pkr63
Note: LS
Number: 4509
Creation-Date: 1993-10
Order-URL: http://www.nber.org/papers/w4509
File-URL: http://www.nber.org/papers/w4509.pdf
File-Format: application/pdf
Publication-Status: published as American Economic Review, Vol. 84, No. 4, pp. 772-793, September 1994.
Abstract: On April 1, 1992 New Jersey's minimum wage increased from $4.25 to $5.05 per hour. To evaluate the impact of the law we surveyed 410 fast food restaurants in New Jersey and Pennsylvania before and after the rise in the minimum. Comparisons of the changes in wages, employment, and prices at stores in New Jersey relative to stores in Pennsylvania (where the minimum wage remained fixed at $4.25 per hour) yield simple estimates of the effect of the higher minimum wage. Our empirical findings challenge the prediction that a rise in the minimum reduces employment. Relative to stores in Pennsylvania, fast food restaurants in New Jersey increased employment by 13 percent. We also compare employment growth at stores in New Jersey that were initially paying high wages (and were unaffected by the new law) to employment changes at lower-wage stores. Stores that were unaffected by the minimum wage had the same employment growth as stores in Pennsylvania, while stores that had to increase their wages increased their employment.
Handle: RePEc:nbr:nberwo:4509
Template-Type: ReDIF-Paper 1.0
Title: Privatization of Social Security: Lessons from Chile
Classification-JEL: H55; J14
Author-Name: Peter Diamond
Author-Person: pdi24
Note: AG PE
Number: 4510
Creation-Date: 1993-10
Order-URL: http://www.nber.org/papers/w4510
File-URL: http://www.nber.org/papers/w4510.pdf
File-Format: application/pdf
Publication-Status: published as Revista de Analisis Economico, June 1994, pp. 21-33
Abstract: In Chile, all covered workers must place 10% of monthly earnings in a savings account with a highly regulated intermediary that manages a single fund and provides survivors and disability insurance. Workers pay a commission charge, in addition to the mandatory 10%, to finance this insurance and to cover the costs and profits of the intermediaries. On becoming eligible to receive benefits, a worker can choose between a sequence of phased withdrawals and a real annuity. In addition, there is a sizable guaranteed minimum pension. Unlike the purchased annuities, the minimum pension is not indexed, but adjusted by the government from time to time. The Chilean reform gets high marks for defending the system from political risk and for its effects on capital accumulation and on the functioning of the capital market. The Chilean reform gets low marks for the provision of insurance and for administrative cost. Perhaps the most surprising aspect of the Chilean reform is the high cost of running a privatized social security system, higher than the 'inefficient' system that it replaced. Valdes-Prieto has estimated that the average administrative charge per effective affiliate while active is U.S. $89.10 per year (for 1991) which is 2.94% of average taxable earnings. This is close to 30% of the 10% mandatory savings rate. The cost per person is not far from costs observed in other privately-managed pension systems, such as defined- benefit private pensions in the U.S. However, it compares unfavorably with administrative costs in well-run unified government managed systems. The issue here is the administrative efficiency of reliance
Handle: RePEc:nbr:nberwo:4510
Template-Type: ReDIF-Paper 1.0
Title: Trade Policy, Exchange Rates and Growth
Classification-JEL: F1; F13
Author-Name: Sebastian Edwards
Author-Person: ped3
Note: ITI IFM
Number: 4511
Creation-Date: 1993-10
Order-URL: http://www.nber.org/papers/w4511
File-URL: http://www.nber.org/papers/w4511.pdf
File-Format: application/pdf
Publication-Status: published as Reform, Recovery, and Growth: Latin America and the Middle East, Rudiger Dornbusch and Sebastian Edwards, eds., (Chicago: University of Chicago Press: 1995), pp. 13-49
Publication-Status: published as Edwards, Sebastian. "Trade Policy, Growth, And Income Distribution," American Economic Review, 1997, v87(2,May), 205-210.
Publication-Status: published as Trade Policy, Exchange Rates, and Growth, Sebastian Edwards. in Reform, Recovery, and Growth: Latin America and the Middle East, Dornbusch and Edwards. 1995
Abstract: This paper analyzes the relationship between trade policy and economic performance. The paper is divided in two fundamental parts. The first one uses a cross country data set to investigate the relationship between trade policy and productivity growth. It is found that countries that are more open to the rest of the world have experienced faster growth in total factor productivity than countries with high trade barriers. In the second part the recent Latin American experiences with trade liberalization reforms are investigated. It is shown that in the last few years the Latin American countries have gone from having one of the most distorted external sectors, to having very low degrees of protectionism. The extent of the liberalization efforts is documented and the effect on productivity and exports is investigated.
Handle: RePEc:nbr:nberwo:4511
Template-Type: ReDIF-Paper 1.0
Title: Anti-Competitive and Rent-Shifting Aspects of Domestic-Content Provisions in Regional Trade Blocks
Classification-JEL: F12; F13
Author-Name: Florencio Lopez-de-Silane
Author-Person: plo137
Author-Name: James R. Markusen
Author-Person: pma528
Author-Name: Thomas F. Rutherford
Author-Person: pru142
Note: ITI
Number: 4512
Creation-Date: 1993-10
Order-URL: http://www.nber.org/papers/w4512
File-URL: http://www.nber.org/papers/w4512.pdf
File-Format: application/pdf
Publication-Status: published as "Trade Policy Subleties with Multinational Firms" European Economic Review,vol. 40, 1996, pp. 1605-1627.
Abstract: Regional trade agreements must specify domestic-content rules (rules of origin) that define the conditions under which a good qualifies as 'domestic' and so may be freely traded within the block. The paper analyzes such rules, focussing in particular on oligopolistic industries in which foreign multinationals producing within the block rely much more on imported intermediate inputs than do domestic firms. In such a situation, we argue that domestic content provisions are anti-competitive, reducing overall final output of the industry, and shift rents (in the absence of free entry) to domestic firms. It is possible that the anti-competitive aspect of the rules are sufficiently strong that total industry profits rise and the equilibrium demand for the substitute domestic inputs falls (the scale effect of reduced output outweighs a substitution effect in favor of domestic intermediates). The latter effect is more likely to the extent that the foreign multinationals can switch from producing within the block to exporting to the block. These ideas are then examined numerically using an applied general-equilibrium model of the North American auto industry.
Handle: RePEc:nbr:nberwo:4512
Template-Type: ReDIF-Paper 1.0
Title: Discrete Plant-Location Decisions in an Applied General-Equilibrium Model of Trade Liberalization
Classification-JEL: F12
Author-Name: James R. Markusen
Author-Person: pma528
Author-Name: Thomas F. Rutherford
Author-Person: pru142
Note: ITI
Number: 4513
Creation-Date: 1993-10
Order-URL: http://www.nber.org/papers/w4513
File-URL: http://www.nber.org/papers/w4513.pdf
File-Format: application/pdf
Publication-Status: published as Review of World Economics (Weltwirtschaftliches Archiv), vol. 130, no. 1, March 1994, pp 133-151.
Abstract: Theoretical and applied work in industrial-organization approaches to international trade typically assume either that there are fixed numbers of firms, or that there is free entry and exit with a continuum of firms. This paper makes a first step toward a more realistic approach in which firms face discrete choices about the numbers and locations of their plants. The model is applied to the North American auto industry in the context of the draft North American Free Trade Agreement. Results include: (1) production appears to be excessively geographically diversified initially; (2) autos are produced in fewer locations as trade barriers are lowered; (3) a 'non-monotonicity' case is produced in which a plant is first closed and then reopened as trade barriers are progressively lowered; (4) an example of the misleading nature of marginalist analysis is presented in which plants in Canada and Mexico increase production when locations are fixed but closed down when locations are endogenous and optimized.
Handle: RePEc:nbr:nberwo:4513
Template-Type: ReDIF-Paper 1.0
Title: Short-Term Contracts as a Monitoring Device
Author-Name: Patrick Rey
Author-Name: Joseph E. Stiglitz
Number: 4514
Creation-Date: 1993-10
Order-URL: http://www.nber.org/papers/w4514
File-URL: http://www.nber.org/papers/w4514.pdf
File-Format: application/pdf
Abstract: This paper focuses on two separate problems. The first is that frequently, the most profitable use of funds involves long-term investments, which militiates for long-term debt contracts. The second problem is to monitor the investor's use of funds, as exemplified by the U.S. S&L saga, and we argue that short-term debt provides investors, who can withdraw their funds, with a real threat over firms. We show that short-term investors have both desirable incentives to exert control and invest in monitoring, and that this monitoring concern provides an explanation of the often lamented disparity between the maturity of banks' assets and liabilities. We also explore in detail the trade-off between long-term and short-term debt, including the possibility of multiple contracts and of priority rules.
Handle: RePEc:nbr:nberwo:4514
Template-Type: ReDIF-Paper 1.0
Title: A Small Open Economy in Depression: Lessons from Canada in the 1930s
Classification-JEL: E32; N12
Author-Name: Caroline M. Betts
Author-Person: pbe370
Author-Name: Michael D. Bordo
Author-Person: pbo243
Author-Name: Angela Redish
Author-Person: pre9
Note: ME
Number: 4515
Creation-Date: 1993-11
Order-URL: http://www.nber.org/papers/w4515
File-URL: http://www.nber.org/papers/w4515.pdf
File-Format: application/pdf
Publication-Status: published as Canadian Journal of Economics, vol. XXIX, no. 1, pp. 1-36, February 1996.
Abstract: This paper tests the hypothesis that idiosyncratic U.S. disturbances and their international propagation can account for the global Depression. Exploiting common stochastic trends in U.S. and Canadian interwar data, we estimate a small open economy model for Canada that decomposes output fluctuations into sources identifiable with world and country-specific disturbances. We find that the onset, depth and duration of output collapse in both Canada and the U.S. are primarily attributable to a common, permanent output shock leaving little significant role for idiosyncratic disturbances originating in either economy.
Handle: RePEc:nbr:nberwo:4515
Template-Type: ReDIF-Paper 1.0
Title: The Importance of Precautionary Motives in Explaining Individual and Aggregate Saving
Classification-JEL: E21; H31
Author-Name: R. Glenn Hubbard
Author-Person: phu97
Author-Name: Jonathan Skinner
Author-Person: psk23
Author-Name: Stephen P. Zeldes
Note: AG PE EFG
Number: 4516
Creation-Date: 1993-11
Order-URL: http://www.nber.org/papers/w4516
File-URL: http://www.nber.org/papers/w4516.pdf
File-Format: application/pdf
Publication-Status: published as Carnegie-Rochester Conference Series on Public Policy, 40 (June 1994)pp. 59-126
Abstract: This paper examines predictions of a life-cycle simulation model -- in which individuals face uncertainty regarding their length of life, earnings, and out-of-pocket medical expenditures, and imperfect insurance and lending markets -- for individual and aggregate wealth accumulation. Relative to life-cycle or buffer-stock alternatives, our augmented life-cycle model better matches a variety of features of U.S. data, including: (1) aggregate wealth, (2) cross-sectional differences in wealth-age and consumption-age profiles by education group, and (3) short-run time-series co-movements of consumption and income.
Handle: RePEc:nbr:nberwo:4516
Template-Type: ReDIF-Paper 1.0
Title: Short-Run Independence of Monetary Policy Under Pegged Exchange Rates and Effects of Money on Exchange Rates and Interest Rates
Classification-JEL: F41
Author-Name: Alan C. Stockman
Author-Person: pst94
Author-Name: Lee E. Ohanian
Author-Person: poh1
Note: IFM
Number: 4517
Creation-Date: 1993-11
Order-URL: http://www.nber.org/papers/w4517
File-URL: http://www.nber.org/papers/w4517.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Money, Credit and Banking, vol. 29, no. 4, part 1, pp. 783-806, November 1997.
Publication-Status: published as Lee E. Ohanian & Alan C. Stockman, 1997. "Short-run independence of monetary policy under pegged exchange rates and effects of money on exchange rates and interest rates," Proceedings, Federal Reserve Bank of Cleveland, pages 783-814.
Abstract: Economists generally assert that countries sacrifice monetary independence when they peg their exchange rates. At the same time, central bankers frequently assert that pegging an exchange rate does not eliminate the independence of monetary policy. This paper examines the effects of money-supply changes on exchange rates, interest rates, and production in an optimizing two-country model in which some sectors of the economy have predetermined nominal prices in the short run and other sectors have flexible prices. Money-supply shocks have liquidity effects both within and across countries and induce a cross-country real-interest differential. The model predicts that liquidity effects are highly non-linear and are not likely to be captured well empirically by linear models, particularly those involving only a single country. The most striking implication of the model is that countries have a degree of short-run independence of monetary policy even under pegged exchange rates.
Handle: RePEc:nbr:nberwo:4517
Template-Type: ReDIF-Paper 1.0
Title: Beauty and the Labor Market
Classification-JEL: J31; J71
Author-Name: Daniel S. Hamermesh
Author-Person: pha78
Author-Name: Jeff E. Biddle
Author-Person: pbi98
Note: LS
Number: 4518
Creation-Date: 1993-11
Order-URL: http://www.nber.org/papers/w4518
File-URL: http://www.nber.org/papers/w4518.pdf
File-Format: application/pdf
Publication-Status: published as American Economic Review, vol 84, Dec. 1994, pp 1174-1194
Abstract: We develop a theory of sorting across occupations based on looks and derive its implications for testing for the source of earnings differentials related to looks. These differentials are examined using the 1977 Quality of Employment, the 1971 Quality of American Life, and the 1981 Canadian Quality of Life surveys, all of which contain interviewers' ratings of the respondents' physical appearance. Holding constant demographic and labor-market characteristics, plain people earn less than people of average looks, who earn less than the good-looking. The penalty for plainness is 5 to 10 percent, slightly larger than the premium for beauty. The effects are slightly larger for men than women; but unattractive women are less likely than others to participate in the labor force and are more likely to be married to men with unexpectedly low human capital. Better-looking people sort into occupations where beauty is likely to be more productive; but the impact of individuals' looks on their earnings is mostly independent of occupation.
Handle: RePEc:nbr:nberwo:4518
Template-Type: ReDIF-Paper 1.0
Title: Index-Option Pricing with Stochastic Volatility and the Value of Accurate Variance Forecasts
Author-Name: Robert F. Engle
Author-Name: Alex Kane
Author-Person: pka501
Author-Name: Jaesun Noh
Note: AP
Number: 4519
Creation-Date: 1993-11
Order-URL: http://www.nber.org/papers/w4519
File-URL: http://www.nber.org/papers/w4519.pdf
File-Format: application/pdf
Publication-Status: published as Review of Derivatives Research, Volume 1, Number 2, 1996 , pp. 139-157
Abstract: In pricing primary-market options and in making secondary markets, financial intermediaries depend on the quality of forecasts of the variance of the underlying assets. Hence, the gain from improved pricing of options would be a measure of the value of a forecast of underlying asset returns. NYSE index returns over the period of 1968-1991 are used to suggest that pricing index options of up to 90-days maturity would be more accurate when: (1) using ARCH specifications in place of a moving average of squared returns; (2) using Hull and White's (1987) adjustment for stochastic variance in Black and Scholes's (1973) formula; (3) accounting explicitly for weekends and the slowdown of variance whenever the market is closed.
Handle: RePEc:nbr:nberwo:4519
Template-Type: ReDIF-Paper 1.0
Title: A Test of Efficiency for the S&P Index Option Market Using Variance Forecasts
Author-Name: Jaesun Noh
Author-Name: Robert F. Engle
Author-Name: Alex Kane
Author-Person: pka501
Note: AP
Number: 4520
Creation-Date: 1993-11
Order-URL: http://www.nber.org/papers/w4520
File-URL: http://www.nber.org/papers/w4520.pdf
File-Format: application/pdf
Publication-Status: published as (Published as "Forecasting Volatility and Option Prices of the S & P 500 Index") Journal of Derivatives, Vol. 2 (1994): 17-30.
Abstract: To forecast future option prices, autoregressive models of implied volatility derived from observed option prices are commonly employed [see Day and Lewis (1990), and Harvey and Whaley (1992)]. In contrast, the ARCH model proposed by Engle (1982) models the dynamic behavior in volatility, forecasting future volatility using only the return series of an asset. We assess the performance of these two volatility prediction models from S&P 500 index options market data over the period from September 1986 to December 1991 by employing two agents who trade straddles, each using one of the two different methods of forecast. Straddle trading is employed since a straddle does not need to be hedged. Each agent prices options according to her chosen method of forecast, buying (selling) straddles when her forecast price for tomorrow is higher (lower) than today's market closing price, and at the end of each day the rates of return are computed. We find that the agent using the GARCH forecast method earns greater profit than the agent who uses the implied volatility regression (IVR) forecast model. In particular, the agent using the GARCH forecast method earns a profit in excess of a cost of $0.25 per straddle with the near-the-money straddle trading.
