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Template-Type: ReDIF-Paper 1.0
Title: The Non-Neutrality of Inflation for International Capital Movements
Author-Name: Hans-Werner Sinn
Author-Person: psi146
Note: ITI IFM
Number: 3219
Creation-Date: 1990-01
Order-URL: http://www.nber.org/papers/w3219
File-URL: http://www.nber.org/papers/w3219.pdf
File-Format: application/pdf
Publication-Status: published as European Economic Review, Vol. 34, pp. 1-22, (1991).
Abstract: This paper studies the question of how unilateral changes in the rate of inflation affect the international allocation of capital. Presenting a model that incorporates a transaction motive for money holding and capital income taxation with historical cost accounting, it counters the view that inflation will be neutral in a world of perfect foresight and costless arbitrage: under mild conditions, domestic inflation will unambiguously induce a capital export. The paper includes a discussion of the Fisher effect. The empirical observation of a less than one-to--one translation of inflation into nominal interest rates is shown to be compatible with the model, and in fact the capital export turns out to be stronger the lower the degree of translation.
Handle: RePEc:nbr:nberwo:3219
Template-Type: ReDIF-Paper 1.0
Title: Participation in a Currency Union
Author-Name: Alessandra Casella
Author-Person: pca496
Note: ITI IFM
Number: 3220
Creation-Date: 1990-01
Order-URL: http://www.nber.org/papers/w3220
File-URL: http://www.nber.org/papers/w3220.pdf
File-Format: application/pdf
Publication-Status: published as American Economic Review, Sept 1992
Abstract: When countries of different sizes participate in a cooperative agreement, the potential gain from deviation determines the minimum power that each country requires in the common decision-making.
This paper studies the problem in the context of a monetary union - multiple countries sharing a common currency - whose very existence requires coordination of monetary policies. In the presence of externalities in the decentralized equilibrium with national currencies, it is shown that a small economy will in general require, and obtain, more than proportional power in the agreement. With a common currency, this is equivalent to a transfer of seignorage revenues in its favor. With national currencies such transfer would not obtain, and the small country would be even more demanding. Without additional unconstrained fiscal instruments it would be impossible to sustain coordination with fixed exchange rates. When the number of potential countries in the union is large, it is not generally possible to prevent deviations from individual countries or from coalitions. The currency union might emerge as a mixed strategy equilibrium, but the probability of deviation rises sharply with the number of countries and of possible coalitions.
Handle: RePEc:nbr:nberwo:3220
Template-Type: ReDIF-Paper 1.0
Title: Money and Business Cycles: A Real Business Cycle Interpretation
Author-Name: Charles I. Plosser
Author-Person: ppl11
Note: ME
Number: 3221
Creation-Date: 1990-01
Order-URL: http://www.nber.org/papers/w3221
File-URL: http://www.nber.org/papers/w3221.pdf
File-Format: application/pdf
Publication-Status: published as Charles I. Plosser, 1989. "Money and business cycles: a real business cycle interpretation," Proceedings, Federal Reserve Bank of St. Louis.
Publication-Status: published as "Money and Business Cycles: A Real Business Interpretation." From Monetary Policy on the 75th Anniversary of the Federal Reserve System, edited by Michael T. Belongia, pp. 245-274. Norwell, MA: Kluwer Academic Publishers, 1990.
Abstract: This paper focuses on the role of money in economic fluctuations. While money may play an important role in market economies, its role as an important impulse to business cycles remains a highly controversial hypothesis. For years economists have attempted to construct monetary theories of the business cycle with only limited empirical success. Alternatively, recent real theories of the cycle have taken the view that to a first approximation independent variations in the nominal quantity of outside money are neutral. This paper finds that the empirical evidence for a monetary theory of the cycle is weak. Not only do variations in nominal money explain very little of subsequent movements in real activity, but what explanatory power exists arises from variations in endogenous components of money.
Handle: RePEc:nbr:nberwo:3221
Template-Type: ReDIF-Paper 1.0
Title: Effects of the Tax Reform Act of 1986 on Corporate Financial Policy and Organizational Form
Author-Name: Roger H. Gordon
Author-Person: pgo95
Author-Name: Jeffrey K. MacKie-Mason
Author-Person: pma1
Note: PE
Number: 3222
Creation-Date: 1990-01
Order-URL: http://www.nber.org/papers/w3222
File-URL: http://www.nber.org/papers/w3222.pdf
File-Format: application/pdf
Publication-Status: published as Slemrod, Joel (ed.) Do Taxes Matter?: The Impact of the Tax Reform Act of 1986. Cambridge, MA: The MIT Press, 1990.
Abstract: We examine the effects of the Tax Reform Act of 1986 on the financial decisions made by firms. We review the theory and empirical predictions of prior literature for corporate debt policy, for dividend and equity repurchase payouts to shareholders, and for the choice of organizational form. We then compare the predictions to post-1986 experience. The change in debt/value ratios has been substantially smaller than expected. Dividend payouts increased as predicted, but stock repurchases increased even more rapidly which was unexpected and is difficult to understand. Based on very scant data, it appears that some activities have shuffled among organizational forms; in particular, loss activities may have been moved into corporate form where they are deducted at a higher tax rate, while gain activities may have shifted towards noncorporate form, to be taxed at the lower personal rates. In addition, several interesting new issues are raised. One concerns previously neglected implications for the effective tax on retained earnings that follow from optimal trading strategies when long- and short-term capital gains are taxed at different rates. Also, new interest allocation rules for multinational corporations provide a substantial incentive for many firms to shift their borrowing abroad.
Handle: RePEc:nbr:nberwo:3222
Template-Type: ReDIF-Paper 1.0
Title: A Model of Growth Through Creative Destruction
Author-Name: Philippe Aghion
Author-Person: pag175
Author-Name: Peter Howitt
Author-Person: pho22
Note: EFG
Number: 3223
Creation-Date: 1990-01
Order-URL: http://www.nber.org/papers/w3223
File-URL: http://www.nber.org/papers/w3223.pdf
File-Format: application/pdf
Publication-Status: published as Econometrica, Vol. 60, no. 2 (1992): 323-352.
Abstract: This paper develops a model based on Schumpeter's process of creative destruction. It departs from existing models of endogenous growth in emphasizing obsolescence of old technologies induced by the accumulation of knowledge and the resulting process or industrial innovations. This has both positive and normative implications for growth. In positive terms, the prospect of a high level of research in the future can deter research today by threatening the fruits of that research with rapid obsolescence. In normative terms, obsolescence creates a negative externality from innovations, and hence a tendency for laissez-faire economies to generate too many innovations, i.e too much growth. This "business-stealing" effect is partly compensated by the fact that innovations tend to be too small under laissez-faire. The model possesses a unique balanced growth equilibrium in which the log of GNP follows a random walk with drift. The size of the drift is the average growth rate of the economy and it is endogenous to the model ; in particular it depends on the size and likelihood of innovations resulting from research and also on the degree of market power available to an innovator.
Handle: RePEc:nbr:nberwo:3223
Template-Type: ReDIF-Paper 1.0
Title: Why Does High Inflation Raise Inflation Uncertainty?
Author-Name: Laurence Ball
Author-Person: pba605
Note: EFG
Number: 3224
Creation-Date: 1990-01
Order-URL: http://www.nber.org/papers/w3224
File-URL: http://www.nber.org/papers/w3224.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Monetary Economics, June 1992,pp. 371-388
Abstract: This paper presents a model of monetary policy in which a rise in inflation raises uncertainty about future inflation. When inflation is low, there is a consensus that the monetary authority will try to keep it low. When inflation is high, policymakers face a dilemma: they would like to disinflate, but fear the recession that would result. The public does not know the tastes of future policymakers, and thus does not know whether disinflation will occur.
Handle: RePEc:nbr:nberwo:3224
Template-Type: ReDIF-Paper 1.0
Title: The Vanishing Harberger Triangle
Author-Name: Hans-Werner Sinn
Author-Person: psi146
Note: PE
Number: 3225
Creation-Date: 1990-01
Order-URL: http://www.nber.org/papers/w3225
File-URL: http://www.nber.org/papers/w3225.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Public Economics, Vol. 45, pp. 271-300, (1991). Edited by A.B. Atkinsona and N.H. Stern, UK.
Abstract: The paper presents a trapped equity model, but instead of studying how taxes affect corporate decisions when a sufficient amount of equity is already in the trap, it asks the question how does the equity get there. To be more specific, the paper analyzes how the double taxation of dividends affects the growth of a corporation that starts with no equity capital. One conclusion is that dividend taxes are distortionary before they are paid, but not when they are paid. Once the firm is in a stage of maturity where it pays dividends and dividend taxes, tax neutrality prevails. Thus the true intersectoral distortion resulting from corporate taxation is negatively correlated with the measured tax burden, and it is lower, the higher the distortion which estimates of Harberger type would predict. Another conclusion is that the King-Fullerton cost of capital formulae are not applicable in the case of immature firms. These formulas are based on the assumption that firms distribute their profits from marginal investment projects as dividends. However, immature firms strictly prefer a reinvestment to a distribution of profits. The reinvestment changes the cost of equity capital, and typically this cost is higher than a hasty application of the King-Fullerton formulas would predict.
Handle: RePEc:nbr:nberwo:3225
Template-Type: ReDIF-Paper 1.0
Title: Joint Crowdout: An Empirical Study of the Impact of Federal Grants on State Government Expenditures and Charitable Donations
Author-Name: Lawrence B. Lindsey
Author-Name: Richard Steinberg
Note: PE
Number: 3226
Creation-Date: 1990-01
Order-URL: http://www.nber.org/papers/w3226
File-URL: http://www.nber.org/papers/w3226.pdf
File-Format: application/pdf
Abstract: We estimate the effect of exogenous federal expenditure cutbacks on state social service expenditures and on charitable donations. In the process, we also estimate tax and income effects and explore the impact of community environment and "need" variables. Data consist of a unique three-year panel of aggregate itemized giving by state and income class and government expenditures by state. Our results confirm the 'flypaper effect' of federal grants on state spending and show statistically significant but partial crowdout of charitable donations. The flypaper effects appears to dominate the crowdout of donations, so that federal grants are especially productive of overall social service expenditures. Finally, we find that the state's poverty rate is a particularly strong and positive determinant of charitable giving.
Handle: RePEc:nbr:nberwo:3226
Template-Type: ReDIF-Paper 1.0
Title: An Estimate of a Sectoral Model of Labor Mobility
Author-Name: Boyan Jovanovic
Author-Name: Robert Moffitt
Author-Person: pmo48
Note: LS
Number: 3227
Creation-Date: 1990-01
Order-URL: http://www.nber.org/papers/w3227
File-URL: http://www.nber.org/papers/w3227.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Political Economy, Vol.98, No.4, pp. 827-852, (August 1990).
Abstract: This paper develops a model of sectoral labor mobility and tests its main implications. The model nests two distinct hypotheses on the origin of mobility: (a) sectoral shocks (Lucas and Prescott, 1974) and (b) worker-employer mismatch (Jovanovic, 1979, Miller, 1984, Flinn, 1986). We estimate the relative importance of each hypothesis, and find that the bulk of labor mobility is caused by mismatch rather than by sectoral shift. We then try to put a value on society's match-specific information. That is, we ask to what extent the availability of the option to change jobs raises GNP. We find that the mobility option raises expected earnings by roughly between 8.5 percent and 13 percent of labor earnings, which translates to an increase in GNP of between 6 percent and 9 percent.
Handle: RePEc:nbr:nberwo:3227
Template-Type: ReDIF-Paper 1.0
Title: Competition and Human Capital Accumulation: A Theory of Interregional Specialization and Trade
Author-Name: Julio J. Rotemberg
Author-Person: pro30
Author-Name: Garth Saloner
Note: LS ITI IFM
Number: 3228
Creation-Date: 1990-01
Order-URL: http://www.nber.org/papers/w3228
File-URL: http://www.nber.org/papers/w3228.pdf
File-Format: application/pdf
Publication-Status: published as Rotemberg, Julio J. and Garth Saloner. "Competition And Human Capital Accumulation: A Theory Of Interregional Specialization And Trade," Regional Science and Urban Economics, 2000, v30(4,Jul), 373-404.
Abstract: We consider a model with several regions whose technological ability and factor endowments are identical and in which transport costs between regions are non-negligible. Nonetheless, certain goods are sometimes produced by multiple firms all of which are located in the same region. These goods are then exported from the regions in which their production is agglomerated. Regional agglomeration of production and trade stem from two forces. First, competition between firms for the services of trained workers is necessary for the workers to recoup the cost of acquiring industry-specific human capital. Second, the technology of production is more efficient when plants are larger than a minimum efficient scale and local demand is insufficient to support several firms of that scale. We also study the policy implications of our model.
Handle: RePEc:nbr:nberwo:3228
Template-Type: ReDIF-Paper 1.0
Title: Aggregate Employment Dynamcis and Lumpy Adjustment Costs
Author-Name: Daniel S. Hamermesh
Author-Person: pha78
Note: LS EFG
Number: 3229
Creation-Date: 1990-01
Order-URL: http://www.nber.org/papers/w3229
File-URL: http://www.nber.org/papers/w3229.pdf
File-Format: application/pdf
Publication-Status: published as Carnegie-Rochester Conference Series on Public Policy, Vol. 33, pp. 93-129, (Autumn 1990).
Abstract: This study examines what one can infer from aggregate time-series of employment under the assumption that adjustment at the micro level is discrete because of lumpy adjustment costs. The research uses various sets of quarterly and monthly data for the United States and imposes assumptions about how sectoral dispersion in output shocks affects adjustment through aggregation. I find no consistent evidence of any effect of sectoral shocks on the path of aggregate employment. I generate artificial aggregate time series from microeconomic processes in which firms adjust employment discretely. They produce the same inferences as the actual data. Standard methods of estimating equations describing the time path of aggregate employment yield inferences about differences in the size of adjustment costs that are incorrect and inconsistent with the true differences at the micro level. This simulation suggests that the large literature on employment dynamics based on industry or macro data cannot inform us about the size of adjustment costs, and that such data cannot yield useful information on variations in adjustment costs over time or among countries.
Handle: RePEc:nbr:nberwo:3229
Template-Type: ReDIF-Paper 1.0
Title: Making Altruism Pay in Auction Quotas
Author-Name: Kala Krishna
Author-Person: pkr26
Note: ITI IFM
Number: 3230
Creation-Date: 1990-01
Order-URL: http://www.nber.org/papers/w3230
File-URL: http://www.nber.org/papers/w3230.pdf
File-Format: application/pdf
Publication-Status: published as International Trade and Trade Policy, edited by E. Helpman and A. Razin June, 1991 MIT Press: Cambridge, MA
Abstract: With imperfectly competitive product markets, producers react to the auction of quota licenses by adjusting price upwards from the free trade level. As a result, license revenues are significantly lower than if markets were perfectly competitive. In fact, they are often zero unless quotas are very restrictive. In such markets, giving part of these revenues to the producers reduces the incentive to raise product prices and leads to the reappearance of revenues from auctioning quota licenses. With a foreign monopoly and no price discrimination, such a policy can lead to a Pareto improvement over free trade. The conditions under which such altruism raises welfare both from free trade and from the status quo are explored.