Handle: RePEc:nbr:nberwo:4520
Template-Type: ReDIF-Paper 1.0
Title: The Economic Reality of the Beauty Myth
Classification-JEL: J71; J12
Author-Name: Susan Averett
Author-Person: pav31
Author-Name: Sanders Korenman
Number: 4521
Creation-Date: 1993-11
Order-URL: http://www.nber.org/papers/w4521
File-URL: http://www.nber.org/papers/w4521.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Human Resources, Spring 1996
Abstract: We investigate income, marital status, and hourly pay differentials by body mass (kg/m2) in a sample of 23 to 31 year olds drawn from the 1988 NLSY. Obese women have lower family incomes than women whose weight-for-height is in the 'recommended' range. Results for men are weaker and mixed. We find similar results when we compare same-sex siblings in order to control for family background (e.g., social class) differences. Differences in economic status by body mass for women increase markedly when we use an earlier weight measure or restrict the sample to persons who were single and childless when the early weight was reported. There is some evidence of labor market discrimination against obese women. However, differences in marriage probabilities and in spouse's earnings account for 50 to 95 percent of their lower economic status. There is no evidence that obese African American women suffer an economic penalty relative to other African American women.
Handle: RePEc:nbr:nberwo:4521
Template-Type: ReDIF-Paper 1.0
Title: Currency Option Pricing in Credible Target Zones
Classification-JEL: F31; F33
Author-Name: Bernard Dumas
Author-Person: pdu519
Author-Name: L. Peter Jennergren
Author-Name: Bertil Naslund
Note: AP IFM
Number: 4522
Creation-Date: 1993-11
Order-URL: http://www.nber.org/papers/w4522
File-URL: http://www.nber.org/papers/w4522.pdf
File-Format: application/pdf
Publication-Status: published as Review of Futures Markets, Vol. 12, No. 2, pp. 323-346. (April 1992)
Abstract: This paper develops a model for valuing options on a currency which is maintained within a band. The starting point of our model is the well known Krugman model for exchange-rate behavior within a target zone. Results from model runs provide insight into evidence reported by other authors of mispricing of currency options by extensions of the Black-Scholes model.
Handle: RePEc:nbr:nberwo:4522
Template-Type: ReDIF-Paper 1.0
Title: Growth and the Effects of Inflation
Author-Name: Larry E. Jones
Author-Person: pjo88
Author-Name: Rodolfo E. Manuelli
Note: EFG
Number: 4523
Creation-Date: 1993-11
Order-URL: http://www.nber.org/papers/w4523
File-URL: http://www.nber.org/papers/w4523.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Economic Dynamics and Control, vol. 19, no. 8, November 1995pp. 1405-1428.
Abstract: In this paper, we analyze the effects of changes in monetary growth rates in the context of models of endogenous growth when the demand for money comes from a cash-in-advance constraint. We explore two alternative avenues through which the rate of inflation could affect the overall long-run rate of growth of the economy. The first of these is through nominal rigidities in the tax code. The particular rigidity that we examine is for depreciation allowances that are fixed in nominal terms. The second avenue that we examine is a distortion of the labor-leisure choice when a Lucas-style model of effective labor is used. In both cases, the welfare costs and growth effects of various monetary growth rules relative to a constant money supply are studied. It is found that both the welfare costs of inflation and its growth effects are quite small at low to moderate levels of inflation. However, at rates of inflation that are high by U.S. standards but not uncommon in developing countries, the magnitude of both the growth effects and the welfare costs of inflation depend on the specification of the model. If cash and credit goods are substitutes there are no growth effects and moderate welfare effects. If the two goods are complements there are sizable growth effects and large welfare effects.
Handle: RePEc:nbr:nberwo:4523
Template-Type: ReDIF-Paper 1.0
Title: A Revealed Preference Analysis of Asset Pricing Under Recursive Utility
Author-Name: Larry G. Epstein
Author-Person: pep2
Author-Name: Angelo Melino
Author-Person: pme69
Note: AP
Number: 4524
Creation-Date: 1993-11
Order-URL: http://www.nber.org/papers/w4524
File-URL: http://www.nber.org/papers/w4524.pdf
File-Format: application/pdf
Publication-Status: published as Review of Economic Studies, Vol. 62, no. 213 (1995): 597-618.
Abstract: This paper considers a representative agent model of asset prices based on a recursive utility specification. A constant elasticity of intertemporal substitution is assumed but the risk-preference component of utility is restricted only by qualitative, nonparametric regularity conditions. The principal contribution is to determine the exhaustive implications of this semiparametric recursive utility model for the one-step ahead joint probability distribution for consumption growth and asset returns.
Handle: RePEc:nbr:nberwo:4524
Template-Type: ReDIF-Paper 1.0
Title: On the Optimal Taxation of Capital Income
Author-Name: Larry E. Jones
Author-Person: pjo88
Author-Name: Rodolfo E. Manuelli
Author-Name: Peter E. Rossi
Author-Person: pro227
Note: PE
Number: 4525
Creation-Date: 1993-11
Order-URL: http://www.nber.org/papers/w4525
File-URL: http://www.nber.org/papers/w4525.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Economic Theory, Vol. 73, no. 1 (March 1997): 93-117.
Abstract: One of the best known results in modern public finance is the Chamley-Judd result showing that the optimal tax rate on capital income is zero in the long-run. In this paper, we reexamine this result by analyzing a series of generalizations of the Chamley-Judd formulation. We show that in a model with human capital, if the tax code is sufficiently rich and there are no pure profits from accumulating human capital, then all distorting taxes are zero in the long-run under the optimal plan. In this sense, income from physical capital is not special. To gain a better understanding of these two conditions, we study examples in which they are not satisfied and show that the optimal tax rate on income from physical capital does not go to zero. In those cases where the limiting tax rate is non-zero, we calculate its value for alternative specifications of the marginal welfare cost of taxation. Our results indicate that even for conservative specifications, tax rates of 10% and higher are possible under the optimal code.
Handle: RePEc:nbr:nberwo:4525
Template-Type: ReDIF-Paper 1.0
Title: Entrepreneurial Decisions and Liquidity Constraints
Classification-JEL: D21
Author-Name: Douglas Holtz-Eakin
Author-Name: David Joulfaian
Author-Person: pjo3
Author-Name: Harvey S. Rosen
Author-Person: pro55
Note: PE
Number: 4526
Creation-Date: 1993-11
Order-URL: http://www.nber.org/papers/w4526
File-URL: http://www.nber.org/papers/w4526.pdf
File-Format: application/pdf
Publication-Status: published as RAND Journal of Economics, vo. 25, no. 2, pp. 334-347, (Summer 1994).
Abstract: This paper analyzes the role of liquidity constraints in the formation of new entrepreneurial enterprises. The basic empirical strategy is to determine whether an individual's wealth affects the probability of becoming an entrepreneur, and the conditional amounts of depreciable assets, ceteris paribus. If so, liquidity constraints are likely to be present. To be successful, such a research strategy requires a measure of asset variation that is both precisely measured and exogenous to the entrepreneurial decision. Our data are uniquely well-suited for this purpose. The sample consists of the 1981 and 1985 federal income tax returns of a group of people who received inheritances in 1982 and 1983, along with information on the size of those inheritances from a matched set of estate tax returns. Hence, we can examine how the exogenous receipt of capital affects the decision to become an entrepreneur and important financial characteristics of new enterprises. Our results suggest that the size of the inheritance has a substantial effect on the probability of becoming an entrepreneur, and that conditional on becoming an entrepreneur, the size of the inheritance has a statistically significant and quantitatively important effect on the amount of capital employed. These findings are consistent with the presence of liquidity constraints.
Handle: RePEc:nbr:nberwo:4526
Template-Type: ReDIF-Paper 1.0
Title: Endogenous Innovation in the Theory of Growth
Classification-JEL: 040; 030
Author-Name: Gene M. Grossman
Author-Person: pgr21
Author-Name: Elhanan Helpman
Author-Person: phe205
Note: EFG
Number: 4527
Creation-Date: 1993-11
Order-URL: http://www.nber.org/papers/w4527
File-URL: http://www.nber.org/papers/w4527.pdf
File-Format: application/pdf
Publication-Status: published as Grossman, Gene M & Helpman, Elhanan. "Endogenous Innovation in the Theory of Growth," Journal of Economic Perspectives, American Economic Association, vol. 8(1), pages 23-44, (Winter 1994)
Abstract: This paper makes the case that purposive, profit-seeking investments in knowledge play a critical role in the long-run growth process. First, we review the implications of neoclassical growth theory and the more recent theories of 'endogenous growth'. Then we discuss the empirical evidence that bears on the modeling of long-run growth. Finally, we describe in more detail a model of growth based on endogenous technological progress and discuss the lessons that such models can teach us.
Handle: RePEc:nbr:nberwo:4527
Template-Type: ReDIF-Paper 1.0
Title: An Evaluation of Recent Evidence on the Employment Effects of Minimum and Subminimum Wages
Classification-JEL: J3
Author-Name: David Card
Author-Person: pca271
Author-Name: Lawrence F. Katz
Author-Person: pka266
Author-Name: Alan B. Krueger
Author-Person: pkr63
Note: LS
Number: 4528
Creation-Date: 1993-11
Order-URL: http://www.nber.org/papers/w4528
File-URL: http://www.nber.org/papers/w4528.pdf
File-Format: application/pdf
Publication-Status: published as Industrial and Labor Relations Review, April 1994, Vol. 47, No. 3, pp. 487- 496.
Abstract: We re-examine recent cross-state evidence on the employment effect of the minimum wage. A re-evaluation of the data used in Neumark and Wascher's (1992) study of the minimum wage provides no support for their conclusion that the minimum wage has an adverse effect on teenage employment. Neumark and Wascher's findings are shown to be due to an inadvertent mistake in the definition of their school enrollment variable. In addition, Neumark and Wascher's coverage-weighted relative minimum wage index is shown to be negatively correlated with average teenage wages. We also re-analyze the experiences of individual states following the April 1990 increase in the Federal minimum wage, allowing for a full year lag in the effect of the law and controlling for changes in (properly measured) enrollment rates. These changes actually strengthen Card's (1992a) conclusion that the 1990 increase in the Federal minimum had no adverse employment effect. Lastly, we find that subminimum wages are rarely used, casting doubt on the claim that subminimum wage provisions temper any employment losses attributable to the minimum wage.
Handle: RePEc:nbr:nberwo:4528
Template-Type: ReDIF-Paper 1.0
Title: Estimating Sectoral Cycles Using Cointegration and Common Features
Author-Name: Robert F. Engle
Author-Name: Joao Victor Issler
Author-Person: pis7
Note: EFG
Number: 4529
Creation-Date: 1993-11
Order-URL: http://www.nber.org/papers/w4529
File-URL: http://www.nber.org/papers/w4529.pdf
File-Format: application/pdf
Publication-Status: published as (Published as "Estimating Common Sectoral Cycles") Journal of Monetary Economics, Vol. 35 (1995): 83-113.
Abstract: This paper investigates the degree of short run and long run comovement in U.S. sectoral output data by estimating sectoral trends and cycles. A theoretical model based on Long and Plosser (1983) is used to derive a reduced form for sectoral output from first principles. Cointegration and common features (cycles) tests are performed and sectoral output data seem to share a relatively high number of common trends and a relatively low number of common cycles. A special trend-cycle decomposition of the data set is performed and the results indicate a very similar cyclical behavior across sectors and a very different behavior for trends. In a variance decomposition exercise, for prominent sectors such as Manufacturing and Wholesale/Retail Trade, the cyclical innovation is more important than the trend innovation.
Handle: RePEc:nbr:nberwo:4529
Template-Type: ReDIF-Paper 1.0
Title: Aging in Germany and the United States: International Comparisons
Classification-JEL: J26; D91
Author-Name: Axel Borsch-Supan
Note: AG
Number: 4530
Creation-Date: 1993-11
Order-URL: http://www.nber.org/papers/w4530
File-URL: http://www.nber.org/papers/w4530.pdf
File-Format: application/pdf
Publication-Status: published as Studies in the Economics of Aging, ed. David Wise, University of Chicago Press, 1994, p. 291
Publication-Status: published as Aging in Germany and the United States: International Comparisons, Axel H. Boersch-Supan. in Studies in the Economics of Aging, Wise. 1994
Abstract: This paper reports on a set of international comparisons of how the German and the U.S. economies are affected by population aging. The paper's main focus is on the influence of institutional arrangements such as government regulations and subsidies on retirement, savings and housing choices in the two countries. Germany faces a particularly pronounced aging process. Her dependency ratio is already now as large as it will be in the year 2015 in the U.S., and it is predicted to exceed 43 percent at its peak in 2030. In this respect, changes that are occurring in Germany now may be regarded as indicative for changes to come in the United States. Retirement, savings and housing behavior differ quite markedly between Germany and the United States, and I will show that most of these differences are consistent with the incentives applicable to each country.
Handle: RePEc:nbr:nberwo:4530
Template-Type: ReDIF-Paper 1.0
Title: Collateral Damage: How Refinancing Constraints Exacerbate Regional Recessions
Author-Name: Andrew Caplin
Author-Person: pca77
Author-Name: Charles Freeman
Author-Name: Joseph Tracy
Author-Person: ptr23
Note: EFG
Number: 4531
Creation-Date: 1993-11
Order-URL: http://www.nber.org/papers/w4531
File-URL: http://www.nber.org/papers/w4531.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Money, Credit, and Banking, Vol.29, no.4, part 1 (November 1997), pp. 496-516.
Abstract: In the current structure of the U.S. residential mortgage market, a fall in property values may make it very difficult for homeowners to refinance their mortgages to take advantage of falling interest rates. In this paper, we explain the institutional background for this effect and quantify its importance. We confirm that this form of collateral constraint has greatly reduced recent refinancing in states with depressed property markets. We also point to the many ways in which the reduction in refinancing may have inflicted additional damage in these already recession-hit states. Finally, we show that relatively minor institutional changes could have neutralized the damaging effects of the collateral constraints, and we discuss why the institutions have their current structure.
Handle: RePEc:nbr:nberwo:4531
Template-Type: ReDIF-Paper 1.0
Title: Does Central Bank Intervention Increase the Volatility of Foreign Exchange Rates?
Classification-JEL: F31; E58
Author-Name: Kathryn M. Dominguez
Author-Person: pdo227
Note: IFM
Number: 4532
Creation-Date: 1993-11
Order-URL: http://www.nber.org/papers/w4532
File-URL: http://www.nber.org/papers/w4532.pdf
File-Format: application/pdf
Publication-Status: published as "Central Bank Intervention and Exchange Rate Volatility", Journal of International Money and Finance, 17, 1, 161-190, February 1998.
Abstract: Since the abandonment of the Bretton Woods system of fixed exchange rates in the early 1970s, exchange rates have displayed a surprisingly high degree of time-conditional volatility. This volatility can be explained statistically using autoregressive conditional heteroscedasticity models, but there remains the question of the economic source of this volatility. Central bank intervention policy may provide part of the explanation. Previous work has shown that central banks have relied heavily on intervention policy to influence the level of exchange rates, and that these operations have, at times, been effective. This paper investigates whether central bank interventions have also influenced the variance of exchange rates. The results from daily and weekly GARCH models of the $/DM and $/Yen rates over the period 1985 to 1991 indicate that publicly known Fed intervention generally decreased volatility over the full period. Further, results indicate that intervention need not be publicly known for it to influence the conditional variance of exchange rate changes. Secret intervention operations by both the Fed and the Bundesbank generally increased exchange rates volatility over the period.
Handle: RePEc:nbr:nberwo:4532
Template-Type: ReDIF-Paper 1.0
Title: Information and Economic Efficiency
Author-Name: Richard Arnott
Author-Person: par13
Author-Name: Bruce Greenwald
Author-Name: Joseph E. Stiglitz
Note: PE
Number: 4533
Creation-Date: 1993-11
Order-URL: http://www.nber.org/papers/w4533
File-URL: http://www.nber.org/papers/w4533.pdf
File-Format: application/pdf
Publication-Status: published as Information Economics and Policy Vol. 6 (1994), pp. 77-88
Abstract: Is an economy with adverse selection, moral hazard, or an incomplete set of risk markets "constrained" Pareto efficient? There are two sets of papers addressing this question, one asserting that, under seemingly quite general conditions, the economy is constrained Pareto efficient, the other (to which we have contributed) that it is not. In this paper, we delineate the differences in assumptions between the two sets of papers, and under our assumptions present an intuitive proof of the Pareto inefficiency of market equilibrium with moral hazard and identify what it is that the government can do that the market cannot.