Handle: RePEc:nbr:nberwo:3230
Template-Type: ReDIF-Paper 1.0
Title: Industrial De-Diversification and its Consequences for Productivity
Author-Name: Frank R. Lichtenberg
Author-Person: pli76
Note: PR
Number: 3231
Creation-Date: 1990-01
Order-URL: http://www.nber.org/papers/w3231
File-URL: http://www.nber.org/papers/w3231.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Economic Behavior and Organization, December 1992, forthcoming.
Abstract: Due in large part to intense takeover activity during the 1980s, the extent of American firms' industrial diversification declined significantly during the second half of the decade. The mean number of industries in which firms operated declined 14 percent, and the fraction of single-industry firms increased 54 percent. Firms that were "born" during the period were much less diversified than those that "died", and "continuing" firms reduced the number of industries in which they operated. using plant-level Census Bureau data, we show that productivity is inversely related to the degree of diversification: holding constant the number of the parent firm's plants, the greater the number of industries in which the parent operates, the lower the productivity of its plants. Hence de-diversification is one of the means by which recent takeovers have contributed to U.S. productivity growth. We also find that the effectiveness of regulations governing disclosure by companies of financial information for their industry segments was low when they were introduced in the 1970s and has been declining ever since.
Handle: RePEc:nbr:nberwo:3231
Template-Type: ReDIF-Paper 1.0
Title: A Note on Optimal Fines When Wealth Varies Among Individuals
Author-Name: A. Mitchell Polinsky
Author-Person: ppo94
Author-Name: Steven Shavell
Author-Person: psh42
Note: LE
Number: 3232
Creation-Date: 1990-01
Order-URL: http://www.nber.org/papers/w3232
File-URL: http://www.nber.org/papers/w3232.pdf
File-Format: application/pdf
Publication-Status: published as The American Economic Review, Vol. 81, No. 3, pp. 618-621, (June 1991).
Abstract: An important result in the economic theory of enforcement is that, under certain circumstances, it is optimal for a fine to be as high as possible - to equal the entire wealth of individuals. Such a fine allows the probability of detection to be as low as possible, thereby saving enforcement costs. This note shows that when the level of wealth varies among individuals, the optimal fine generally is less than the wealth of the highest wealth individuals, and may well be less than the wealth of most individuals.
Handle: RePEc:nbr:nberwo:3232
Template-Type: ReDIF-Paper 1.0
Title: Are OSHA Health Inspections Effective? A Longitudinal Study in the Manufacturing Sector
Author-Name: Wayne B. Gray
Author-Person: pgr111
Author-Name: Carol Adaire Jones
Note: LS
Number: 3233
Creation-Date: 1990-01
Order-URL: http://www.nber.org/papers/w3233
File-URL: http://www.nber.org/papers/w3233.pdf
File-Format: application/pdf
Publication-Status: published as Review of Economics and Statistics, Volume LXXIII, Number 3, pp. 504-508, August 1991.
Abstract: We examine the impact of OSHA health inspections on compliance with agency regulations in the manufacturing sector, with a unique plant-level dataset of inspection and compliance behavior during 1972-1983, the first twelve years of OSHA enforcement operations. Two major findings are robust across the range of linear and count models estimated in the paper: (1) the number of citations and the number of violations of worker exposure restrictions decrease with additional health inspections in manufacturing plants; and (2) the first health inspection has the strongest impact. The results suggest that prior research focusing on the limited impact of OSHA safety regulations may under-estimate OSHA's total contribution to reducing workplace risks.
Handle: RePEc:nbr:nberwo:3233
Template-Type: ReDIF-Paper 1.0
Title: The Impact of the Tax Reform Act of 1986 on Foreign Direct Investment to and from the United States
Author-Name: Joel Slemrod
Author-Person: psl10
Note: PE
Number: 3234
Creation-Date: 1990-01
Order-URL: http://www.nber.org/papers/w3234
File-URL: http://www.nber.org/papers/w3234.pdf
File-Format: application/pdf
Publication-Status: published as Slemrod, Joel (ed.) Do Taxes Matter? The Impact of the Tax Reform Act of 1986. Cambridge, MA: The MIT Press, 1990.
Abstract: Since the passage of the Tax Reform Act of 1986, foreign direct investment (FDI) both into and from the United States has surged. Inward FDI reached an all-time high of $58.4 billion in 1988, continuing a secular increase that began in the late 1970's. Outward FDI also reached an all-time high of $44.5 billion in 1987 which, contrary to the case of inward FDI, represented a sharp turnaround from the situation of the early 1980's. Outward FDI in 1988, though, fell back to $17.5 billion, approximately its level in 1985 and, after adjusting for capital gains and tax haven transactions, is lower as a fraction of GNP than it was in the late 1970's. This paper addresses to what extent tax reform has been responsible for the surge in FDI, and how it has affected the mix of investment, its financing, and its timing. The link between tax policy and aggregate FDI is difficult to make, both because the net incentive effect of several new provisions is not clear and because it is impossible, with less than three years of post-TRA86 data, to sort out any tax effect from other influences on FDI. Several aspects of recent FDI performance are, however, consistent with the effect of TRA86 on incentives, including the strength of outward FDI to low-tax countries, and the increase in net transfers of debt abroad. For inward FDI, the predominance of Japan and U.K. investment, the relative decline of debt transfers, and the increased reported rate of return are consistent with changed tax incentives.
Handle: RePEc:nbr:nberwo:3234
Template-Type: ReDIF-Paper 1.0
Title: The Sensitivity of Strategic and Corrective R&D Policy in Battles for Monopoly
Author-Name: Kyle Bagwell
Author-Person: pba409
Author-Name: Robert W. Staiger
Author-Person: pst85
Note: ITI IFM
Number: 3235
Creation-Date: 1990-01
Order-URL: http://www.nber.org/papers/w3235
File-URL: http://www.nber.org/papers/w3235.pdf
File-Format: application/pdf
Publication-Status: published as International Economic Review, November 1992
Abstract: We characterize the strategic and corrective role for R&D subsidies in an export market where R&D is an uncertain process and where the winner of the R&D competition monopolizes the market. Investments in R&D are assumed to induce either first order or mean-preserving second order shifts in the distribution of (i) a firm's costs, with the low cost firm then monopolizing the product market or, under a reinterpretation of the model, (ii) a firm's discovery dates, with the first firm to make the discovery enjoying patent protection of infinite duration. We show that, regardless of which form uncertainty takes in the R&D process, a national strategic incentive to subsidize R&D exists, but must be balanced against a national corrective incentive to tax R&D whenever a country has more than one firm involved in the R&D competition. We conclude that an R&D subsidy is likely to be attractive in markets where scale economies are sufficiently large that firms battle for the eventual monopoly position, provided only that the number of domestic firms involved in the R&D stage is low.
Handle: RePEc:nbr:nberwo:3235
Template-Type: ReDIF-Paper 1.0
Title: The Sensitivity of Strategic and Corrective R&D Policy in Oligopolistic Industries
Author-Name: Robert W. Staiger
Author-Person: pst85
Author-Name: Kyle Bagwell
Author-Person: pba409
Note: ITI IFM
Number: 3236
Creation-Date: 1990-01
Order-URL: http://www.nber.org/papers/w3236
File-URL: http://www.nber.org/papers/w3236.pdf
File-Format: application/pdf
Publication-Status: published as Journal of International Economics, February 1994
Abstract: We evaluate the sensitivity of the case for an R&D subsidy in an export sector when the outcome of R&D is uncertain and when the resulting product market is oligopolistic. Investments in R&D are assumed to induce either first order or mean-preserving second order shifts in the distribution of a firm's costs, with firms then competing in either prices or quantities in the product market. When R&D reduces the mean of a firm's cost distribution in the particular sense of first order stochastic dominance, we find using standard models of product market competition that a national strategic basis for R&D subsidies exists, whether firms choose prices or quantities. This national strategic incentive to subsidize R&D must be balanced against the national corrective incentive to tax R&D that arises whenever the number of domestic firms exceeds one. However, when R & D preserves the mean but alters the riskiness of a firm's cost distribution in the sense of second order stochastic dominance, we find that the national strategic basis for R&D intervention completely disappears, while the national corrective incentive is now to subsidize R&D whenever the number of domestic firms exceeds one. We conclude that the crucial determinant of appropriate R&D policy is the nature of the R&D process itself.