Handle: RePEc:nbr:nberwo:4533
Template-Type: ReDIF-Paper 1.0
Title: International Capital Mobility in the 1990s
Classification-JEL: F21; F32
Author-Name: Maurice Obstfeld
Author-Person: pob13
Note: ITI
Number: 4534
Creation-Date: 1993-11
Order-URL: http://www.nber.org/papers/w4534
File-URL: http://www.nber.org/papers/w4534.pdf
File-Format: application/pdf
Publication-Status: published as Peter B. Kenen, ed. Understanding Interdependence: The Macroeconomics of th Princeton, NJ: Princeton University Press, 1995
Abstract: This paper surveys the performance of international capital markets and the literature on measuring international capital mobility. Three main functions of a globally integrated and efficient world capital market provide focal points for the analysis. First, asset-price arbitrage ensures that people in different countries face identical prices for a given asset. Second, to the extent that the usual market failures allow, people in different countries can pool risks to their lifetime consumption profiles. Third, new saving, regardless of its country of origin, is allocated toward the world's most productive investment opportunities. The paper evaluates the international capital market's performance of these roles by studying data on international interest-rate differences, international consumption correlations, international portfolio diversification, and the relations between national saving and investment rates. The conclusion is that while international capital mobility has increased markedly in the last two decades, international capital movements remain less free than intranational movements, even among the industrial countries.
Handle: RePEc:nbr:nberwo:4534
Template-Type: ReDIF-Paper 1.0
Title: The Efficiency Cost of Increased Progressivity
Classification-JEL: H20
Author-Name: Robert K. Triest
Author-Person: ptr80
Note: PE
Number: 4535
Creation-Date: 1993-11
Order-URL: http://www.nber.org/papers/w4535
File-URL: http://www.nber.org/papers/w4535.pdf
File-Format: application/pdf
Publication-Status: published as Slemrod, Joel. Tax progressivity and income inequality. Cambridge; New York and Melbourne: Cambridge University Press, 1994.
Abstract: Increases in income tax progressivity generally entail some efficiency cost due to increased distortion of individuals' labor supply decisions. This paper quantifies the magnitude of the efficiency cost of several policies which would increase the progressivity of the U.S. individual income tax. The analysis differs from previous work on this topic in allowing for complex nonlinear tax schedules similar to those which actually exist. The efficiency cost of increased progressivity is found to vary considerably with the type of tax reform considered. Expanding the earned income tax credit (EITC) is found to be a particularly efficient means of increasing progressivity. Using the labor supply parameters I consider most reasonable, I find that the efficiency cost of expanding the EITC financed by increased tax rates in the intermediated brackets is less than 20 cents per dollar transferred from the upper income groups to the lower income groups.
Handle: RePEc:nbr:nberwo:4535
Template-Type: ReDIF-Paper 1.0
Title: Market Structure and International Trade: Business Groups in East Asia
Classification-JEL: F12; F14
Author-Name: Robert C. Feenstra
Author-Person: pfe116
Author-Name: Tzu-Han Yang
Author-Name: Gary G. Hamilton
Note: ITI
Number: 4536
Creation-Date: 1993-11
Order-URL: http://www.nber.org/papers/w4536
File-URL: http://www.nber.org/papers/w4536.pdf
File-Format: application/pdf
Abstract: In this paper we study the effect of market structure on the trade performance of South Korea, Taiwan, and Japan. We center our analysis on Korea and Taiwan, countries which have very different market structures: Korea has many large, vertically-integrated business groups known as chaebol, whereas business groups in Taiwan are smaller and horizontally-integrated in the production of intermediate inputs. The exports of these countries to the United States are compared using indexes of product variety and 'product mix', which are constructed at the 5-digit industry level. It is found that Taiwan tends to export a greater variety of products to the U.S. than Korea, and this holds across nearly all industries. In addition, Taiwan exports relatively more high-priced intermediate inputs, whereas Korea exports relatively more high-priced final goods. We argue that these results confirm the importance of market structure as a determinant of trade patterns.
Handle: RePEc:nbr:nberwo:4536
Template-Type: ReDIF-Paper 1.0
Title: Health, Income, and Retirement: Evidence from Nineteenth Century America
Classification-JEL: J26; N31
Author-Name: Dora L. Costa
Author-Person: pco358
Note: DAE
Number: 4537
Creation-Date: 1993-11
Order-URL: http://www.nber.org/papers/w4537
File-URL: http://www.nber.org/papers/w4537.pdf
File-Format: application/pdf
Publication-Status: published as "Pensions & Retirement: Evidence from Union Army Records," Quarterly Journal of Economics, vol. 110, no. 2, pp. 297-319, (May 1995). Also Costa, Dora L. "Health, Income, and Retirement: Evidence from Nineteenth-Century America," The Journal of Economic History, Cambridge University Press, vol. 55(02), pages 374-375, June 1995.
Abstract: I investigate the factors that fostered rising retirement rates prior to social security and private-sector pensions by estimating the income effect of a large government transfer, the first major pension program in the United States, covering Union Army veterans of the American Civil War. The pension, because of the program's rules, had only an income effect and these rules create a natural experiment to identify the effects of pensions and health on labor supply. Pensions exerted a large impact on retirement rates. The elasticity of non-participation with respect to pension income was at least 0.66, exceeding even the most conservative estimates of that elasticity with respect to social security payments. Union Army pensions were a much larger fraction of retirement income than social security payments today and this accounts for some of the difference in estimated elasticities. My findings suggest that secular increases in income can explain a substantial part of the rise in retirement rates, although the elasticity of labor force non-participation with respect to transfer income may have fallen over time, perhaps because of the increasing attractiveness of leisure.
Handle: RePEc:nbr:nberwo:4537
Template-Type: ReDIF-Paper 1.0
Title: Endogenous Growth, Public Capital, and the Convergence of Regional Manufacturing Industries
Author-Name: Charles R. Hulten
Author-Name: Robert M. Schwab
Note: PR
Number: 4538
Creation-Date: 1993-11
Order-URL: http://www.nber.org/papers/w4538
File-URL: http://www.nber.org/papers/w4538.pdf
File-Format: application/pdf
Publication-Status: Published as "Public Capital Formation and the Growth of Regional Manufacturing Industries", NTJ, Vol. 45, no. 4 (1992): 121-134.
Abstract: Several explanations can be offered for the unbalanced growth of U.S. regional manufacturing industries in the decades after World War II. The convergence hypothesis suggests that the success of the South in catching up to the Northeast and Midwest should be understood by analogy with the economic success of Japan and the rest of the G-7 in closing the gap relative to the U.S. as a whole. Endogenous growth theory, on the other hand, assigns a central role to capital formation, broadly defined. A variant of endogenous growth theory focuses on investments in public infrastructure as a key determinant of regional growth. Finally, traditional location theory stresses the evolution of regional supply and demand and the role of economies of scale and agglomeration. This paper compares these alternative explanations of U.S. regional growth by testing their predictions about the productive efficiency of regional manufacturing industries. We find little evidence that technological convergence explains the regional evolution of U.S. manufacturing industry, or that endogenous growth was an important factor. We also find little evidence that public capital externalities played a significant role in explaining the relative success of industries in the South and West. The main engine of differential regional manufacturing growth over the period 1970-86 seems to be inter-regional flows of capital and labor. The growth of multifactor productivity is essentially uniform across regions, although there is some variation in the initial levels of efficiency.
Handle: RePEc:nbr:nberwo:4538
Template-Type: ReDIF-Paper 1.0
Title: Welfare and the Well-Being of Children: The Relative Effectiveness of Cash and In-Kind Transfers
Classification-JEL: I38; H53
Author-Name: Janet Currie
Author-Person: pcu13
Note: LS
Number: 4539
Creation-Date: 1993-11
Order-URL: http://www.nber.org/papers/w4539
File-URL: http://www.nber.org/papers/w4539.pdf
File-Format: application/pdf
Publication-Status: published as Tax Policy and the Economy, vol. 8, ed. James M. Poterba, 1994 (MIT Press)
Publication-Status: published as Welfare and the Well-Being of Children: The Relative Effectiveness of Cash and In-Kind Transfers, Janet Currie. in Tax Policy and the Economy, Volume 8, Poterba. 1994
Abstract: Cash transfers to families with children are increasingly being restricted to parents who work, while families of non-working parents are receiving a progressively larger share of their benefits in kind. This paper provides an evaluation of the empirical evidence regarding the effects of in-kind and cash transfer program on the children who are their intended beneficiaries. A distinction is made between in- kind transfer programs, such as the Food Stamp Program, that provide transfers to families that are earmarked for certain purposes, and programs such as Medicaid that provide specific services directly to children. Although the evidence is incomplete, it suggests that in- kind programs have stronger effects on children than cash transfers, and that programs that target specific benefits directly to children have the largest positive effects.
Handle: RePEc:nbr:nberwo:4539
Template-Type: ReDIF-Paper 1.0
Title: The Output Contributions of Computer Equipment and Personnel: A Firm- Level Analysis
Classification-JEL: O3; O4
Author-Name: Frank R. Lichtenberg
Author-Person: pli76
Note: PR
Number: 4540
Creation-Date: 1993-11
Order-URL: http://www.nber.org/papers/w4540
File-URL: http://www.nber.org/papers/w4540.pdf
File-Format: application/pdf
Publication-Status: published as Economics of Innovation and New Technology, vol. 3, pp. 201-217, 1995
Abstract: This paper examines the output contributions of capital and labor deployed in information systems (IS) at the firm level during the period 1988-91 throughout the business sector, using two different sources of data on these inputs. Our production function estimates suggest that there are substantial excess returns to both IS capital and IS labor, although the size and significance of the excess returns to IS capital is larger. Computer capital and labor jointly contribute, or account for, about 21 percent of output, although only about 10% of both capital and labor income accrue to IS factors. Although IS employees accounted for a very small share of total employment by 1986, IS employment growth is estimated to have made a larger contribution to 1976-86 output growth than non-IS employment, due to the very rapid growth (16% per annum) of IS employment. The estimated marginal rate of substitution (MRS) between IS and non-IS employees, evaluated at the sample mean, is 6: one IS employee can be substituted for six non-IS employees without affecting output.
Handle: RePEc:nbr:nberwo:4540
Template-Type: ReDIF-Paper 1.0
Title: Earnings Inequality in Germany
Author-Name: Katharine G. Abraham
Author-Person: pab32
Author-Name: Susan N. Houseman
Author-Person: pho473
Note: LS
Number: 4541
Creation-Date: 1993-11
Order-URL: http://www.nber.org/papers/w4541
File-URL: http://www.nber.org/papers/w4541.pdf
File-Format: application/pdf
Publication-Status: published as Differences and Changes in Wage Structure, Lawrence Katz and Richard Freeman, eds. (Chicago: University of Chicago Press: 1995).
Publication-Status: published as Earnings Inequality in Germany, Katharine G. Abraham, Susan Houseman. in Differences and Changes in Wage Structures, Freeman and Katz. 1995
Abstract: Recent studies have documented the growth of earnings inequality in the United States during the 1980s. In contrast to these studies' findings, our analysis of micro data for the former West Germany yields virtually no evidence of growth in earnings inequality over the same period. Between 1978 and 1988, a reduction in the dispersion of earnings among workers in the bottom half of the earnings distribution led to a narrowing of the overall dispersion of earnings in Germany. Earnings differentials across education and age groups remained roughly stable, and there was no general widening of earnings differentials within either education or age groups. Germany wage setting institutions tend to limit earnings differentials across groups of workers, but differences in wage setting institutions cannot fully explain the differences between trends in earnings inequality in Germany and those in the United States. Both the high quality of the training received by non- college-bound German youth and the fact that the growth of the highly- educated work force did not decelerate in Germany as it did in the United States seem likely to have contributed to these differences.
Handle: RePEc:nbr:nberwo:4541
Template-Type: ReDIF-Paper 1.0
Title: Does Profit Sharing Affect Productivity?
Classification-JEL: J33
Author-Name: Douglas L. Kruse
Author-Person: pkr335
Note: LS
Number: 4542
Creation-Date: 1993-11
Order-URL: http://www.nber.org/papers/w4542
File-URL: http://www.nber.org/papers/w4542.pdf
File-Format: application/pdf
Abstract: Existing research tends to show that profit-sharing plans for employees are associated with higher company productivity and profitability, though the causality and mechanisms are unclear. This study uses new data from a survey of 500 U.S. public companies, and panel data on corporate performance, to examine the relationship between productivity measures and the adoption and presence of profit sharing. Controlling for a variety of influences on productivity, profit sharing adoption is found to be associated with average productivity increases of 4-5%, with no subsequent positive or negative trend. The productivity increase is dispersed; it is found to be larger for small companies and for cash plans, and to be unaffected when controlling for personnel policies which may affect productivity. There is, however, no evidence on the mechanisms through which profit sharing may affect productivity, since there are no strong interactions with information-sharing or other policies in affecting productivity.
Handle: RePEc:nbr:nberwo:4542
Template-Type: ReDIF-Paper 1.0
Title: Multilateral Tariff Cooperation during the Formation of Customs Unions
Classification-JEL: F13; F15
Author-Name: Kyle Bagwell
Author-Person: pba409
Author-Name: Robert W. Staiger
Author-Person: pst85
Note: ITI
Number: 4543
Creation-Date: 1993-11
Order-URL: http://www.nber.org/papers/w4543
File-URL: http://www.nber.org/papers/w4543.pdf
File-Format: application/pdf
Publication-Status: published as Journal of International Economics, February, 1997.
Abstract: We study the implications of customs union formation for multilateral tariff cooperation. We model cooperation in multilateral trade policy as self-enforcing, in that it involves balancing the current gains from deviating unilaterally from an agreed-upon trade policy against the future losses from forfeiting the benefits of multilateral cooperation that such a unilateral defection would imply. The early stages of the process of customs union formation are shown to alter this dynamic incentive constraint in a way that leads to a temporary 'honeymoon' for liberal multilateral trade policies. We find, however, that the harmony between customs unions and multilateral liberalization is temporary: Eventually, as the full impact of the emerging customs union becomes felt, a less favorable balance between current and future conditions reemerges, and the liberal multilateral policies of the honeymoon phase cannot be sustained. We argue that this is compatible with the evolving implications of the formation of the European Community customs union for the ability to sustain liberal multilateral trade policies under the General Agreement of Tariffs and Trade.
Handle: RePEc:nbr:nberwo:4543
Template-Type: ReDIF-Paper 1.0
Title: Term, Inflation, and Foreign Exchange Risk Premia: A Unified Treatment
Classification-JEL: F31; E43
Author-Name: Lars E.O. Svensson
Author-Person: psv2
Note: IFM
Number: 4544
Creation-Date: 1993-11
Order-URL: http://www.nber.org/papers/w4544
File-URL: http://www.nber.org/papers/w4544.pdf
File-Format: application/pdf
Abstract: The paper reviews the theoretical foundations of the use of forward interest rates to infer expected future rates of interest, inflation, currency depreciation and inflation differentials. Forward rates are related to these expected future variables via combinations of term, inflation and foreign exchange risk premia. A unified derivation, discussion and comparison of these premia is provided under both general and specific assumptions, as well as some comments on empirical estimation.
Handle: RePEc:nbr:nberwo:4544
Template-Type: ReDIF-Paper 1.0
Title: Short-run and Long-run Expectations of the Yen/Dollar Exchange Rate
Author-Name: Takatoshi Ito
Note: IFM
Number: 4545
Creation-Date: 1993-11
Order-URL: http://www.nber.org/papers/w4545
File-URL: http://www.nber.org/papers/w4545.pdf
File-Format: application/pdf
Publication-Status: published as Journal of the Japanese and International Economies, vol. 8, no. 2, June 1994, pp. 119-143.
Abstract: The survey data on the yen/dollar exchange rate, collected twice a month for eight years from 1985 to 1993, shows the following features. First, the expected exchange rate changes in the short horizon (one month) are of the band-wagon type while the expected changes in the long horizon (three to six months) are of the mean- reversion type. That is, foreign exchange traders infer from recent appreciations or depreciation that the recent change in the exchange rate will continue for a while, but the direction of changes will reverse, eventually. Second, this result is robust for the entire sample period, which includes sub-periods of sharp yen appreciations and of relative calm, and with respect to different specifications. Third, the deviation from an equilibrium exchange rate does not yield a robust estimate in the regression of expectation formation. Although the history of the yen/dollar exchange rate fluctuations in the past two decades shows mean reversion over several years, they are not captured in the six-month expectations in the survey data.
Handle: RePEc:nbr:nberwo:4545
Template-Type: ReDIF-Paper 1.0
Title: A Comparison of the United States and Canadian Banking Systems in the Twentieth Century: Stability vs. Efficiency?