Handle: RePEc:nbr:nberwo:3236
Template-Type: ReDIF-Paper 1.0
Title: The Tax Elasticity of Capital Gains Realizations: Evidence from a Panel of Taxpayers
Author-Name: Joel Slemrod
Author-Person: psl10
Author-Name: William Shobe
Author-Person: psh298
Note: PE
Number: 3237
Creation-Date: 1990-01
Order-URL: http://www.nber.org/papers/w3237
File-URL: http://www.nber.org/papers/w3237.pdf
File-Format: application/pdf
Publication-Status: published as NTJ, Vol. 42, no. 4 (1989): 503-508.
Abstract: This paper examines a newly available six-year panel of tax return data to see what light it sheds on the tax elasticity of capital gains realizations. Panel data are a particularly valuable source of evidence for this question, because they can help to distinguish short-run from long-run effects and because they track the behavior of individuals when faced with varying tax systems. We find consistent, although not overwhelming, support for an inverse response of capital gains realizations to changes in their rate of taxation. The response to deviations from past tax rates generally exceeds the response to persistent tax changes. The estimated magnitude of the realization response is large enough to substantially mitigate the revenue loss that a tax reduction would otherwise cause and may, especially in the short run, be large enough to generate an increase in revenues. These results, however, must be qualified by their nonrobustness to specification changes along a number of dimensions and by the fact that a more general dynamic specification does not yield plausible results.
Handle: RePEc:nbr:nberwo:3237
Template-Type: ReDIF-Paper 1.0
Title: A North-South Model of Taxation and Capital Flow
Author-Name: Joel Slemrod
Author-Person: psl10
Note: LS
Number: 3238
Creation-Date: 1990-01
Order-URL: http://www.nber.org/papers/w3238
File-URL: http://www.nber.org/papers/w3238.pdf
File-Format: application/pdf
Publication-Status: published as Public Finance, Vol. 48, no. 3 (1993): 430-447.
Publication-Status: published as Slemrod, Joel, 1993. "A North-South Model of Taxation and Capital Flows," Public Finance = Finances publiques, , vol. 48(3), pages 430-47.
Abstract: This paper presents a simple two-country model of the role of taxation in capital flows between developed countries ("The North") and developing countries ("The South"). The Southern country is assumed to be unable to enforce a tax on its residents' foreign-source income, and the Northern country chooses not to impose a withholding tax on portfolio income earned in its country.
The world equilibrium in the model is characterized by excessive (by the standard of global efficiency and Southern welfare) flows of capital across borders, and insufficient investment located in the South. National income of the South could, under certain conditions, be improved if the North would impose a withholding tax on portfolio income that leaves the country, even though the South sacrifices tax revenue to the North. A Southern tax on foreign-source income may dominate this, depending on the resource cost of enforcing such a tax.
Handle: RePEc:nbr:nberwo:3238
Template-Type: ReDIF-Paper 1.0
Title: Faculty Turnover at American Colleges and Universities: Analysis of AAUP Data
Author-Name: Ronald G. Ehrenberg
Author-Person: peh2
Author-Name: Hirschel Kasper
Author-Name: Daniel I. Rees
Author-Person: pre268
Note: LS
Number: 3239
Creation-Date: 1990-01
Order-URL: http://www.nber.org/papers/w3239
File-URL: http://www.nber.org/papers/w3239.pdf
File-Format: application/pdf
Publication-Status: published as Economics of Education Review, Vol.10, No.2, 1991.
Abstract: This paper uses institutional level data collected by the American Association of University Professors as part of their annual survey of faculty members' compensation to analyze faculty turnover. Analyses of aggregate data over almost a twenty-year period highlight how remarkably stable faculty retention rates have been nationwide and how little they vary across broad categories of institutions. Analyses of variations in faculty retention rates across individual institutions stress the role that faculty compensation levels play. Higher levels of compensation appear to increase retention rates for assistant and associate professors (but not for full professors) and the magnitude of this effect grows larger as one moves from institutions with graduate programs, to four-year undergraduate institutions, to two-year institutions.
Handle: RePEc:nbr:nberwo:3239
Template-Type: ReDIF-Paper 1.0
Title: Reviving the Federal Statistical System: International Aspects
Author-Name: Robert E. Lipsey
Author-Person: pli259
Note: ITI IFM
Number: 3240
Creation-Date: 1990-01
Order-URL: http://www.nber.org/papers/w3240
File-URL: http://www.nber.org/papers/w3240.pdf
File-Format: application/pdf
Publication-Status: published as The American Economic Review, Vol. 80, No. 2, pp. 337-340, (May 1990).
Abstract: Despite the impression that the federal statistical system has been starved for resources, the record over the last decade or so, judged by conventional deflation methods, has been one of rough stability. The quality of U.S. international data on commodity and service trade, direct investment, and export and import prices has improved, but there has been a serious deterioration in data on portfolio capital flows, stocks, and income. Where improvements have taken place, the main source has been computerization, both inside and outside the federal statistical system. The standard deflators for expenditures do not adequately take account of the decline in the cost of computing and therefore impart a downward bias to the estimates of input.
Despite the gains in some areas, serious deficiencies remain for the increasingly important international sector. The improvements that have occurred have resulted mainly from Congressional and outside pressures, while successive administrations have shown little concern with the quality of the data they produce and presumably use for policy making.
Handle: RePEc:nbr:nberwo:3240
Template-Type: ReDIF-Paper 1.0
Title: A Convex Model of Equilibrium Growth
Author-Name: Larry E. Jones
Author-Person: pjo88
Author-Name: Rodolfo Manuelli
Note: EFG
Number: 3241
Creation-Date: 1990-01
Order-URL: http://www.nber.org/papers/w3241
File-URL: http://www.nber.org/papers/w3241.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Political Economy Volume 98, Part 1, No. 5, October 1990, pp. 1008-1038
Abstract: Our aim in this paper is to exposit a convex model of equilibrium growth. The model is strictly in the Solow tradition. The model has two features which distinguish it from most other work on the subject. These are, first, that the model is convex on the technological side and, eecond, that fixed fatten are explicitly included. The difference between our model and the standard single sector growth model lies in the fact that the marginal product of capital does not converge to zero as the level of inputs go to infinity. Existence and characterization results are provided along with some preliminary analyses of taxation and international trade policies. It is shown that the long-run growth rate in per capita consumption depends, in the natural way, on the parameters describing tastes and technology. Finally, it is shown that some policies have growth effects while others affect only levels. It is demonstrated that in a free trade equilibrium with taxation national growth rates of consumption and output need not converge.
Handle: RePEc:nbr:nberwo:3241
Template-Type: ReDIF-Paper 1.0
Title: Speculative Dynamics
Author-Name: David M. Cutler
Author-Person: pcu64
Author-Name: James M. Poterba
Author-Person: ppo19
Author-Name: Lawrence H. Summers
Author-Person: psu137
Note: ME EFG
Number: 3242
Creation-Date: 1990-01
Order-URL: http://www.nber.org/papers/w3242
File-URL: http://www.nber.org/papers/w3242.pdf
File-Format: application/pdf
Publication-Status: published as Review of Economic Studies 58(3): 529-546, May 1991.
Abstract: This paper presents evidence on the characteristic speculative dynamics of a wide range of asset returns. It highlights three stylized facts. First, returns tend to be positively serially correlated at high frequency. Second, returns tend to be negatively serially correlated over long horizons. Third, deviations of asset values from proxies for fundamental value have predictive power for returns. These patterns emerge repeatedly in our analyses of stocks, bonds, foreign exchange, real estate, collectibles, and precious metals, and they appear too strong to be attributed only to small sample biases. The pervasive nature of these patterns suggests that they may be lie to inherent features of the speculative process, rather than to variation in risk factors which affect particular markets.
Handle: RePEc:nbr:nberwo:3242
Template-Type: ReDIF-Paper 1.0
Title: Speculative Dynamics and the Role of Feedback Traders
Author-Name: David M. Cutler
Author-Person: pcu64
Author-Name: James M. Poterba
Author-Person: ppo19
Author-Name: Lawrence H. Summers
Author-Person: psu137
Note: EFG ME
Number: 3243
Creation-Date: 1990-01
Order-URL: http://www.nber.org/papers/w3243
File-URL: http://www.nber.org/papers/w3243.pdf
File-Format: application/pdf
Publication-Status: published as The American Economic Review, Vol. 80, No. 2, pp. 63-68, (May 1990).
Abstract: This paper summarizes our earlier research documenting the characteristic speculative dynamics of many asset markets and suggests a framework for understanding them. Our model incorporates "feedback traders," traders whose demand is based on the history of past returns rather than the expectation of future fundamentals. We use this framework to describe ways in which the characteristic return patterns might be generated, and also to address the long-standing question of whether profitable speculation stabilizes asset markets.
Handle: RePEc:nbr:nberwo:3243
Template-Type: ReDIF-Paper 1.0
Title: Export Restraints With Imperfect Competition: A Selective Survey
Author-Name: Kala Krishna
Author-Person: pkr26
Note: ITI IFM
Number: 3244
Creation-Date: 1990-01
Order-URL: http://www.nber.org/papers/w3244
File-URL: http://www.nber.org/papers/w3244.pdf
File-Format: application/pdf
Abstract: This paper is a selective survey of the work on the effects of export restraints with imperfect competition. Although there are a number of excellent surveys of strategic trade theory as a whole. not much attention is paid in these to the effects of export restraints per se. The large and growing literature in this area is explicitly game theoretic and contains a wide variety of models which often yield different results. For this reason. the literature in this area can be difficult to follow. This survey provides a stylized overview of the area which serves as a guide to the work. Short run effects are contrasted to long run effects. The short run effects usually studied are on pricing behavior. Long run effects are multidimensional. These include effects on quality choice and investment which often work in the opposite direction to the short run effects.
Handle: RePEc:nbr:nberwo:3244
Template-Type: ReDIF-Paper 1.0
Title: A Modern Look At Asset Pricing and Short-Term Interest Rates
Author-Name: Martin D. Evans
Author-Person: pev5
Author-Name: Paul Wachtel
Author-Person: pwa884
Note: ME
Number: 3245
Creation-Date: 1990-01
Order-URL: http://www.nber.org/papers/w3245
File-URL: http://www.nber.org/papers/w3245.pdf
File-Format: application/pdf
Publication-Status: published as Evans, Martin and Paul Wachtel. "Interpreting The Movements In Short-Term Interest Rates," Journal of Business, 1992, v65(3), 395-430.
Abstract: This paper uses modern asset pricing theory to examine the behavior of short-term nominal interest rates over the past 25 years. The analysis investigates whether variation in the stochastic behavior of output and inflation can explain movements in the rate of interest. Our results reveal that much of the month to month movement in nominal interest rates reflects changes in the real rate and the risk premia rather than inflationary expectations.
Handle: RePEc:nbr:nberwo:3245
Template-Type: ReDIF-Paper 1.0
Title: A Variance Decomposition for Stock Returns
Author-Name: John Y. Campbell
Author-Person: pca54
Note: ME
Number: 3246
Creation-Date: 1990-01
Order-URL: http://www.nber.org/papers/w3246
File-URL: http://www.nber.org/papers/w3246.pdf
File-Format: application/pdf
Publication-Status: published as The Economic Journal, Vol. 101, No. 405, pp. 157-179, (March 1991).
Abstract: This paper shows that unexpected stock returns must be associated with changes in expected future dividends or expected future returns A vector autoregressive method is used to break unexpected stock returns into these two components. In U.S. monthly data in 1927-88, one-third of the variance of unexpected returns is attributed to the variance of changing expected dividends, one-third to the variance of changing expected returns, and one-third to the covariance of the two components. Changing expected returns have a large effect on stock prices because they are persistent: a 1% innovation in the expected return is associated with a 4 or 5% capital loss. Changes in expected returns are negatively correlated with changes in expected dividends, increasing the stock market reaction to dividend news. In the period 1952-88, hanging expected. returns account for a larger fraction of stock return variation than they do in the period 1927-51.
Handle: RePEc:nbr:nberwo:3246
Template-Type: ReDIF-Paper 1.0
Title: Short Rates and Expected Asset Returns
Author-Name: Kenneth A. Froot
Author-Person: pfr60
Note: ITI ME IFM
Number: 3247
Creation-Date: 1990-01
Order-URL: http://www.nber.org/papers/w3247
File-URL: http://www.nber.org/papers/w3247.pdf
File-Format: application/pdf
Abstract: We present evidence that short-term interest rates forecast excess returns on many alternative assets: foreign exchange, stocks, bonds, and commodities. On average, a one percentage-point increase in short rates is associated with three percent lower annualized excess returns. To test whether this predictability is attributable to time-varying risk, independent measures of excess returns are formed using survey data on expected returns. We find similar predictability in these measures, too. Since the surveys don't include risk premia, the predictable components cannot be attributed to risk. We suggest that when short rates are high (low) investors are excessively optimistic (pessimistic) about alternative-asset returns.
Handle: RePEc:nbr:nberwo:3247
Template-Type: ReDIF-Paper 1.0
Title: Tax Harmonization and Tax Competition in Europe
Author-Name: Hans-Werner Sinn
Author-Person: psi146
Note: ITI IFM
Number: 3248
Creation-Date: 1990-01
Order-URL: http://www.nber.org/papers/w3248
File-URL: http://www.nber.org/papers/w3248.pdf
File-Format: application/pdf
Publication-Status: published as European Economic Review, Vol. 34, pp. 489-504, (1990).
Abstract: Opening Europe's borders in 1993 makes the allocation of resources more vulnerable to differences in the national tax rates. The first part of the paper demonstrates that direct consumer purchases will imply distortions resulting from diverging VAT rates and it clarifies why the frequently cited exchange rate argument is of no help. The second part shows that, in the case of direct taxation, a harmonization of tax bases is more important than a harmonization of tax rates. Either the combination of true economic depreciation and residence taxation or the combination of immediate write-off and source taxation will result in an efficient international allocation of capital, independent of the national tax rates. The paper concludes with a verdict on tax competition arguing that free migration renders a policy of income redistribution, which is interpreted as insurance against the risk of lifetime careers, impossible.