Classification-JEL: E44; G21
Author-Name: Michael D. Bordo
Author-Person: pbo243
Author-Name: Hugh Rockoff
Author-Person: pro65
Author-Name: Angela Redish
Author-Person: pre9
Note: ME
Number: 4546
Creation-Date: 1993-11
Order-URL: http://www.nber.org/papers/w4546
File-URL: http://www.nber.org/papers/w4546.pdf
File-Format: application/pdf
Publication-Status: published as "The U.S. Banking System from a Northern Exposure: Stability vs. Efficiency ." Journal of Economic History, Vol 54 (June 1994): 325-341.
Publication-Status: published as R2085 same as wp title: in Anglo-American Financial Systems: Institutions and Markets in the Twentieth Century, Michael D. Bordo and Richard Sylla, eds., pp. 11-40, (Burr Ridge, IL: Irwin Professional Publishing, 1995).
Abstract: This paper asks whether the vaunted comparative stability of the Canadian banking system has been purchased at the cost of creating an oligopoly. We assembled a data set that compares bank failures, lending rates, interest paid on deposits and related variables over the period 1920 to 1980. Our principal findings are that: (1) interest rates paid on deposits were generally higher in Canada; (2) interest income received on securities was generally slightly higher in Canada; (3) interest rates charged on loans were generally quite similar; (4) net rates of return to equity were generally higher in Canada than in the U.S..
Handle: RePEc:nbr:nberwo:4546
Template-Type: ReDIF-Paper 1.0
Title: Rules, Discretion, and Central Bank Independence: The German Experience 1880-1989
Classification-JEL: N13; N14
Author-Name: Bernhard Eschweiler
Author-Name: Michael D. Bordo
Author-Person: pbo243
Note: ME
Number: 4547
Creation-Date: 1993-11
Order-URL: http://www.nber.org/papers/w4547
File-URL: http://www.nber.org/papers/w4547.pdf
File-Format: application/pdf
Publication-Status: published as Pierre Siklos, ed., Varieties of Monetary Reform: Lessons and Experience on the Road to Monetary Union. Boston: Kluwer Academic Publishers, 1994, pp. 279-321.
Abstract: Theories of rules and discretion suggest that monetary policy rules are first best in terms of social welfare. However, if commitment is not feasible, delegating monetary policy to an independent and conservative central bank can be second best. Monetary policy in Germany during the past one hundred years provides an excellent case to assess the empirical evidence on the use of rules and central bank independence in monetary policy making. Since the creation of a central monetary authority in 1876, Germany has participated in four monetary regimes: the pre-war gold standard, the inter-war gold standard, the Bretton-Woods system, and the floating exchange rate regime. The bottom line of our analysis is that monetary policy in Germany was always geared toward maintaining price stability with the exception of the two world war periods. Germany relied both on rules and discretion with central bank independence to achieve the goal of price stability. A comparison of the Classical Gold Standard regime with the floating exchange rate regime suggests that society under the floating exchange rate regime with central bank independence was better off. However, this comparison ignores the historical difference in output shocks and the possibility that society became more inflation averse over time.
Handle: RePEc:nbr:nberwo:4547
Template-Type: ReDIF-Paper 1.0
Title: Labor Adjustment Under Different Institutional Structures: A Case Study of Germany and The United States
Author-Name: Susan N. Houseman
Author-Person: pho473
Author-Name: Katharine G. Abraham
Author-Person: pab32
Note: LS
Number: 4548
Creation-Date: 1993-10
Order-URL: http://www.nber.org/papers/w4548
File-URL: http://www.nber.org/papers/w4548.pdf
File-Format: application/pdf
Abstract: Like most Western European countries, Germany stringently regulates dismissals and layoffs. Critics contend that this regulation raises the costs of employment adjustment and hence impedes employers' ability to respond to fluctuations in demand. Other German labor policies, however, most especially the availability of unemployment insurance benefits for those on short time, facilitate the adjustment of average hours per worker in lieu of layoffs. Building on earlier work, we compare the adjustment of employment, hours and inventories to demand shocks in the German and U.S. manufacturing sectors. We find that, in the short run, whereas U.S. employers rely principally on the adjustment of employment levels to respond to demand shocks, German employers rely principally on the adjustment of average hours per worker. The adjustment of overall labor input is generally similar in the two countries. Short-time work makes a very important contribution to short-run hours adjustment in Germany. We find little evidence that inventories help to buffer demand fluctuations in either country. Our findings suggest that, given appropriate supporting institutions, strong worker job security can be compatible with employers' need for flexibility in staffing levels.
Handle: RePEc:nbr:nberwo:4548
Template-Type: ReDIF-Paper 1.0
Title: Econometric Estimates of Prices Indexes for Personal Computers in the 1990s
Classification-JEL: L63; C23
Author-Name: Ernst R. Berndt
Author-Name: Zvi Griliches
Author-Name: Neal Rappaport
Note: PR
Number: 4549
Creation-Date: 1993-11
Order-URL: http://www.nber.org/papers/w4549
File-URL: http://www.nber.org/papers/w4549.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Econometrics, vol. 68, (1995). pp. 243-268
Abstract: In this paper we construct a number of quality-adjusted price indexes for personal computers in the U.S. marketplace over the 1989- 92 time period. We generalize earlier work by incorporating simultaneously the time, age and vintage effects of computer models into a fully saturated parameterization, and then develop a corresponding specification test procedure. While the simple arithmetic mean of prices of models by year reveals a price decline of about 11% per year, use of a matched model procedure similar to that commonly used by government statistical agencies generates a much larger rate of price decline -- about 20% per year. Since the matched model procedure holds quality constant, it ignores quality change embodied in new models. When data on new and surviving models are used in the estimation of hedonic price equations, a variety of quality-adjusted price indexes can be calculated, with varying interpretations. Although there are some differences, we find that on average these quality-adjusted price indexes decline at about 30% per year, with a particularly large price drop occurring in 1992. Parameters in hedonic price equations for desktop PC models differ from those for mobile PCs. Moreover, quality-adjusted prices fall at a slightly lower AAGR for mobile models (24%) than for desktops (32%). We conclude that taking quality changes into account has an enormous impact on the time pattern of price indexes for PCs.
Handle: RePEc:nbr:nberwo:4549
Template-Type: ReDIF-Paper 1.0
Title: The Gender Gap, Fertility, and Growth
Classification-JEL: J13; J16
Author-Name: Oded Galor
Author-Person: pga46
Author-Name: David N. Weil
Author-Person: pwe24
Note: EFG
Number: 4550
Creation-Date: 1993-11
Order-URL: http://www.nber.org/papers/w4550
File-URL: http://www.nber.org/papers/w4550.pdf
File-Format: application/pdf
Publication-Status: published as American Economic Review, June 1996, pp.374-387.
Abstract: This paper examines a novel mechanism linking fertility and growth. Household fertility is determined by relative wages of women and men. Increasing women's wages reduces fertility by raising the cost of children relatively more than household income. Lower fertility raises the level of capital per worker which in turn, since capital is more complementary to women's labor input than men's, raises women's relative wages. This positive feedback leads to the possibility of multiple steady-state equilibria. Countries with low initial capital may converge to a development trap with high fertility, low capital, and low relative wages for women.
Handle: RePEc:nbr:nberwo:4550
Template-Type: ReDIF-Paper 1.0
Title: The Effect of Convicton on Income Through the Life Cycle
Classification-JEL: K42; J41
Author-Name: Daniel Nagin
Author-Name: Joel Waldfogel
Author-Person: pwa46
Note: LE
Number: 4551
Creation-Date: 1993-11
Order-URL: http://www.nber.org/papers/w4551
File-URL: http://www.nber.org/papers/w4551.pdf
File-Format: application/pdf
Publication-Status: published as International Review of Law & Economics, Vol. 18, no. 1 (March 1998), pp. 25-40.
Abstract: Existing studies of the impact of conviction on income and employment do not consider life cycle issues. We postulate that conviction reduces access to career jobs offering stable, long-term employment. Instead, conviction relegates offenders to spot market jobs, which may have higher pay at the outset of the career but do not offer stable employment or rapidly rising wages. Thus, first-time conviction may increase the wages of young workers while decreasing the wages of older workers. We test our theory with data on federal offenders and find that first-time conviction has a positive and significant effect on income for offenders under age 25 and an increasingly negative and significant impact for offenders over age 30. These results imply that the present value of income lost as a result of conviction varies over the life cycle, reaching a maximum in the middle of the career. We find that the gains sought by these offenders follow similar profiles, suggesting that prospective offenders are deterred by the possibility of lost future income. Because the discounted loss in future income facing young offenders may be small, our results may provide part of an explanation of youth crime.
Handle: RePEc:nbr:nberwo:4551
Template-Type: ReDIF-Paper 1.0
Title: Is Housing Wealth a Sideshow?
Author-Name: Jonathan Skinner
Author-Person: psk23
Note: AG
Number: 4552
Creation-Date: 1993-11
Order-URL: http://www.nber.org/papers/w4552
File-URL: http://www.nber.org/papers/w4552.pdf
File-Format: application/pdf
Publication-Status: published as D. Wise, ed., Advances in the Economics of Aging. Chicago: University of Chicago Press, 1996, pp. 241-268.
Publication-Status: published as Is Housing Wealth a Sideshow?, Jonathan S. Skinner. in Advances in the Economics of Aging, Wise. 1996
Abstract: Do housing price fluctuations play an important role in the economic security of retirees, or is housing wealth just a sideshow to the determination of consumption and saving? Using panel data on saving from the Panel Study of Income Dynamics, and aggregate time- series data, I find that shifts in housing wealth do affect consumption and saving, especially for younger households. On the other hand, few elderly households appear to be tapping into their housing windfalls to finance retirement consumption. The precautionary saving approach can explain this puzzle. If housing wealth rises, households require less insurance against future contingencies, and will respond by spending more out of (nonhousing) wealth. But not every elderly household encounters a bad outcome requiring the liquidation of household equity. Hence the median elderly family will not actively spend housing windfalls. The theoretical and empirical results therefore suggest that housing wealth is not a sideshow.
Handle: RePEc:nbr:nberwo:4552
Template-Type: ReDIF-Paper 1.0
Title: The Japanese Trade Balance: Recent History and Future Prospects
Classification-JEL: F32; F31
Author-Name: David K. Backus
Author-Person: pba242
Note: IFM
Number: 4553
Creation-Date: 1993-11
Order-URL: http://www.nber.org/papers/w4553
File-URL: http://www.nber.org/papers/w4553.pdf
File-Format: application/pdf
Publication-Status: published as Japan and the World Economy 10, (1998): 409-420.
Abstract: I examine the evolution of the Japanese trade balance and its relation to the terms of trade and the value of the yen. Using a vector time series model, I predict that the trade surplus will fall from a high of 3.7 percent of GNP in late 1992 to about 2.6 percent in 1995. This relatively modest decline is an indication that relative prices are not the dominant factor influencing the Japanese trade balance.
Handle: RePEc:nbr:nberwo:4553
Template-Type: ReDIF-Paper 1.0
Title: Understanding Risk and Return
Classification-JEL: G12
Author-Name: John Y. Campbell
Author-Person: pca54
Note: AP
Number: 4554
Creation-Date: 1993-11
Order-URL: http://www.nber.org/papers/w4554
File-URL: http://www.nber.org/papers/w4554.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Political Economy, April 1996, Vol.104,no.2, pp.298-345.
Abstract: This paper uses an intertemporal equilibrium asset pricing model to interpret the cross-sectional pattern of stock and bond returns. The model relates assets' mean returns to their covariances with the contemporaneous return and news about future returns on the market portfolio. In a departure from standard practice, the market portfolio return is measured using data on both the aggregate stock market and aggregate labor income. The paper finds that aggregate stock market risk is the main factor determining excess stock and bond returns, but that the price of stock market risk does not equal the coefficient of relative risk aversion as would be implied by the static Capital Asset Pricing Model.
Handle: RePEc:nbr:nberwo:4554
Template-Type: ReDIF-Paper 1.0
Title: The High Cost of Eating: Agricultural Protection and International Differences in Consumer Food Prices
Classification-JEL: E31; F14
Author-Name: Robert E. Lipsey
Author-Person: pli259
Author-Name: Birgitta Swedenborg
Note: ITI
Number: 4555
Creation-Date: 1993-12
Order-URL: http://www.nber.org/papers/w4555
File-URL: http://www.nber.org/papers/w4555.pdf
File-Format: application/pdf
Publication-Status: published as Review of Income and Wealth, series 42, no. 2, pp. 181-194, June 1996.
Abstract: Prices of food vary greatly among the developed countries, and some countries' food prices have been consistently far above the OECD average. The main explanation for persistently high food price levels is the extent of protection of agricultural products at the farm level, partly explainable by the desire to retain agriculture in the face of poor growing conditions. A second important influence for some countries is a high level of VAT on food. A third is deviations of aggregate country price levels from the levels that would be predicted from their per capita incomes, presumably because of omitted characteristics of the countries' economies, such as, possibly, inefficient or monopolistic service sectors. In addition, there are occasional episodes of high price levels due to temporary factors affecting exchange rates. The issues raised by these large food price differences are relevant to understanding real income differences among countries. They are also relevant to the current round of GATT negotiations, in which agricultural protection is a frequent stumbling block, and to the European Community's hopes of increasing competitive pressures through the creation of a freer internal market.
Handle: RePEc:nbr:nberwo:4555
Template-Type: ReDIF-Paper 1.0
Title: Foreign Competition, Market Power and Wage Inequality: Theory and Evidence
Classification-JEL: J31
Author-Name: George J. Borjas
Author-Person: pbo44
Author-Name: Valerie A. Ramey
Author-Person: pra154
Note: LS
Number: 4556
Creation-Date: 1993-12
Order-URL: http://www.nber.org/papers/w4556
File-URL: http://www.nber.org/papers/w4556.pdf
File-Format: application/pdf
Publication-Status: published as Quarterly Journal of Economics, 110 (November 1995): 1075-1110
Abstract: In this paper, we present theory and evidence on the link between wage inequality and foreign competition in concentrated industries. We develop a simple model in which the impact of foreign competition on the relative wages of an economy depends on the market structure of the industry penetrated. We show that the more concentrated is the industry, the greater is the impact of trade on general wage inequality. We use the theory to argue why import competition in an industry such as automobiles is much more deleterious to the wages of the less educated than import competition in an industry such as apparel. We then test our hypothesis using a panel data set on relative wages across SMSAs. We reinterpret our model as a model of local economies, and test it using both the cross-sectional and time- series variation across labor markets.
Handle: RePEc:nbr:nberwo:4556
Template-Type: ReDIF-Paper 1.0
Title: Financing Apprenticeship Training: Evidence from Germany
Author-Name: Dietmar Harhoff
Author-Person: pha276
Author-Name: Thomas J. Kane
Note: LS
Number: 4557
Creation-Date: 1993-12
Order-URL: http://www.nber.org/papers/w4557
File-URL: http://www.nber.org/papers/w4557.pdf
File-Format: application/pdf
Publication-Status: published as Harhoff, Dietmar and Thomas J. Kane. "Financing Apprenticeship Training: Evidence from Germany." Journal of Population Economics 10, 2 (1997): 171-196.
Abstract: Much of the current discussion promoting apprenticeship programs in the U.S. proceeds as if it is simply a matter of historical accident or lack of imagination which has hindered human capital investment by U.S. firms. However, the cause may be rooted more deeply in our labor market institutions. This paper discusses the structure of incentives undergirding the German system of apprenticeship training. Many German firms face large net costs of apprenticeship training. Yet they continue to provide such training in spite of considerable worker turnover upon completion of the training. The simplest human capital model suggests that employers would be willing to finance only firm-specific training. Rather than engage in a futile debate over the general or specific nature of the skills being provided, we first describe and evaluate 3 characteristics of the German labor market which may lead firms to accept part of the cost of general training even in the face of worker turnover. We then attempt to understand why German workers and firms may be more willing to invest even in firm-specific skills than in the U.S.. Finally, we discuss some implications of these results for the current vocational training debate in the U.S..
Handle: RePEc:nbr:nberwo:4557
Template-Type: ReDIF-Paper 1.0
Title: The Relationship Between Job Characteristics and Retirement
Classification-JEL: J26; J14
Author-Name: Michael Hurd
Author-Person: phu137
Author-Name: Kathleen McGarry
Author-Person: pmc264
Note: AG
Number: 4558
Creation-Date: 1993-12
Order-URL: http://www.nber.org/papers/w4558
File-URL: http://www.nber.org/papers/w4558.pdf
File-Format: application/pdf
Abstract: We study the influence of job characteristics on prospective retirement as measured by the probability of working past age 62 or 65. The characteristics fall into three broad classes: physical and mental requirements, job flexibility including employer accomodation to older workers, and financial aspects such as pensions and health care insurance. Using data from the Health and Retirement Survey, we find that physical and mental job requirements have a rather small influence on prospective retirement, whereas measures of job flexibility and financial aspects of the job are important determinants.