Handle: RePEc:nbr:nberwo:3248
Template-Type: ReDIF-Paper 1.0
Title: Nominal Exchange Rate Patterns: Correlationswith Entry, Exit, and Invesment in U.S. Industry
Author-Name: Linda S. Goldberg
Author-Person: pgo256
Note: ITI IFM
Number: 3249
Creation-Date: 1990-01
Order-URL: http://www.nber.org/papers/w3249
File-URL: http://www.nber.org/papers/w3249.pdf
File-Format: application/pdf
Publication-Status: published as "Exchange Rates and Investment in United States Industry", Review of Economics and Statistics, (November 1993) vol 75, no4, pp 575-588
Abstract: The view that the strength of the dollar in the early 1980s was associated with persistent restructuring of United States industry is supported by correlations between exchange rate patterns and data on business formation, business failure and sectoral investment in new plant and equipment. Short term trend depreciations of the dollar are associated with reallocation of resources across sectors, while longer term trend depreciations are associated with investment expansions in many sectors of industry. Persistent exchange rate volatility is strongly associated with investment contractions, with this effect weakest during depreciation periods. This suggests a second order effect of depreciation trends: during trend depreciation periods the negative and significant correlation between exchange rate volatility and investment is reduced.
Handle: RePEc:nbr:nberwo:3249
Template-Type: ReDIF-Paper 1.0
Title: Herd on the Street: Informational Inefficiencies in a Market with Short-Term Speculation
Author-Name: Kenneth A. Froot
Author-Person: pfr60
Author-Name: David S. Scharfstein
Author-Person: psc177
Author-Name: Jeremy C. Stein
Author-Person: pst43
Note: ITI ME IFM
Number: 3250
Creation-Date: 1990-02
Order-URL: http://www.nber.org/papers/w3250
File-URL: http://www.nber.org/papers/w3250.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Finance, Vol. 47, pp. 1461-84 September 1992
Abstract: Standard models of informed speculation suggest that traders try to learn information that others do not have. This result implicitly relies on the assumption that speculators have long horizons, i.e, can hold the asset forever. By contrast, we show that if speculators have short horizons, they may herd on the same information, trying to learn what other informed traders also know. There can be multiple herding equilibria, and herding speculators may even choose to study information that is completely unrelated to fundamentals. These equilibria are informationally inefficient.
Handle: RePEc:nbr:nberwo:3250
Template-Type: ReDIF-Paper 1.0
Title: Unemployment and the Demand for Unions
Author-Name: David G. Blanchflower
Author-Person: pbl22
Author-Name: Robert Crouchley
Author-Person: pcr204
Author-Name: Saul Estrin
Author-Name: Andrew Oswald
Note: LS
Number: 3251
Creation-Date: 1990-02
Order-URL: http://www.nber.org/papers/w3251
File-URL: http://www.nber.org/papers/w3251.pdf
File-Format: application/pdf
Abstract: Why do people join open-shop unions when they would receive union wage rates even if they were not members? Why are unionization rates so low in the south-east of England? To address these questions, which we treat as interrelated, the paper considers the idea that unions offer insurance against victimization and arbitrary dismissal. Consistent with our theoretical approach, we find that union density is greatest, ceteris paribus, within establishments in areas of high unemployment.
Handle: RePEc:nbr:nberwo:3251
Template-Type: ReDIF-Paper 1.0
Title: What Makes an Entrepreneur? Evidence on Inheritance and Capital Constraints
Author-Name: David Blanchflower
Author-Person: pbl22
Author-Name: Andrew J. Oswald
Note: LS
Number: 3252
Creation-Date: 1990-02
Order-URL: http://www.nber.org/papers/w3252
File-URL: http://www.nber.org/papers/w3252.pdf
File-Format: application/pdf
Publication-Status: published as Blanchflower, David G. and Andrew J. Oswald. "What Makes An Entrepreneur?," Journal of Labor Economics, 1998, v16(1,Jan), 26-60.
Abstract: The paper studies the factors which shape entrepreneurship among young adults. It finds, using data on a British birth cohort, that the probability of self-employment depends sensitively upon whether the individual ever received a gift or inheritance. Those who were given or inherited £5,000, for example, were approximately twice as likely, ceteris paribus, to set up in business. This is consistent with, and a new test of, recent results from the US stressing the importance of capital and liquidity constraints. The paper also evaluates a number of hypotheses suggested in the literature on small businesses.
Handle: RePEc:nbr:nberwo:3252
Template-Type: ReDIF-Paper 1.0
Title: Workers' Compensation Insurance and the Duration of Workplace Injuries
Author-Name: Alan B. Krueger
Author-Person: pkr63
Note: LS
Number: 3253
Creation-Date: 1990-02
Order-URL: http://www.nber.org/papers/w3253
File-URL: http://www.nber.org/papers/w3253.pdf
File-Format: application/pdf
Publication-Status: published as Krueger, Alan B & Burton, John F, Jr, 1990. "The Employers' Costs of Workers' Compensation Insurance: Magnitudes, Determinants, and Public Policy," The Review of Economics and Statistics, MIT Press, vol. 72(2), pages 228-40, May
Publication-Status: published as With Laurence C. Baker, published as "Medical Costs in Workers' Compensation Insurance", Journal of Health Economics, Vol. 14, no. 5 (1995): 531-549. Published as "Incentive Effects of Workers' Compensation Insurance", JPUBE, Vol. 41, no. 1 (1990): 73-100.
Abstract: This paper uses a new administrative micro-data set to examine the effect of a legislated increase in the minimum and maximum workers' compensation benefit on the duration of workplace injuries in Minnesota. As a result of legislation, workers in some earnings groups received higher benefits if they were injured after the effective date of the benefit increase, while workers in other earnings groups received the same benefit regardless of when they were injured. The analysis compares the change in mean log injury duration for workers who were affected by the benefit increase to that of workers who were not affected by the benefit increase. The findings indicate that the duration of injuries increased by 8 percent more for the group of workers that experienced a 5 percent increase in benefits than for the group of workers that had no change in their benefit. Additional findings suggest that employees of self-insured firms who are injured on the job tend to return to work faster than employees of imperfectly experience rated firms who incur similar injuries.
Handle: RePEc:nbr:nberwo:3253
Template-Type: ReDIF-Paper 1.0
Title: The Effect of Domestic Antidumping Law in the Presence of Foreign Monopoly
Author-Name: Robert W. Staiger
Author-Person: pst85
Author-Name: Frank A. Wolak
Note: ITI IFM
Number: 3254
Creation-Date: 1990-02
Order-URL: http://www.nber.org/papers/w3254
File-URL: http://www.nber.org/papers/w3254.pdf
File-Format: application/pdf
Publication-Status: published as Journal of International Economics, May 1992
Abstract: We consider the effects of antidumping law when utilized by competitive domestic petitioners against a foreign monopolist. The foreign monopolist must set capacity before the realization of random foreign demand, but can reduce the cost of holding excess capacity in periods of slack foreign demand by dumping on the domestic market. With the introduction of antidumping law in the domestic market, domestic firms are shown to file suits in periods of sufficiently slack foreign demand, reducing the volume of imports directly in such periods. Moreover, this occasional filing activity raises the cost to the foreign monopolist of holding excess capacity and, in so doing, results in a scaling back of foreign capacity. Thus, the volume of imports is generally reduced by the introduction of domestic antidumping law, even in periods where no suit is filed. Finally. we consider self-enforcing agreements between the domestic industry and the foreign monopolist that take the form of a promise by the domestic industry not to file in exchange for a promise by the foreign monopolist to export no more than a pre-specified amount: We show that these agreements narrow the range of demand states over which suits are filed to only the softest states of demand, and lead to greater foreign capacity, hence partially mitigating both the direct and indirect impact of antidumping law on trade volume.