Handle: RePEc:nbr:nberwo:4558
Template-Type: ReDIF-Paper 1.0
Title: Integration, Specialization, and the Adjustment
Classification-JEL: F12; F15
Author-Name: Paul Krugman
Author-Person: pkr10
Author-Name: Anthony Venables
Author-Person: pve7
Note: ITI
Number: 4559
Creation-Date: 1993-12
Order-URL: http://www.nber.org/papers/w4559
File-URL: http://www.nber.org/papers/w4559.pdf
File-Format: application/pdf
Publication-Status: published as European Economic Review, Vol. 40, nos. 3-5 (April 1996): 959-967.
Abstract: In the United States, many industries have a Silicon Valley-type geographic localization. In Europe, these same industries often have four or more major centers of production. This difference is presumably the result of the formal and informal trade barriers that have divided the European market. With the growing integration of that market, however, there is the possibility that Europe will develop an American-style economic geography. This paper uses a theoretical model of industrial localization to demonstrate this possibility, and to show the possible transition costs associated with this shift.
Handle: RePEc:nbr:nberwo:4559
Template-Type: ReDIF-Paper 1.0
Title: Evaluation of Subjective Probability Distributions in the HRS
Classification-JEL: J14; J11
Author-Name: Michael D. Hurd
Author-Person: phu137
Author-Name: Kathleen McGarry
Author-Person: pmc264
Note: AG
Number: 4560
Creation-Date: 1993-12
Order-URL: http://www.nber.org/papers/w4560
File-URL: http://www.nber.org/papers/w4560.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Human Resources, 1995, Volume 30
Abstract: In the Health and Retirement Survey respondents were asked about the chances they would live to 75 or to 85, and the chances they would work after age 62 or 65. We analyze the responses to determine if they behave like probabilities, if their averages are close to average probabilities in the population, and if they have correlations with other variables that are similar to correlations with actual outcomes. We find that generally they do behave like probabilities and they do aggregate. Most remarkable, however, is that they covary with other variables in the same way actual outcomes vary with the variables. For example, smokers give lower probabilities of living to 75 than nonsmokers. We conclude that these measures of subjective probabilities have great potential use in models of intertemporal decision making under uncertainty.
Handle: RePEc:nbr:nberwo:4560
Template-Type: ReDIF-Paper 1.0
Title: Technology and the Life Cycle of Cities
Classification-JEL: 014; 018
Author-Name: Elise Brezis
Author-Person: pbr174
Author-Name: Paul Krugman
Author-Person: pkr10
Note: ITI
Number: 4561
Creation-Date: 1993-12
Order-URL: http://www.nber.org/papers/w4561
File-URL: http://www.nber.org/papers/w4561.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Economic Growth, Vol. 2, no. 4 (December 1997), pp. 369-383.
Abstract: During times of major technological change leading cities are often overtaken by upstart metropolitan areas. Such upheavals may be explained if the advantage of established urban centers rests on localized learning-by-doing. When a new technology for which this accumulated experience is irrelevant is introduced, older centers prefer to stay with a technology in which they are more efficient. New centers, however, turn to the new technology, and are competitive despite the raw state of that technology because of their lower land rents and wages. Over time, as the new technology matures, the established cities are overtaken.
Handle: RePEc:nbr:nberwo:4561
Template-Type: ReDIF-Paper 1.0
Title: Entry and Exit, Product Variety and the Business Cycle
Author-Name: Satyajit Chatterjee
Author-Person: pch34
Author-Name: Russell Cooper
Note: EFG
Number: 4562
Creation-Date: 1993-12
Order-URL: http://www.nber.org/papers/w4562
File-URL: http://www.nber.org/papers/w4562.pdf
File-Format: application/pdf
Publication-Status: published as Satyajit Chatterjee & Russell Cooper, 2014. "Entry And Exit, Product Variety, And The Business Cycle," Economic Inquiry, Western Economic Association International, vol. 52(4), pages 1466-1484, October.
Abstract: We study the stochastic behavior of a dynamic general equilibrium model with monopolistic competition. Each seller sells his product in the consumption goods as well as the investment goods market and has market power in both. Consumers derive utility from a CES aggregate of all the consumption goods and augment their capital stock by a CES aggregate of all the investment goods. We analyze the equilibrium of this economy allowing for an endogenous determination of the number of firms and therefore of products. The principal effect we highlight is the endogenous propagation and magnification of technology and preference disturbances through product space variations.
Handle: RePEc:nbr:nberwo:4562
Template-Type: ReDIF-Paper 1.0
Title: Immigration, Investment and Real Wages
Classification-JEL: F12; F22
Author-Name: Elise S. Brezis
Author-Person: pbr174
Author-Name: Paul Krugman
Author-Person: pkr10
Note: ITI
Number: 4563
Creation-Date: 1993-12
Order-URL: http://www.nber.org/papers/w4563
File-URL: http://www.nber.org/papers/w4563.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Population Economics, Vol. 9, no. 1 (1996): 83-93.
Abstract: When a country is the recipient of large-scale, politically motivated immigration -- as has been the case for Israel in recent years -- the initial impact is to reduce real wages. Over the longer term, however, the endogenous response of investment, together with increasing returns, may well actually increase real earnings. If immigration itself is not wholly exogenous, but responds to real wages, there may be multiple equilibria. That is, optimism or pessimism about the success of the economy at absorbing immigrants may constitute a self-fulfilling prophecy.
Handle: RePEc:nbr:nberwo:4563
Template-Type: ReDIF-Paper 1.0
Title: The Influence of Nonmarital Childbearing on the Formation of First Marriages
Classification-JEL: J12; J13
Author-Name: Neil G. Bennett
Author-Name: David E. Bloom
Author-Person: pbl79
Author-Name: Cynthia K. Miller
Note: LS
Number: 4564
Creation-Date: 1993-12
Order-URL: http://www.nber.org/papers/w4564
File-URL: http://www.nber.org/papers/w4564.pdf
File-Format: application/pdf
Publication-Status: published as Bennett, Neil G., David E. Bloom, and Cynthia E. Miller. "The Influence of Nonmarital Childbearing on the Formation of First Marriages." Demography 32, 1 (February 1995): 47-62.
Abstract: We examine the association between nonmarital childbearing and the subsequent likelihood of first marriage and document a negative association between these variables -- controlling for a variety of potentially confounding influences -- in several large survey data sets for the United States. We then subject possible explanations of this finding to empirical test. The analyses performed support the following conclusions: Nonmarital childbearing does not appear to be driven by low expectations of future marriage. Rather, the direction of causation is just the reverse: Nonmarital childbearing tends to be an unexpected and unwanted event that has multiple effects, which on balance are negative, on a woman's subsequent likelihood of first marriage. Further, the upward trend in the proportion of childbearing that occurs outside of marriage may account for one-fourth of the increase in the proportion of women never marrying in the United States over cohorts separated by almost two decades. We do, however, find that nonmarital childbearers are more likely to enter informal cohabitational unions than are their single counterparts who do not bear a child. We find evidence that the negative association between out-of- wedlock childbearing and subsequent marriage is particularly strong among welfare recipients as well as evidence that out-of-wedlock childbearing increases the likelihood that a woman marries her child's biological father. On the other hand, we find no evidence that (a) stigma associated with nonmarital childbearing plays an important role
Handle: RePEc:nbr:nberwo:4564
Template-Type: ReDIF-Paper 1.0
Title: The Role of Macroeconomic Factors in Growth
Classification-JEL: E00; O11
Author-Name: Stanley Fischer
Note: EFG ME
Number: 4565
Creation-Date: 1993-12
Order-URL: http://www.nber.org/papers/w4565
File-URL: http://www.nber.org/papers/w4565.pdf
File-Format: application/pdf
Publication-Status: Published as "Economic Reform in the USSR and the Role of Aid", BP, Vol.22,no. 2 (1991): 289-302. Published as "The Role of Macroeconomic Factors in Growth", Journal of Monetary Economics, Vol. 32,no. 3 (1993): 485-512.
Abstract: Using a regression analog of growth accounting, I present cross- sectional and panel regressions showing that growth is negatively associated with inflation, large budget deficits, and distorted foreign exchange markets. Supplementary evidence suggests that the causation runs from macroeconomic policy to growth. The framework makes it possible to identify the channels of these effects: inflation reduces growth by reducing investment and productivity growth; budget deficits also reduce both capital accumulation and productivity growth. Examination of exceptional cases shows that while low inflation and small deficits are not necessary for high growth even over long periods, high inflation is not consistent with sustained growth.
Handle: RePEc:nbr:nberwo:4565
Template-Type: ReDIF-Paper 1.0
Title: Should the Government's Allocation Branch be Concerned about the Distortionary Cost of Taxation and Distributive Effects?
Classification-JEL: H41; H23
Author-Name: Louis Kaplow
Author-Person: pka44
Note: PE
Number: 4566
Creation-Date: 1993-12
Order-URL: http://www.nber.org/papers/w4566
File-URL: http://www.nber.org/papers/w4566.pdf
File-Format: application/pdf
Publication-Status: published as The Optimal Supply of Public Goods and the Distortionary Cost of Taxation, National Tax Journal, Vol.49, No.4, pp.513-533(1996).
Abstract: Does taxation for public goods generally involve a distortionary cost? Are Pigouvian taxes desirable because they raise revenue without having to resort to distortionary taxes? Should decisions concerning public goods or Pigouvian taxes depend on whether their incidence is regressive? The answer to these questions may be negative, contrary to conventional wisdom, if one considers a different and arguably more natural method of achieving budget balance than is typically assumed.
Handle: RePEc:nbr:nberwo:4566
Template-Type: ReDIF-Paper 1.0
Title: Taking Trade Policy Seriously: Export Subsidization as a Case Study in Policy Effectiveness
Classification-JEL: F13; H20
Author-Name: Dani Rodrik
Author-Person: pro60
Note: ITI
Number: 4567
Creation-Date: 1993-12
Order-URL: http://www.nber.org/papers/w4567
File-URL: http://www.nber.org/papers/w4567.pdf
File-Format: application/pdf
Publication-Status: published as Alan Dearforf, et al, eds. New Directions in Trade Theory, Ann Arbor, MI: University of Michigan Press, 1995.
Abstract: In thinking about policy, academic economists alternate between theoretical models in which governments can design finely-tuned optimal interventions and practical considerations which usually assume the government to be incompetent and hostage to special interests. I argue in this paper that neither of these caricatures is accurate, and that there is much to be learned by undertaking systematic, analytical studies of state capabilities -- how they are generated and why they differ across countries and issue areas. Case studies of export subsidization in Korea, Brazil, Turkey, India, Kenya, and Bolivia are presented to confront usual presumptions against actual experience. Contrary to conventional wisdom, the successful cases (Korea and Brazil) turn out to be ones in which the government exercised discretion and selectivity, while the most uniform and non-discretionary cases (Kenya and Bolivia) were clear failures. The paradox is explained in terms of state autonomy and policy coherence.
Handle: RePEc:nbr:nberwo:4567
Template-Type: ReDIF-Paper 1.0
Title: Prices, Wages, and Employment in the U.S. Economy: A Traditional Model and Tests of Some Alternatives
Classification-JEL: E3; E5
Author-Name: Albert Ando
Author-Name: Flint Brayton
Note: EFG
Number: 4568
Creation-Date: 1993-12
Order-URL: http://www.nber.org/papers/w4568
File-URL: http://www.nber.org/papers/w4568.pdf
File-Format: application/pdf
Abstract: In this paper, we outline the cost minimizing behavior of oligopoly firms and the price adjustment process in the labor market which underlie the traditional formulation of aggregate wage-price behavior in the U.S., and show that resulting equations applied to U.S. data remain stable before and after the significant change in the monetary policy rule that had taken place in 1979. This result contradicts the prediction of the Lucas critique applied to this context that, in response to a major change of the monetary policy rule, the Phillips curve and the price setting equation of firms would have undergone significant changes. We test several competing hypotheses for the price level determination, including the possibility that more direct effect of the money supply should be relevant, and show that our formulation dominates alternatives in non- nested tests. Finally, we present evidence that the nature of capital is putty-clay rather than fully malleable, together with a demand function for labor based on this recognition. In the process of these inquiries, we contrast our formulation with that proposed by Layard and Nickell in England.
Handle: RePEc:nbr:nberwo:4568
Template-Type: ReDIF-Paper 1.0
Title: Dissaving by the Elderly, Transfer Motives and Liquidity Constraints
Classification-JEL: D1; E2
Author-Name: Albert Ando
Author-Name: Luigi Guiso
Author-Person: pgu58
Author-Name: Daniele Terlizzese
Author-Person: pte106
Note: EFG
Number: 4569
Creation-Date: 1993-12
Order-URL: http://www.nber.org/papers/w4569
File-URL: http://www.nber.org/papers/w4569.pdf
File-Format: application/pdf
Publication-Status: published as Ando, Albert, Luigi Guiso, and Ignazio Visco (eds.) Saving and the accumulation of wealth: Essays on Italian household and government saving behavior. Cambridge; New York and Melbourne: Cambridge University Press, 1994.
Abstract: Two explanations have been proposed for the observed slowness of wealth decumulation by the elderly in the literature: the precautionary saving induced by (uninsurable) uncertainty about the time of death or by the possibility of major catastrophes in old age that require large outlays; the desire to pass part of the accumulated assets on to one's heirs. We reconsider the issue of wealth decumulation by the elderly and assess the presence of a transfer motive, drawing on Italian data. We show that if intergenerational transfer of assets takes place well before the time of death, induced for instance by existence of liquidity constraints on younger families, then tests for the presence of a transfer motive based on the relative speed of decumulation of elderly households with and without a potential bequest motive might have little discriminatory power. We suggest that in this case one should look at the whole pattern of asset accumulation and decumulation. We also offer an alternative test of the bequest motive based on life insurance purchases.
Handle: RePEc:nbr:nberwo:4569
Template-Type: ReDIF-Paper 1.0
Title: Employment Effects of Minimum and Subminimum Wages: Reply to Card, Katz and Krueger
Classification-JEL: J21; J23
Author-Name: David Neumark
Author-Person: pne16
Author-Name: William Wascher
Note: LS
Number: 4570
Creation-Date: 1993-12
Order-URL: http://www.nber.org/papers/w4570
File-URL: http://www.nber.org/papers/w4570.pdf
File-Format: application/pdf
Publication-Status: Published as "Employment Effects of Minimum and Subminimum Wages: Panel Data on State Minimum Wage Laws", ILRR, Vol. 46, no. 1 (1992): 55-81.
Abstract: In Neumark and Wascher (1992), we present findings supporting the earlier consensus that minimum wages reduce employment for teens and young adults, with elasticities in the range -0.1 to -0.2. In addition, we find that subminimum wages moderate these disemployment effects. Card, Katz and Krueger (1993) criticize numerous aspects of our analysis, and contest our conclusions. This reply presents an assessment of their arguments, as well as additional evidence related to some of the criticisms that they raise. We conclude that the issues raised by Card, et al., upon further examination, do not alter the conclusions from our original paper, and in some cases even reinforce those conclusions.
Handle: RePEc:nbr:nberwo:4570
Template-Type: ReDIF-Paper 1.0
Title: What Moves the Discount on Country Equity Funds?
Classification-JEL: G14; G15
Author-Name: Gikas A. Hardouvelis
Author-Name: Rafael La Porta
Author-Person: pla273
Author-Name: Thierry A. Wizman
Note: IFM
Number: 4571
Creation-Date: 1993-12
Order-URL: http://www.nber.org/papers/w4571
File-URL: http://www.nber.org/papers/w4571.pdf
File-Format: application/pdf
Publication-Status: published as The Internationalization of Equity Markets, Jeffrey A. Frankel ed., pp. 345-397, (Chicago: University of Chicago Press: 1994).
Publication-Status: published as What Moves the Discount on Country Equity Funds?, Gikas Hardouvelis, Rafael La Porta, Thierry A. Wizman. in The Internationalization of Equity Markets , Frankel. 1994
Abstract: The paper characterizes several empirical regularities of closed- end fund prices and examines the extent to which a 'sentiment' model of asset prices is consistent with the empirical regularities. We find that after controlling for the effect of cross-border investment restrictions, country funds trade at an average discount. Discounts vary substantially and contribute to a variance in country fund weekly returns which is generally three times greater than the returns on the net asset value (NAV). Regression analysis suggests that discounts have predictive power for fund returns but not for NAV returns, suggesting that investor 'sentiment' is a component of the price of a fund and not its NAV. Estimation of an unobserved components model on the discounts of the funds reveals a significant and strongly persistent common component across fund discounts. Regressions of fund and NAV returns on financial variables reveal that fund prices are 'sticky' with respect to movements in the host country's stock market and overly sensitive to variation in the U.S. and world stock markets. This relation is unaffected when we consider separately funds whose host countries restrict cross-border investment and funds which invest in emerging stock markets.
Handle: RePEc:nbr:nberwo:4571
Template-Type: ReDIF-Paper 1.0
Title: Elderly Health, Housing, and Mobility
Author-Name: Jonathan S. Feinstein
Author-Person: pfe36
Note: AG EH
Number: 4572
Creation-Date: 1993-12
Order-URL: http://www.nber.org/papers/w4572
File-URL: http://www.nber.org/papers/w4572.pdf
File-Format: application/pdf
Publication-Status: published as Advances in the Economics of Aging, David A. Wise, ed., pp. 275-317, (Chicago: University of Chicago Press, 1996).
Publication-Status: published as Elderly Health, Housing, and Mobility, Jonathan Feinstein. in Advances in the Economics of Aging, Wise. 1996
Abstract: I construct dynamic economic models which focus on an elderly person's decision whether to move in response to changes in his or her health status. The models specify three health states (good, moderately disabled, and poor), three matching housing states (conventional, transitional, and institutional), and explicitly include several different kinds of mobility costs, including the direct utility costs, the indirect health effects of mobility, and, in the more complex model, financial transaction costs. The first model I present examines elderly mobility in a simple environment in which utility depends only on the match between housing and health, and a bequest. The second model extends the first to incorporate housing prices, household wealth, and elderly consumption decisions. Extensive simulations of the two models show that both predict considerable mobility, even when mobility costs are large. The results also highlight the importance of transitional housing, and provide evidence on the relationship between housing, mobility, household wealth, and consumption.
Handle: RePEc:nbr:nberwo:4572
Template-Type: ReDIF-Paper 1.0
Title: Is the Discount Window Necessary? A Penn-Central Perspective
Author-Name: Charles W. Calomiris
Author-Person: pca421
Note: ME
Number: 4573
Creation-Date: 1993-12
Order-URL: http://www.nber.org/papers/w4573
File-URL: http://www.nber.org/papers/w4573.pdf
File-Format: application/pdf
Publication-Status: published as The Federal Reserve Bank of St. Louis Review, Vol. 76, no. 3 (May/June 1994), pp. 31-55.
Abstract: The discount window has been under attack recently as a costly and unnecessary tool of policy. This paper argues that the primary role of the discount window should be to provide occasional, temporary support to particular financial markets during localized financial crises. The benefits of the discount window revolve around information externalities across firms resulting from confusion over the incidence of bad news, or reductions in the net worth of market intermediaries. The history of the Penn Central commercial paper crisis of 1970, and the Fed's use of the discount window to combat that crisis, are reviewed. The crisis is visible in a pronounced decline in outstanding commercial paper, an increase in the interest rate spreads for commercial paper and for long-term debt, and declines in stock prices. Cross-sectional variation in abnormal stock returns indicates that, controlling for other factors, firms that were likely to have had outstanding debt in the form of commercial paper suffered larger negative returns during the onset of the crisis, and larger positive returns after the Fed intervened to lower the cost of commercial paper rollover. Implications of the 1970 crisis for current financial markets, and for discount window policy, are considered in light of this evidence.
Handle: RePEc:nbr:nberwo:4573
Template-Type: ReDIF-Paper 1.0
Title: No Place Like Home: Tax Incentives and the Location of R&D by American Multinationals
Classification-JEL: H87; H25
Author-Name: James R. Hines, Jr.
Author-Person: phi111
Note: PE
Number: 4574
Creation-Date: 1993-12
Order-URL: http://www.nber.org/papers/w4574
File-URL: http://www.nber.org/papers/w4574.pdf
File-Format: application/pdf
Publication-Status: published as No Place like Home: Tax Incentives and the Location of R&D by American Multinationals, James R. Hines, Jr.. in Tax Policy and the Economy, Volume 8, Poterba. 1994
Abstract: This paper analyzes the effects of the U.S. tax treatment of the R&D activities of American multinationals. Recent evidence indicates that the level of R&D spending is highly sensitive to its after-tax cost. The U.S. Tax Reform Act of 1986 reduced the tax deductions that many American firms can claim for their R&D expenses incurred in the U.S., and on this basis, observers predicted that American firms would react to the tax change by significantly increasing the fraction of their R&D that they perform abroad. Aggregate data indicate that this fraction instead stayed roughly constant, at around 10%. An important reason why U.S. firms did not move more of their total R&D activity offshore is that U.S. tax law provides quite generous treatment of R&D performed in the U.S. for use abroad by firms with excess foreign tax credits, and the Tax Reform Act of 1986 significantly increased the number of American firms with excess foreign tax credits. Hence, the 1986 tax change increased the cost of U.S.-based R&D for some American firms, and reduced it for others, with little impact on the overall fraction of R&D spending that U.S. firms do abroad. One consequence of the tax law changes of the late 1980s is that, by 1991, the tax treatment of foreign-source royalties received by American firms with excess foreign tax credits has five times the revenue impact of the Research and Experimentation Tax Credit.
Handle: RePEc:nbr:nberwo:4574
Template-Type: ReDIF-Paper 1.0
Title: Does Electoral Accountability Affect Economic Policy Choices? Evidence from Gubernatorial Term Limits
Classification-JEL: D72; H72
Author-Name: Timothy Besley
Author-Person: pbe46
Author-Name: Anne Case
Author-Person: pca108
Note: PE
Number: 4575
Creation-Date: 1993-12
Order-URL: http://www.nber.org/papers/w4575
File-URL: http://www.nber.org/papers/w4575.pdf
File-Format: application/pdf
Publication-Status: published as Quarterly Journal of Economics, Volme 110, Number 3, August 1995, pp. 769-7 98.
Abstract: This paper uses data from U.S. states to investigate whether electoral accountability affects economic policy choices. We set up a model in which the possibility of being re-elected may curtail opportunistic behavior by incumbent governors. We find that facing a binding term limit affects choices on taxes, expenditures, state minimum wages and mandates on workers' compensation. Such effects are found also to vary with the party affiliation of the incumbent. The Democratic party also appears to suffer at the polls following the term of a lame-duck, Democratic incumbent.
Handle: RePEc:nbr:nberwo:4575
Template-Type: ReDIF-Paper 1.0
Title: Energy Taxes and Aggregate Economic Activity
Classification-JEL: H21; H25
Author-Name: Julio J. Rotemberg
Author-Person: pro30
Author-Name: Michael Woodford
Author-Person: pwo3
Note: EFG PE
Number: 4576
Creation-Date: 1993-12
Order-URL: http://www.nber.org/papers/w4576
File-URL: http://www.nber.org/papers/w4576.pdf
File-Format: application/pdf
Publication-Status: published as Energy Taxes and Aggregate Economic Activity, Julio I. Rotemberg, Michael Woodford. in Tax Policy and the Economy, Volume 8, Poterba. 1994
Abstract: This paper shows that the output losses from energy taxes are significantly larger than usually computed when due account is taken of imperfect competition among energy using firms. Even with perfect competition among these firms, the loss in GNP is of the same order of magnitude as the revenue raised by these taxes. However, in the presence of imperfect competition the output losses are much higher. There are particularly large transitory losses in the immediate aftermath of energy price increases when firms act as implicitly colluding oligopolists. These losses become considerably smaller if energy taxes are phased-in. We also show that taxes that affect only household consumption of energy have much smaller effects. In particular, for the empirically plausible parameter values we consider, such taxes have no effect on employment or output in the non-energy sector.
Handle: RePEc:nbr:nberwo:4576
Template-Type: ReDIF-Paper 1.0
Title: Evidence on Macroeconomic Complementarities
Classification-JEL: E32
Author-Name: Russell Cooper
Author-Name: John Haltiwanger
Author-Person: pha231
Note: EFG
Number: 4577
Creation-Date: 1993-12
Order-URL: http://www.nber.org/papers/w4577
File-URL: http://www.nber.org/papers/w4577.pdf
File-Format: application/pdf
Publication-Status: published as Review of Economics and Statistics, vol. LXXVIII, no. 1, February 1996, pp. 78-93
Abstract: This paper provides empirical evidence on macroeconomic complementarities, a restriction on the nature of interaction between individuals in a multi-agent setting. These models imply that activities across agents will be positively correlated, that discrete decisions will be synchronized and that disturbances will be magnified and propagated. The paper shows that these implications are consistent with aggregate observations as well as some microeconomic evidence. Further, looking at certain historical episodes, such as the NIRA, as well as seasonal fluctuations provides additional support for models with macroeconomic complementarities.
Handle: RePEc:nbr:nberwo:4577
Template-Type: ReDIF-Paper 1.0
Title: The Dynamics of High Inflation
Classification-JEL: E31
Author-Name: Laurence Ball
Author-Person: pba605
Note: EFG ME
Number: 4578
Creation-Date: 1993-12
Order-URL: http://www.nber.org/papers/w4578
File-URL: http://www.nber.org/papers/w4578.pdf
File-Format: application/pdf
Abstract: This paper presents a model of a high-inflation economy. The model includes the government budget constraint and money demand equation of Cagan's 1956 model; an accelerationist Phillips curve that captures inflation inertia; and an aggregate-spending equation that accounts for the effects of the inflation tax. The paper derives the dynamic effects of fiscal policy, incomes policies, and supply shocks, and uses the results to interpret high-inflation episodes of the 1970s and 1980s.
Handle: RePEc:nbr:nberwo:4578
Template-Type: ReDIF-Paper 1.0
Title: The Effect of Equity Barriers on Foreign Investment in Developing Countries
Author-Name: Stijn Claessens
Author-Person: pcl16
Author-Name: Moon-Whoan Rhee
Note: IFM
Number: 4579
Creation-Date: 1993-12
Order-URL: http://www.nber.org/papers/w4579
File-URL: http://www.nber.org/papers/w4579.pdf
File-Format: application/pdf
Publication-Status: published as The Internationalization of Equity Markets, Jeffrey A. Frankel, ed., pp. 231-271, (Chicago: University of Chicago Press: 1994).
Publication-Status: published as The Effect of Barriers to Equity Investment in Developing Countries, Stijn Claessens, Moon-Whoan Rhee. in The Internationalization of Equity Markets , Frankel. 1994
Abstract: This paper investigates stock performance in emerging markets in relation to their accessibility by foreign investors (as measured by the investability index of the IFC). Using the Stehle (1977) model, we reject for most markets integration and fail to reject for all segmentation. We find that there is a positive relationship between a stock's P/E-ratio and its investability index for most emerging markets, suggesting that barriers to access by foreigners have a negative impact. For four markets, this result is robust to the inclusion of the world beta and the degree of international spanning of the domestic market. A significant negative relationship between the investability index and stock return is only found for Jordan. This is likely because the effects of changes in the degree of access over time confound the cross-sectional relationship between return and investability indexes.
Handle: RePEc:nbr:nberwo:4579
Template-Type: ReDIF-Paper 1.0
Title: An Empirical Assessment of the Proximity-Concentration Tradeoff between Multinational Sales and Trade
Classification-JEL: F12; F21
Author-Name: S. Lael Brainard
Note: ITI
Number: 4580
Creation-Date: 1993-12
Order-URL: http://www.nber.org/papers/w4580
File-URL: http://www.nber.org/papers/w4580.pdf
File-Format: application/pdf
Publication-Status: published as American Economic Review, Vol. 87, no. 4 (September 1997): 520-544.
Abstract: This paper empirically investigates the role of transport costs, trade and investment barriers, production scale economies, and firm- specific advantages in determining the use of overseas production relative to exports. The proximity-concentration hypothesis is robust in explaining the share of total sales accounted for by affiliate sales: this share is greater the higher are transport costs and trade barriers and the lower are plant scale economies and investment barriers. Although strictly speaking, the proximity-concentration hypothesis applies to the shares of affiliate sales and exports rather than the levels, the effects of trade and investment barriers on the levels are similar to their effects on the shares, controlling for simultaneity, and so is that of freight factors in the trade estimates. The elasticity of inward and outward net affiliate sales with respect to tariffs is around 0.45, and that with respect to NTBs is an additional 0.17. The elasticity of both imports and exports with respect to freight factors is -1. However, the effect of freight factors on the level of affiliate sales is not robust, and the probability of observing any affiliate sales is increasing in proximity. The overall complementarity between trade and affiliate sales arises in part because relative income and intellectual property intensity increase both. In contrast, affiliate sales and trade move in opposite directions with increases in advertising intensity, suggesting that advertising-intensive products require a local presence.
Handle: RePEc:nbr:nberwo:4580
Template-Type: ReDIF-Paper 1.0
Title: Tax Evasion and the Allocation of Capital
Classification-JEL: D58; H21
Author-Name: Don Fullerton
Author-Person: pfu10
Author-Name: Marios Karayannis
Note: PE
Number: 4581
Creation-Date: 1993-12
Order-URL: http://www.nber.org/papers/w4581
File-URL: http://www.nber.org/papers/w4581.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Public Economics, Vol 55, no. 2 (October 1994): 257-278.
Abstract: The efficiency cost of capital misallocations between the corporate sector and the noncorporate sector is typically measured using statutory tax differences. Corporate-source income tax compliance is high because of third party reporting, however, while noncorporate rental income tax compliance is low. Differential evasion thus exacerbates statutory differences and enlarges the efficiency cost. To measure this effect, we build a numerical general equilibrium model where households simultaneously choose portfolios of risky assets and fractions of income to report.
Handle: RePEc:nbr:nberwo:4581
Template-Type: ReDIF-Paper 1.0
Title: Energy Taxes: Traditional Efficiency Effects and Environmental Implications
Classification-JEL: H21; H23
Author-Name: Lawrence H. Goulder
Note: PE EEE
Number: 4582
Creation-Date: 1993-12
Order-URL: http://www.nber.org/papers/w4582
File-URL: http://www.nber.org/papers/w4582.pdf
File-Format: application/pdf
Publication-Status: published as Tax Policy and the Economy, vol. 8, ed. James M. Poterba, (MIT Press),1994
Publication-Status: published as Energy Taxes: Traditional Efficiency Effects and Environmental Implications, Lawrence H. Goulder. in Tax Policy and the Economy, Volume 8, Poterba. 1994
Abstract: This paper examines 'traditional' (non-environmental) efficiency consequences and environmental effects of two energy tax policies: a tax on fossil and synthetic fuels based on Btu (or energy) content and a tax on consumer purchases of gasoline. It uses a model that uniquely combines attention to details of the U.S. tax system with a consolidated treatment of U.S. energy use and pollution emissions. On traditional efficiency grounds, each of the energy taxes emerges as more costly to the economy than increases in personal or corporate income taxes of equal revenue yield. Simulation experiments indicate that the excess costs of energy taxes are due partly to their relatively narrow tax base. The Btu tax's application to gross output (as compared with net output under an income tax) serves to expand its excess costs; in contrast, the gasoline tax's focus on consumption (as opposed to income) tends to mitigate its excess costs. On the environmental side, we find that for each of eight major air pollutants considered, energy taxes induce emissions reductions that are at least nine times larger than the reductions under the income tax alternatives. Overall, this study indicates that the Btu and gasoline taxes considered are inferior to the alternatives on narrow efficiency grounds but superior on environmental grounds. Whether the environmental attractions of energy taxes are large enough to offset their relatively high non-environmental costs remains an open question.
Handle: RePEc:nbr:nberwo:4582
Template-Type: ReDIF-Paper 1.0
Title: An Empirical Assessment of the Factor Proportions Explanation of Multi-National Sales
Classification-JEL: F21; F12
Author-Name: S. Lael Brainard
Note: ITI
Number: 4583
Creation-Date: 1993-12
Order-URL: http://www.nber.org/papers/w4583
File-URL: http://www.nber.org/papers/w4583.pdf
File-Format: application/pdf
Publication-Status: Published as "An Empirical Assessment of the Proximity-Concentration Trade-Off Between Multinational Sales and Trade", American Economic Review, Vol. 87, no. 4 (September 1997): 520-544.