Handle: RePEc:nbr:nberwo:3254
Template-Type: ReDIF-Paper 1.0
Title: Federal Taxation and the Supply of State Debt
Author-Name: Gilbert Metcalf
Note: PE
Number: 3255
Creation-Date: 1990-02
Order-URL: http://www.nber.org/papers/w3255
File-URL: http://www.nber.org/papers/w3255.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Public Economics, Volume 51, pp. 269-285, (1993)
Abstract: This paper presents a model of debt finance at the sub-national level from which municipal bond supply equations are derived. Federal tax considerations are shown to be important determinants of the price entering the bond supply equation. Using data on 40 state governments over a seven year period in the 1980s, I show that federal tax rates have an important effect on the supply of municipal bonds - independent of the demand side effect that is usually considered in the literature. Furthermore, the effect persists after controlling for capital expenditures, thereby suggesting that municipal bond proceeds are fungible at the margin. This has implications for the measurement of the tax expenditure associated with tax exempt debt.
Handle: RePEc:nbr:nberwo:3255
Template-Type: ReDIF-Paper 1.0
Title: A Quick Refresher Course in Macroeconomics
Author-Name: N. Gregory Mankiw
Note: EFG ME ITI PE
Number: 3256
Creation-Date: 1990-02
Order-URL: http://www.nber.org/papers/w3256
File-URL: http://www.nber.org/papers/w3256.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Economic Literature, Vol. XXVIII, No. 4, pp. 1645-1660, (December 1990).
Abstract: This paper presents a non-technical discussion of some of the important developments in macroeconomics over the past twenty years. It considers three broad categories of research. First, it discusses how the notion of rational expectations has affected economists' views on the role of economic policy, the debate over rules versus discretion, and empirical work in macroeconomics Second, it discusses various new classical approaches to the business cycle, including imperfect information theories, real business cycle theories, and sectoral shift theories. Third, it discusses various new Keynesian approaches to the business cycle, includes theories based on general disequilibrium, labor contracting, and menu costs.
Handle: RePEc:nbr:nberwo:3256
Template-Type: ReDIF-Paper 1.0
Title: The Impact of the 1986 Tax Reform Act on Personal Saving
Author-Name: Jonathan Skinner
Author-Person: psk23
Author-Name: Daniel Feenberg
Author-Person: pfe56
Note: PE
Number: 3257
Creation-Date: 1990-02
Order-URL: http://www.nber.org/papers/w3257
File-URL: http://www.nber.org/papers/w3257.pdf
File-Format: application/pdf
Publication-Status: published as Slemrod, Joel (ed.) Do Taxes Matter? The Impact of the Tax Reform Act of 1986. Cambridge, MA: The MIT Press, 1990.
Abstract: Many critics believed that the Tax Reform Act of 1986 (TRA86) would discourage saving. Yet personal saving rates have rebounded since 1987. This rebound might have been caused by a general decline in marginal tax rates on household saving. And we estimate, at least for the 1980s, a positive elasticity of saving with respect to the after-tax rate of return. But the tax changes alone cannot account for the recent upswing in saving rates. Furthermore, the positive saving elasticity during the 1980s is fleeting and fragile; during the entire postwar period the correlation between the after-tax rate of return and personal saving is at most zero. We also consider three alternative ways by which the Tax Reform Act could have affected personal saving. First, the cutbacks in IRA eligibility were viewed by some as discouraging saving. But conventionally measured personal saving increased after IRA enrollment plummeted in 1987. We show that this anomalous finding may be an artifact of how personal saving is measured, since a different measure - - the real change in household wealth - - grew strongly during the mid-l98Os, before leveling off after 1987. Second, the phasing out of personal credit interest deductions in TRA86 could have discouraged borrowing and thereby stimulated national saving. We find that wealthier taxpayers simply shuffled their personal credit loans into tax-deductible housing mortgages with little net effect on aggregate saving. Finally, saving could have been reduced in 1986 if taxpayers, rushing to realize capital gains before TRA86, spent their proceeds on bit-ticket consumption goods. We also find little evidence in favor of this view, although we do find much of the capital gains ended up in interest-bearing accounts. In sum, TRAB6 had more impact on the composition than on the overall level of saving.
Handle: RePEc:nbr:nberwo:3257
Template-Type: ReDIF-Paper 1.0
Title: Designing Policies to Open Trade
Author-Name: Robert C. Feenstra
Author-Person: pfe116
Author-Name: Tracy R. Lewis
Author-Name: John McMillan
Author-Person: pmc60
Note: ITI IFM
Number: 3258
Creation-Date: 1990-02
Order-URL: http://www.nber.org/papers/w3258
File-URL: http://www.nber.org/papers/w3258.pdf
File-Format: application/pdf
Publication-Status: published as Economics and Politics, 2(3), November 1990, pp. 223-240
Abstract: In this paper we consider recent proposals to auction U.S. import quotas. using the funds so obtained to encourage relocation out of the protected industries. We argue that the information available to the government, or lack thereof, is a critical factor in understanding these policies. In a world or full information, it makes little sense to use auction quotas rather than tariffs. Similarly, it is unclear why an elaborate program of temporary protection is needed, rather than immediately opening trade and compensating people with an income transfer. When the government has Limited information, however, these policies become quite sensible and may even be optimal.
Handle: RePEc:nbr:nberwo:3258
Template-Type: ReDIF-Paper 1.0
Title: The Informational Content of Initial Public Offerings
Author-Name: Ian Gale
Author-Name: Joseph Stiglitz
Note: ME
Number: 3259
Creation-Date: 1990-02
Order-URL: http://www.nber.org/papers/w3259
File-URL: http://www.nber.org/papers/w3259.pdf
File-Format: application/pdf
Publication-Status: Published as "The Information Content of Initial Public Offerings", JF, Vol. 44, no. 2 (1989): 469-478.
Publication-Status: published as Gale, Ian L & Stiglitz, Joseph E, 1989. " The Informational Content of Initial Public Offerings," Journal of Finance, American Finance Association, vol. 44(2), pages 469-77, June.
Abstract: The ability of capital markets to distinguish firms of different value by the size of their initial equity offerings is attenuated when insiders can sell equity more than once. A model is developed in which there is price risk from holding equity between periods. When the uncertainty is small. there must be pooling in the first period. When uncertainty is large. the pooling equilibria dominate the separating equilibrium.
Handle: RePEc:nbr:nberwo:3259
Template-Type: ReDIF-Paper 1.0
Title: The Effects of Mandating Benefits Packages
Author-Name: Olivia S. Mitchell
Author-Person: pmi73
Note: LS
Number: 3260
Creation-Date: 1990-02
Order-URL: http://www.nber.org/papers/w3260
File-URL: http://www.nber.org/papers/w3260.pdf
File-Format: application/pdf
Publication-Status: published as Mitchell, Olivia S. "The Effects of Mandating Benefits Packages." Re-search in Labor Economics, edited by L. Bassi and D. Crawford, pp. 297-320. JAI Press, 1991.
Abstract: This paper identifies and, where possible, quantifies potential labor market consequences of government mandating of employee benefits. The author argues that mandating benefits could increase benefit coverage and generosity for numerous workers and their families. However, even when mandating benefits does improve benefit provision, there will be offsetting effects including wage and other benefit cuts, reduced work hours, reduced employment, and possibly output reductions in covered sectors. Employer bias against "expensive to insure" workers may also result, producing labor market sorting and segmentation. In addition, many workers currently without benefit coverage are employees of small firms, women, pan-time and minimum wage workers. Frequently, mandated benefit proposals exclude or reduce coverage for these workers to alleviate the financial burden on small firms. As a result, many uninsured people will not be helped by the type of mandated employee benefit program currently under review. A separate approach would probably be needed to meet the needs of those not covered by mandated benefit programs.