Abstract: This paper provides empirical evidence that challenges the factor proportions explanation of multinational activity. The same tests on intra-industry ratios and total volumes that were used to demonstrate that a substantial part of trade is explained by factor proportions and income similarities rather than differences are applied to affiliate sales with surprisingly similar results. Some support for the factor proportions hypothesis is derived by comparing affiliate production destined for export to the parent's market, which is the category of activity most likely to be motivated by factor proportions considerations, with that destined for sale in the local market. Affiliate production destined for export home is moderately more responsive to factor proportions differences. However, the two types of activity differ more in their responses to transport costs and destination market income. Overall, the evidence suggests that only a small part of multinational activity into and out of the U.S. in the late 1980s can be explained by factor proportions differences.
Handle: RePEc:nbr:nberwo:4583
Template-Type: ReDIF-Paper 1.0
Title: Language, Employment and Earnings in the United States: Spanish-English Differentials from 1970 to 1990
Classification-JEL: J21; J23
Author-Name: David E. Bloom
Author-Person: pbl79
Author-Name: Gilles Grenier
Author-Person: pgr424
Note: LS
Number: 4584
Creation-Date: 1993-12
Order-URL: http://www.nber.org/papers/w4584
File-URL: http://www.nber.org/papers/w4584.pdf
File-Format: application/pdf
Publication-Status: published as Bloom, David E. and Gilles Grenier. "Language, Employment, and Earnings in the United States: Spanish-English Differentials from 1970 to 1990." International Journal of the Sociology of Language (Special Issue on the Economics of Language) 121 (1996): 45–68.
Abstract: This paper analyzes employment and earnings differentials between Spanish speakers and English speakers in the United States, using data from the 1970, 1980, and 1990 U.S. censuses. The results show that Spanish speakers, both men and women, do not perform as well in the labor market as English speakers. The results also reveal that Spanish-English earnings and unemployment differentials increased slightly in the 1970s, most likely because of rapid growth in the number of Spanish speakers. By contrast, these differentials increased sharply in the 1980s, also a period of rapidly increasing supply. However, there is no evidence that the widening of differentials in the 1980s reflects an increase in the labor market rewards to English language proficiency. Rather, they appear to be the result of Spanish speakers having relatively little of those labor market characteristics, most notably education, whose market value increased dramatically during the 1980s.
Handle: RePEc:nbr:nberwo:4584
Template-Type: ReDIF-Paper 1.0
Title: Re-Employment Probabilities over the Business Cycle
Author-Name: Guido W. Imbens
Author-Person: pim4
Author-Name: Lisa M. Lynch
Author-Person: ply3
Note: LS
Number: 4585
Creation-Date: 1993-12
Order-URL: http://www.nber.org/papers/w4585
File-URL: http://www.nber.org/papers/w4585.pdf
File-Format: application/pdf
Publication-Status: published as Guido Imbens & Lisa Lynch, 2006. "Re-employment probabilities over the business cycle," Portuguese Economic Journal, Springer, vol. 5(2), pages 111-134, August.
Abstract: Using a Cox proportional hazard model that allows for a flexible time dependence that can incorporate both seasonal and business cycle effects, we analyze the determinants of re-employment probabilities of young workers from 1978-1989. We find considerable changes in the chances of young workers finding jobs over the business cycle, however, the characteristics of those starting jobless spells do not vary much over time. Therefore, government programs that target specific demographic groups may change individuals' positions within the queue of job seekers but will probably have a more limited impact on the overall re-employment probability. Living in an area with high local unemployment reduces re-employment chances as does being in a long spell of non-employment. However, when we allow for an interaction between the length of time of a jobless spell and the local unemployment rate we find the interaction term is positive. In other words, while workers appear to be scarred by a long spell of unemployment, the damage seems to be reduced if they are unemployed in an area with high overall unemployment.
Handle: RePEc:nbr:nberwo:4585
Template-Type: ReDIF-Paper 1.0
Title: Should Liability be Based on the Harm to the Victim or the Gain to the Injurer?
Classification-JEL: K10; K13
Author-Name: A. Mitchell Polinsky
Author-Person: ppo94
Author-Name: Steven Shavell
Author-Person: psh42
Note: LE
Number: 4586
Creation-Date: 1993-12
Order-URL: http://www.nber.org/papers/w4586
File-URL: http://www.nber.org/papers/w4586.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Law, Economics & Organization, Vol. 10, No. 2 (October 1994)pp. 427-437
Abstract: Should the level of liability imposed on an injurer be based on the harm he caused or instead on the gain he obtained from engaging in the harmful act? The main point of this article is that there is a strong reason to favor liability based on harm rather than gain when account is taken of the possibility of legal error. Notably, even a small underestimate of gain can lead an injurer to commit a harmful act when the harm greatly exceeds his gain, causing a large social loss. In contrast, a comparable error in the estimate of harm will not lead an injurer to engage in the harmful act when the harm significantly exceeds his gain. The general superiority of harm-based liability is shown to hold under the rules of negligence and strict liability and regardless of whether potential injurers know the error that will be made.
Handle: RePEc:nbr:nberwo:4586
Template-Type: ReDIF-Paper 1.0
Title: International Experiences with Securities Transaction Taxes
Classification-JEL: H10
Author-Name: John Y. Campbell
Author-Person: pca54
Author-Name: Kenneth A. Froot
Author-Person: pfr60
Note: AP ITI PE
Number: 4587
Creation-Date: 1993-12
Order-URL: http://www.nber.org/papers/w4587
File-URL: http://www.nber.org/papers/w4587.pdf
File-Format: application/pdf
Publication-Status: published as The Internationalization of Equity Markets, Jeffrey A. Frankel ed., pp. 277-303, (Chicago: University of Chicago Press: 1994).
Publication-Status: published as International Experiences with Securities Transaction Taxes, John Y. Campbell, Kenneth A. Froot. in The Internationalization of Equity Markets , Frankel. 1994
Abstract: This paper studies the international experience with securities transaction taxes (STTs), using the Swedish and British systems as case studies. We argue that STTs are best thought of as taxes on different resources used in transactions: domestic brokerage services in the case of Sweden, and registration services in the British case. STTs give investors incentives to economize on the taxed resources by shifting trading to foreign markets or untaxed assets, or by reducing the volume of trade. We show that these effects can be important. Estimated revenues from an STT will be correspondingly overstated if they ignore such behavioral effects.
Handle: RePEc:nbr:nberwo:4587
Template-Type: ReDIF-Paper 1.0
Title: Continental Trading Blocs: Are They Natural, or Super-Natural?
Classification-JEL: F15
Author-Name: Jeffrey A. Frankel
Author-Person: pfr12
Author-Name: Ernesto Stein
Author-Person: pst501
Author-Name: Shang-Jin Wei
Author-Person: pwe20
Note: ITI
Number: 4588
Creation-Date: 1993-12
Order-URL: http://www.nber.org/papers/w4588
File-URL: http://www.nber.org/papers/w4588.pdf
File-Format: application/pdf
Publication-Status: published as Frankel, J., E. Stein and S. J. Wei. "Trading Blocs And The Americas: The Natural, The Unnatural, And The Super-Natural," Journal of Development Economics, 1995, v47(1), 61-95.
Publication-Status: published as The Regionalization of the World Economy, Frankel, Jeffrey, ed., Chicago: The University of Chicago Press, 1997.
Publication-Status: published as Continental Trading Blocs: Are They Natural or Supernatural?, Jeffrey A. Frankel, Ernesto Stein, Shang-Jin Wei. in The Regionalization of the World Economy, Frankel. 1998
Abstract: Using the gravity model, we find evidence of three continental trading blocs: the Americas, Europe and Pacific Asia. Intra-regional trade exceeds what can be explained by the proximity of a pair of countries, their sizes and GNP/capitas, and whether they share a common border or language. We then turn from the econometrics to the economic welfare implications. Krugman has supplied an argument against a three-bloc world, assuming no transport costs, and another argument in favor, assuming prohibitively high transportation costs between continents. We complete the model for the realistic case where intercontinental transport costs are neither prohibitive nor zero. If transport costs are low, continental Free Trade Areas can reduce welfare. We call such blocs super-natural. Partial liberalization is better than full liberalization within regional Preferential Trading Arrangements, despite the GATT's Article 24. The super-natural zone occurs when the regionalization of trade policy exceeds what is justified by natural factors. Estimates suggest that trading blocs like the current EC are super-natural.
Handle: RePEc:nbr:nberwo:4588
Template-Type: ReDIF-Paper 1.0
Title: The Labor Market Effects of Introducing National Health Insurance: Evidence from Canada
Classification-JEL: H51; I18
Author-Name: Jonathan Gruber
Author-Person: pgr20
Author-Name: Maria Hanratty
Note: EH LS PE
Number: 4589
Creation-Date: 1993-12
Order-URL: http://www.nber.org/papers/w4589
File-URL: http://www.nber.org/papers/w4589.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Business & Economic Statistics, April 1995, vol. 13, no. 2, pp. 163-173.
Abstract: While National Health Insurance (NHI) plans in the U.S. are often opposed on the basis of their potential disemployment effects, there is no existing evidence on the effects of NHI on employment. We provide such evidence by examining the employment consequences of NHI in Canada, using the fact that NHI was introduced on a staggered basis across the Canadian provinces. We examine monthly data on employment, wages, and hours across 8 industries and 10 provinces over the 1961- 1975 period. We find that employment actually rose after the introduction of NHI; wages increased as well, while average hours were unchanged.
Handle: RePEc:nbr:nberwo:4589
Template-Type: ReDIF-Paper 1.0
Title: The Internationalization of Equity Markets
Classification-JEL: G15
Author-Name: Jeffrey A. Frankel
Author-Person: pfr12
Note: IFM
Number: 4590
Creation-Date: 1993-12
Order-URL: http://www.nber.org/papers/w4590
File-URL: http://www.nber.org/papers/w4590.pdf
File-Format: application/pdf
Publication-Status: published as Introduction to "The Internationalization of Equity Markets ", Jeffrey A. Frankel. in The Internationalization of Equity Markets , Frankel. 1994
Abstract: This introduction to a forthcoming NBER volume on 'The Internationalization of Equity Markets' argues that the existing finance literature has in some respects not kept pace with world trends. Most empirical studies fail to take due account of the diversity of assets offered by countries around the world, the diversity of locales in which investors live, and the diversity of institutional peculiarities that characterize the markets in which assets and investors are brought together. Four of the papers in the volume are econometric studies of asset pricing and home-country bias in internationally integrated equity markets. The other four examine such issues as emerging markets, country funds, trading volume, location, taxes, controls, and other imperfections in international markets.
Handle: RePEc:nbr:nberwo:4590
Template-Type: ReDIF-Paper 1.0
Title: Estimation of the Depreciation Rate of Physical and R&D Capital in the U.S. Total Manufacturing Sector
Author-Name: M. Ishaq Nadiri
Author-Name: Ingmar R. Prucha
Author-Person: ppr355
Note: PR
Number: 4591
Creation-Date: 1993-12
Order-URL: http://www.nber.org/papers/w4591
File-URL: http://www.nber.org/papers/w4591.pdf
File-Format: application/pdf
Publication-Status: published as NBER reprint 2104
Publication-Status: published as Economic Inquiry, vol. xxxiv, no. 1, p. 43-56, January 1996.
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: Numerous studies on production and cost, the sources of productivity and studies on endogenous growth have recognized the pivotal role of the physical capital stock. Also there is a clear recognition by economists and policy makers that knowledge capital approximated by R&D capital is crucial for productivity growth and the transformation of the industrial structure of an economy. Critical to these contributions of physical and R&D capital is the measurement of the stocks of physical and R&D capital, which in turn requires measuring their depreciation rates. In this paper we have specified a model of factor demand that allows for estimating the depreciation rate of both physical and R&D capital jointly with the other model parameters. The model was estimated for the U.S. total manufacturing sector. Our estimate for the depreciation rate of physical capital is 0.059 and that for R&D capital is 0.12. Only gross investment data are needed to estimate the model parameters and the depreciation rates, and to generate consistent series for the stocks of physical and R&D capital.
Handle: RePEc:nbr:nberwo:4591
Template-Type: ReDIF-Paper 1.0
Title: Price Volatility and Volume Spillovers between the Tokyo and New York Stock Markets
Classification-JEL: G14; G15
Author-Name: Takatoshi Ito
Author-Name: Wen-Ling Lin
Note: IFM
Number: 4592
Creation-Date: 1993-12
Order-URL: http://www.nber.org/papers/w4592
File-URL: http://www.nber.org/papers/w4592.pdf
File-Format: application/pdf
Publication-Status: published as The Internationalization of Equity Markets, Jeffrey A. Frankel, ed., pp. 309-333, (Chicago: University of Chicago Press: 1994).
Publication-Status: published as Price Volatility and Volume Spillovers between the Tokyo and New York Stock Markets, Wen-Ling Lin, Takatoshi Ito. in The Internationalization of Equity Markets , Frankel. 1994
Abstract: This paper presents a comprehensive study of the interactions among returns, volatility, and trading volume between the U.S. and Japanese stock markets by using intradaily data from October 1985 to December 1991. By examining the effect of foreign price volatility and trading volume on correlations between foreign and domestic stock returns, the paper aims to distinguish between the market contagion and informational efficiency hypotheses in order to explain the cause of international transmission of stock returns and volatility. Major findings are three-fold: (1) contemporaneous correlations of stock returns across these two markets are significant and tend to increase during a high volatility period, which support the informational efficiency hypothesis; (2) lagged volatility and volume spillovers are not found across the two markets; (3) the effect of the New York stock returns on the Tokyo returns exhibits a structural change in October 1987.
Handle: RePEc:nbr:nberwo:4592
Template-Type: ReDIF-Paper 1.0
Title: The Military Pension, Compensation, and Retirement of U.S. Air Force Pilots
Author-Name: John A. Ausink
Author-Name: David A. Wise
Author-Person: pwi45
Note: AG LS
Number: 4593
Creation-Date: 1993-12
Order-URL: http://www.nber.org/papers/w4593
File-URL: http://www.nber.org/papers/w4593.pdf
File-Format: application/pdf
Publication-Status: published as Advances in the Economics of Aging, David A. Wise, ed., pp. 83-109, (Chicago: The University of Chicago Press, 1996).
Publication-Status: published as The Military Pension, Compensation, and Retirement of U.S. Air Force Pilots, John Ausink, David A. Wise. in Advances in the Economics of Aging, Wise. 1996
Abstract: This paper uses the option value model of Stock and Wise to analyze the departure patterns of a sample of pilots in the United States Air Force. Pilot compensation and the military pension are described, as are some details of the option value model and two other models: the Annualized Cost of Leaving (ACOL) model, which is used by the Department of Defense, and a variant of a dynamic programming model proposed by Daula and Moffitt. The option value model captures departure behavior much better than the ACOL model, and substantially better than the dynamic programming model. The superiority of the option value model to the dynamic programming formulation raises the possibility that individual decision-making may not always be best modeled by a formulation that is intended to capture 'correct' economic financial calculations. This is consistent with findings by Lumsdaine, Stock and Wise for civilians in a Fortune 500 firm.
Handle: RePEc:nbr:nberwo:4593
Template-Type: ReDIF-Paper 1.0
Title: Health Insurance and Early Retirement: Evidence from the Availability of Continuation Coverage
Author-Name: Jonathan Gruber
Author-Person: pgr20
Author-Name: Brigitte Madrian
Author-Person: pma384
Note: EH
Number: 4594
Creation-Date: 1993-12
Order-URL: http://www.nber.org/papers/w4594
File-URL: http://www.nber.org/papers/w4594.pdf
File-Format: application/pdf
Publication-Status: published as Gruber, Jonathan and Brigitte C. Madrian. "Health-Insurance Availability And The Retirement Decision," American Economic Review, 1995, v85(4), 938-948.
Publication-Status: published as Advances in the Economics of Aging, David A. Wise, ed., pp. 115-143, (Chicago: University of Chicago Press, 1996).
Publication-Status: published as Health Insurance and Early Retirement: Evidence from the Availability of Continuation Coverage, Jonathan Gruber, Brigitte C. Madrian. in Advances in the Economics of Aging, Wise. 1996
Abstract: Although the vast majority of working individuals aged 55-64 receive health insurance coverage through their employment, many of these individuals face the prospect of losing such coverage should they retire before becoming eligible for guaranteed public coverage through Medicare at age 65. Because the expected medical expenses of this group are large and uncertain, the availability of health insurance coverage after retirement could be a key factor in the retirement decision of older workers. We examine the effect of health insurance on retirement by looking at variation in state and federal 'continuation of coverage' mandates, laws which allow individuals to continue purchasing health insurance through a previous employer for a specified number of months after leaving the firm. By allowing individuals to maintain their employer-provided health insurance after retirement, these laws decrease the cost of early retirement for those who do not have other retiree health insurance available. Using data on 55-64 year old men from the Current Population Survey, we find that one year of continuation benefits increases the probability of being retired by 1 percentage point; this represents a 5.4 percent increase in the baseline probability of being retired for this group. We also find that continuation mandates increase the likelihood of being insured after retirement.
Handle: RePEc:nbr:nberwo:4594
Template-Type: ReDIF-Paper 1.0
Title: An Exploratory Investigation of the Fundamental Determinants of National Equity Market Returns
Classification-JEL: F3; G1
Author-Name: Wayne E. Ferson
Author-Person: pfe32
Author-Name: Campbell R. Harvey
Author-Person: pha102
Note: AP IFM
Number: 4595
Creation-Date: 1993-12
Order-URL: http://www.nber.org/papers/w4595
File-URL: http://www.nber.org/papers/w4595.pdf
File-Format: application/pdf
Publication-Status: published as The Internationalization of Equity Markets, Jeffrey A. Frankel, ed., pp. 59-138, (Chicago: University of Chicago Press: 1994).
Publication-Status: published as An Exploratory Investigation of the Fundamental Determinants of National Equity Market Returns, Wayne Ferson, Campbell R. Harvey. in The Internationalization of Equity Markets , Frankel. 1994
Abstract: This paper studies average and conditional expected returns in national equity markets, and their relation to a number of fundamental country attributes. The attributes are organized into three groups. The first is relative valuation ratios, such as price-to-book-value, cash-flow, earnings and dividends. The second group measures relative economic performance and the third measures industry structure. We find that average returns across countries are related to the volatility of their price-to-book ratios. Predictable variation in returns is also related to relative gross domestic product, interest rate levels and dividend-price ratios. We explore the hypothesis that cross-sectional variation in the country attributes proxy for variation in the sensitivity of national markets to global measures of economic risks. We test single-factor and two-factor models in which countries' conditional betas are assumed to be functions of the more important fundamental attributes.
Handle: RePEc:nbr:nberwo:4595
Template-Type: ReDIF-Paper 1.0
Title: Jumps and Stochastic Volatility: Exchange Rate Processes Implicit in thePHLX Deutschemark Options
Classification-JEL: G13
Author-Name: David S. Bates
Note: AP
Number: 4596
Creation-Date: 1993-12
Order-URL: http://www.nber.org/papers/w4596
File-URL: http://www.nber.org/papers/w4596.pdf
File-Format: application/pdf
Publication-Status: published as Review of Financial Studies, Vol. 9, no. 1 (1996): 69-107.
Abstract: An efficient method is developed for pricing American options on combination stochastic volatility/jump-diffusion processes when jump risk and volatility risk are systematic and nondiversifiable, thereby nesting two major option pricing models. The parameters implicit in PHLX-traded Deutschemark options of the stochastic volatility/jump- diffusion model and various submodels are estimated over 1984-91, and are tested for consistency with the $/DM futures process and the implicit volatility sample path. The parameters implicit in options are found to be inconsistent with the time series properties of implicit volatilities, but qualitatively consistent with log- differenced futures prices. No economically significant implicit expectations of exchange rate jumps were found in full-sample estimation, which is consistent with the reduced leptokurtosis of $/DM weekly exchange rate changes over 1984-91 relative to earlier periods.
Handle: RePEc:nbr:nberwo:4596
Template-Type: ReDIF-Paper 1.0
Title: The Politics of Free Trade Agreements
Classification-JEL: F13; F15
Author-Name: Gene M. Grossman
Author-Person: pgr21
Author-Name: Elhanan Helpman
Author-Person: phe205
Note: ITI
Number: 4597
Creation-Date: 1993-12
Order-URL: http://www.nber.org/papers/w4597
File-URL: http://www.nber.org/papers/w4597.pdf
File-Format: application/pdf
Publication-Status: published as American Economic Review, vol. 85, 1995, pp. 667-690
Abstract: Suppose that an opportunity arises for two countries to negotiate a free trade agreement (FTA). Will an FTA between these countries be politically viable? And if so, what form will it take? We address these questions using a political-economy framework that emphasizes the interaction between industry special interest groups and an incumbent government. We describe the economic conditions necessary for an FTA to be an equilibrium outcome, both for the case when the agreement must cover all bilateral trade and when a few, politically sensitive sectors can be excluded from the agreement.
Handle: RePEc:nbr:nberwo:4597
Template-Type: ReDIF-Paper 1.0
Title: Tests of CAPM on an International Portfolio of Bonds and Stocks
Classification-JEL: F3
Author-Name: Charles Engel
Author-Person: pen14
Note: IFM
Number: 4598
Creation-Date: 1993-12
Order-URL: http://www.nber.org/papers/w4598
File-URL: http://www.nber.org/papers/w4598.pdf
File-Format: application/pdf
Publication-Status: published as The Internationalization of Equity Markets, Jeffrey A. Frankel, ed., pp. 149-172, (Chicago: University of Chicago Press: 1994).
Publication-Status: published as Tests of CAPM on an International Portfolio of Bonds and Stocks, Charles M. Engel. in The Internationalization of Equity Markets , Frankel. 1994
Abstract: This paper estimates and tests an international version of the Capital Asset Pricing Model. Investors from the U.S., Germany and Japan choose a portfolio that includes bonds and equities from each of these countries to maximize a function of the mean and variance of returns. Investors in each country evaluate returns in terms of their home currency. The CAPM does have some power in explaining ex ante returns. It predicts fairly large risk premia on the equities, but small ones on bonds. The model is rejected, however, when tested against a more general alternative that allows for more investor heterogeneity than the CAPM.
Handle: RePEc:nbr:nberwo:4598
Template-Type: ReDIF-Paper 1.0
Title: The Role of Judgment and Discretion in the Conduct of Monetary Policy: Consequences of Changing Financial Markets
Classification-JEL: E5
Author-Name: Benjamin M. Friedman
Note: ME
Number: 4599
Creation-Date: 1993-12
Order-URL: http://www.nber.org/papers/w4599
File-URL: http://www.nber.org/papers/w4599.pdf
File-Format: application/pdf
Publication-Status: published as in Changing Capital Markets: Implications for Monetary Policy, A Symposium Sponsored by The Federal Reserve Bank of Kansas City, Jackwon Hole, WY August 19-21, 1993. p. 151-196
Publication-Status: published as Benjamin M. Friedman, 1994. "The role of judgment and discretion in the conduct of monetary policy: consequences of changing financial markets," Proceedings, Federal Reserve Bank of Kansas City, pages 151-225.
Abstract: Conventional monetary policy rules based on intermediate targets, like the growth of money or credit, rest on the presumption that relationships correcting these variables to key measures of nonfinancial economic activity like income and prices are robust. When financial markets change in such a way as to disrupt those relationships, rules based on intermediate targets no longer provide useful guides for conducting monetary policy. Under those circumstances, the central bank can instead exploit variables like money and credit as information variables. Doing so, however, inevitably requires case-by-case judgments. The greater is the impact of changing financial markets in this context, the stronger is the need for the central bank to exploit information both inclusively, in the sense of drawing on multiple and diversified sources of information rather than any one variable, and intensively, in the sense of allowing less time between policy decisions.
Handle: RePEc:nbr:nberwo:4599
Template-Type: ReDIF-Paper 1.0
Title: The Wealth of Cohorts: Retirement Saving and the Changing Assets of Older Americans
Author-Name: David A. Wise
Author-Person: pwi45
Author-Name: Steven F. Venti
Note: LS AG
Number: 4600
Creation-Date: 1993-12
Order-URL: http://www.nber.org/papers/w4600
File-URL: http://www.nber.org/papers/w4600.pdf
File-Format: application/pdf
Publication-Status: published as Schieber, S.J. and J.B. Shoven (eds.) Public Policy Toward Pensions. MIT Press, 1997.
Abstract: Personal retirement accounts are becoming an increasingly important form of retirement saving. Using data from the Survey of Income and Program Participation, the paper considers the effect of this change on the assets of recent retirees and persons who are approaching retirement. Much of the analysis is based on comparison of younger and older cohorts with different lengths of exposure to personal retirement saving programs. The findings suggest that personal retirement saving has already added substantially to the personal financial assets of older families. Projections imply that the personal financial assets of the cohort that will attain age 76 in 28 years will be almost twice as large as the personal financial assets of the cohort that attained age 76 in 1991. The results indicate also that to date there has been little replacement of employer-provided pension saving with personal retirement saving. Together with evidence that personal financial saving is unrelated to changes in home equity, the results suggest that personal retirement saving will lead to an important increase in the overall wealth of the elderly.
Handle: RePEc:nbr:nberwo:4600
Template-Type: ReDIF-Paper 1.0
Title: The Effects of Demographic Trends on Consumption, Saving and Government Expenditures in the U.S.
Classification-JEL: H55; J14
Author-Name: Michael D. Hurd
Author-Person: phu137
Note: AG
Number: 4601
Creation-Date: 1993-12
Order-URL: http://www.nber.org/papers/w4601
File-URL: http://www.nber.org/papers/w4601.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. 39-57, (Chicago: University of Chicago Press, 1997).
Publication-Status: published as The Effects of Demographic Trends on Consumption, Saving, and Government Expenditures in the United States, Michael D. Hurd. in The Economic Effects of Aging in the United States and Japan, Hurd and Yashiro. 1996
Abstract: This paper reviews and analyzes forecasts of the Social Security trust funds, government spending, medical expenditures, and other elements of aggregate income and spending. According to these forecasts, the aging of the U.S. population will require some increases in taxes to support the retirement system. It should reduce the saving rate, and the composition of output will change. By themselves, these changes seem manageable. However, the direct effects of aging are completely dominated by the projected increases in medical expenditures. Although medical costs interact with aging, most of the increases are not related to aging. Even the moderately high forecast of medical spending will require that all increases in output between now and 2020 be devoted to the consumption of medical services, allowing no increase in any other component of consumption.
Handle: RePEc:nbr:nberwo:4601
Template-Type: ReDIF-Paper 1.0
Title: Open Door Policy and China's Rapid Growth: Evidence from City-level Data
Classification-JEL: F00; P21
Author-Name: Shang-Jin Wei
Author-Person: pwe20
Note: ITI
Number: 4602
Creation-Date: 1993-12
Order-URL: http://www.nber.org/papers/w4602
File-URL: http://www.nber.org/papers/w4602.pdf
File-Format: application/pdf
Publication-Status: published as Growth Theories in Light of the East Asian Experience, Takatoshi Ito and Anne O. Krueger, eds., (Chicago: University of Chicago Press: 1995), pp 73-98.
Publication-Status: published as The Open Door Policy and China's Rapid Growth: Evidence from City-Level Data, Shang-Jin Wei. in Growth Theories in Light of the East Asian Experience, Ito and Krueger. 1995
Abstract: There is clear evidence that during 1980-90 more exports are positively associated with higher growth rates across Chinese cities. In comparison, in the late 1980s, the contribution to growth comes mainly from foreign investment. The contribution of foreign investment comes in the form of technological and managerial spillover across firms as opposed to an infusion of new capital. Finally, there is nothing magical about the high growth rates of Chinese coastal areas other than their effective utilization of foreign investment and exports.
Handle: RePEc:nbr:nberwo:4602
Template-Type: ReDIF-Paper 1.0
Title: Uncovering Some Causal Relationships between Productivity Growth and the Structure of Economic Fluctuations: A Tentative Survey
Classification-JEL: D21; D24
Author-Name: Philippe Aghion
Author-Person: pag175
Author-Name: Gilles Saint-Paul
Author-Person: psa60
Note: EFG
Number: 4603
Creation-Date: 1993-12
Order-URL: http://www.nber.org/papers/w4603
File-URL: http://www.nber.org/papers/w4603.pdf
File-Format: application/pdf
Publication-Status: published as LABOUR, Review of Labour Economics and Industrial Relations, vol. 12, no. 2, July 1998, pp. 279-303
Publication-Status: Published as "On the Virtues of Bad Times: an Analysis of the Interaction between Productivity Growth and Economic Fluctuations," Macroeconomic Dynamics, vol. 2, no. 3, September 1998, pp. 322-344.
Abstract: This paper discusses recent theoretical and empirical work on the interactions between growth and business cycles. One may distinguish two very different types of approaches to the problem of the influence of macroeconomic fluctuations on long-run growth. In the first type of approach, which relies on learning by doing mechanisms or aggregate demand externalities, productivity growth and direct production activities are complements. An expansion therefore has a positive long-run effect on total factor productivity. In the second type of approach, hereafter labeled 'opportunity cost or 'learning-by-doing', productivity growth and production activities are substitutes. The opportunity cost of some productivity improving activities falls in a recession, which has a long-run positive impact on output. This does not mean, however, that recessions should on average last longer or be more frequent, since the expectation of future recessions reduces today's incentives for productivity growth. We also briefly discuss some empirical work which is mildly supportive of the opportunity cost approach, while showing that it can be reconciled with the observed pro-cyclical behavior of measured total factor productivity. We also describe some theoretical work on the effects of growth on business cycles.
Handle: RePEc:nbr:nberwo:4603
Template-Type: ReDIF-Paper 1.0
Title: The Simplest Test of Inflation Target Credibility
Classification-JEL: E43; E52
Author-Name: Lars E.O. Svensson
Author-Person: psv2
Note: IFM
Number: 4604
Creation-Date: 1993-12
Order-URL: http://www.nber.org/papers/w4604
File-URL: http://www.nber.org/papers/w4604.pdf
File-Format: application/pdf
Abstract: A simple test of inflation target credibility is constructed by subtracting the maximum and minimum inflation rates consistent with the inflation targets from the yields to maturity on nominal bonds. This results in a target-consistent range of real yields on nominal bonds. If expected real yields, or market real interest rates on real bonds if such are available, fall outside the range of target- consistent real yields, credibility is rejected. Two concepts of credibility, called absolute credibility and credibility in expectation, are distinguished. The inflation targets of Canada, New Zealand and Sweden are examined with convenient diagrams over yields to maturity and forward interest rates.
Handle: RePEc:nbr:nberwo:4604
Template-Type: ReDIF-Paper 1.0
Title: Determinants of the Timing and Incidence of Exploratory Drilling on Offshort Wildcat Tracts
Classification-JEL: D83; L72
Author-Name: Kenneth Hendricks
Author-Name: Robert H. Porter
Author-Person: ppo97
Note: IO
Number: 4605
Creation-Date: 1993-12
Order-URL: http://www.nber.org/papers/w4605
File-URL: http://www.nber.org/papers/w4605.pdf
File-Format: application/pdf
Publication-Status: published as Hendricks, Kenneth and Robert H. Porter. "The Time And Incidence Of Exploratory Drilling On Offshore Wildcat Tracts," American Economic Review, 1996, v86(3,Jun), 388-407.
Abstract: This paper documents exploratory drilling activity on offshore wildcat oil and gas leases in the Gulf of Mexico that were sold between 1954 and 1990, with emphasis on the period before 1980. For each year of the lease, we study the determinants of the decision whether or not to begin exploratory drilling, and the outcome of any drilling activity. Our results indicate that equilibrium predictions of plausible noncooperative models are reasonably accurate, and more descriptive than those of cooperative models of drilling timing. We discuss why noncooperative behavior may occur, and the potential gains from coordination.
Handle: RePEc:nbr:nberwo:4605
Template-Type: ReDIF-Paper 1.0
Title: The Political Economy of Declining Industries: Senescent Industry Collapse Revisited
Classification-JEL: F13; D72
Author-Name: S. Lael Brainard
Author-Name: Thierry Verdier
Author-Person: pve75
Note: ITI
Number: 4606
Creation-Date: 1993-12
Order-URL: http://www.nber.org/papers/w4606
File-URL: http://www.nber.org/papers/w4606.pdf
File-Format: application/pdf
Publication-Status: published as Brainard, S. Lael and Thierry Verdier. "The Political Economy Of Declining Industries: Senescent Industry Collapse Revisited," Journal of International Economics, 1997, v42(1,Feb), 221-238.
Abstract: One of the most robust empirical regularities in the political economy of trade is the persistence of protection. This paper explains persistent protection in terms of the interaction between industry adjustment, lobbying, and the political response. Faced with a trade shock, owners of industry-specific factors can undertake costly adjustment, or they can lobby politicians for protection and thereby mitigate the need for adjustment. The choice depends on the returns from adjusting relative to lobbying. By introducing an explicit lobbying process, it can be shown that the level of tariffs is an increasing function of past tariffs. Since current adjustment diminishes future lobbying intensity, and protection reduces adjustment, current protection raises future protection. This simple lobbying feedback effect has an important dynamic resource allocation effect: declining industries contract more slowly over time and never fully adjust. In addition, the model makes clear that the type of collapse predicted by Cassing and Hillman (1986) is only possible under special conditions, such as a fixed cost to lobbying. The paper also considers the symmetric case of lobbying in growing industries.
Handle: RePEc:nbr:nberwo:4606