Handle: RePEc:nbr:nberwo:3260
Template-Type: ReDIF-Paper 1.0
Title: Product Innovations, Price Indices and the (Mis)Measurement of Economic Performance
Author-Name: Manuel Trajtenberg
Author-Person: ptr35
Note: PR
Number: 3261
Creation-Date: 1990-02
Order-URL: http://www.nber.org/papers/w3261
File-URL: http://www.nber.org/papers/w3261.pdf
File-Format: application/pdf
Publication-Status: published as (Published as "Quality-adjusted Price Indices and the Measurement of Economic Growth")Technology and Productivity, The Challenge for Economic Policy, O.E.C.D., Paris, 1991, pp. 219-228.
Abstract: The goal of this paper is to address the problem of 'product innovations' (i.e. new goods. increased variety, and quality change) in the construction of price indices and, by extension, in the measurement of economic performance. The premise is that a great deal of technical progress takes the form of product innovations, but conventional economic statistics fail by and large to reflect them. The approach suggested here consists of two stages: first, the benefits from innovations are estimated with the aid of discrete choice models, and second, those benefits are used to construct 'quality adjusted' price indices. Following a discussion of the merits of such approach vis a vis hedonic price indices, I apply it to the case of CT (Computed Tomography) Scanners. The main finding is that the rate of decline in the real price of CT scanners was a staggering 55% per year (on average) over the first decade of the technology. By contrast, an hedonic-based index captures just a small fraction of the decline, and a simple (unadjusted) price index shows a substantial price increase over the same period. Thus, conventional economic indicators might be missing indeed a great deal of the welfare consequences of technical advance, particularly during the initial stages of the product cycle of new products.
Handle: RePEc:nbr:nberwo:3261
Template-Type: ReDIF-Paper 1.0
Title: Pay, Performance, and Turnover of Bank CEOs
Author-Name: Jason R. Barro
Author-Name: Robert J. Barro
Author-Person: pba251
Note: ME LS
Number: 3262
Creation-Date: 1990-02
Order-URL: http://www.nber.org/papers/w3262
File-URL: http://www.nber.org/papers/w3262.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Labor Economics, Vol. 8, no. 4 (October 1990): 448-481.
Abstract: We studied the relation of CEO pay and turnover to performance and characteristics of companies in a new data set that covers large commercial banks over the period 1982-87. For newly hired CEOs, the elasticity of pay with respect to assets is about one-third. As experience increases, the correlation between compensation and assets diminishes for about four years and then rises back to its initial value. We interpret these findings along the lines of Rosen's matching model, allowing for adjustments of compensation and bank assets and for possible dismissal of the CEO. For continuing CEOs, the change in compensation depends on performance as measured by stock and accounting returns. The sensitivity of pay to performance diminishes with experience, and there is no indication that stock or accounting returns are filtered for aggregate returns. Logit regressions relate the probability of CEO departure to age and performance. The relevant measure of performance in this context is stock returns filtered for average returns of banks in the same year and geographical region.
Handle: RePEc:nbr:nberwo:3262
Template-Type: ReDIF-Paper 1.0
Title: Can Direct and Indirect Taxes Be Added for International Comparisons of Competitiveness?
Author-Name: Hans-Werner Sinn
Author-Person: psi146
Note: PE
Number: 3263
Creation-Date: 1990-02
Order-URL: http://www.nber.org/papers/w3263
File-URL: http://www.nber.org/papers/w3263.pdf
File-Format: application/pdf
Publication-Status: published as Reforming Capital Income Taxation, edited by Horst Siebert, Tubingen, Germany: J.C.B. Mohr (Paul Siebeck), 1990, pp. 47-65.
Abstract: While it is usually argued that direct and indirect taxes should be added for meaningful international comparisons of country competitiveness, this paper argues that the opposite may be true. It is possible that a country with a high value-added tax needs a high capital income tax to maintain its international competitiveness and vice verca. Which view is correct depends on which combination of the origin, destination, source and residence principles' prevail and whether or not accelerated depreciation is allowed. Using a Heckscher-Ohlin model with international capital movements the paper studies the relevant alternatives in detail.
Handle: RePEc:nbr:nberwo:3263
Template-Type: ReDIF-Paper 1.0
Title: Macroeconomic Convergence: International Transmission of Growth and Technical Progress
Author-Name: John F. Helliwell
Author-Person: phe368
Author-Name: Alan Chung
Note: PR
Number: 3264
Creation-Date: 1990-02
Order-URL: http://www.nber.org/papers/w3264
File-URL: http://www.nber.org/papers/w3264.pdf
File-Format: application/pdf
Publication-Status: published as International Economic Transactions: Issues in Measurement and Empirical Research, edited by Peter Hooper and J. David Richardson, pp. 388-436. Chicago: The University of Chicago Press, 1991.
Publication-Status: published as Macroeconomic Convergence: International Transmission of Growth and Technical Progress , John F. Helliwell, Alan Chung. in International Economic Transactions: Issues in Measurement and Empirical Research, Hooper and Richardson. 1991
Abstract: This paper uses data for nineteen industrial countries over the period 1960-1985 to examine the evidence for international convergence of technical progress. Several models of convergence, including a model in which convergence is affected by changes in a country's openness to trade, are evaluated against competing alternatives. We also assess the extent to which convergence depends on some key measurement issues, including the use of purchasing power parities to compare real output in different countries, the use of different capital stocks in aggregate production functions, and alternative ways of representing embodied or disembodied technical progress. The various models of technical progress are assessed by non-nested tests of both the estimated output equations, using the factor utilization model, and their related factor demand equations. The results show significant evidence of international convergence in the rates of growth of labour efficiency, and some evidence that convergence is faster for countries that have been increasing their openness to international trade. A more general model of output determination, encompassing variations in factor utilization as well as tho autocorrelated technology shocks used in real business cycle models, was found to be preferred over more restricted alternatives.
Handle: RePEc:nbr:nberwo:3264
Template-Type: ReDIF-Paper 1.0
Title: Dynamic Optimal Income Taxation with Government Commitment
Author-Name: Dagobert L. Brito
Author-Name: Jonathan H. Hamilton
Author-Name: Steven M. Slutsky
Author-Name: Joseph E. Stiglitz
Note: PE
Number: 3265
Creation-Date: 1990-02
Order-URL: http://www.nber.org/papers/w3265
File-URL: http://www.nber.org/papers/w3265.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Public Economics, Vol. 44, pp. 15-35, (1991).
Abstract: The optimal income taxation problem has been extensively studied in one-period models. This paper analyzes optimal income taxation when consumers work for many periods. We also analyze what information, if any, that the government learns about abilities in one period can be used in later periods to attain more redistribution than in a one-period world. When the government must commit itself to future tax schedules, intertemporal nonstationarity of tax schedules could relax the self-selection constraints and lead to Pareto improvements. The effect of nonstationarity is analogous to that of randomization in one-period models. The use of information is limited since only a single lifetime self-selection constraint for each type of consumer exists. These results hold when individuals and the government have the same discount rates. The planner can make additional use of the information when individual and social rates of time discounting differ. In this case, the limiting tax schedule is a nondistorting one if the government has a lower discount rate than individuals.
Handle: RePEc:nbr:nberwo:3265
Template-Type: ReDIF-Paper 1.0
Title: Implications of Corporate Indebtedness for Monetary Policy
Author-Name: Benjamin M. Friedman
Note: ME
Number: 3266
Creation-Date: 1990-02
Order-URL: http://www.nber.org/papers/w3266
File-URL: http://www.nber.org/papers/w3266.pdf
File-Format: application/pdf
Publication-Status: published as "Implications of Increasing Corporate Indebtedness for Monetary Policy." From Group of Thirty Occasional Papers, No. 29, pp. 1-40, (1990).
Abstract: The extraordinary increase in reliance on debt by U.S. business in the 1980s has generated widespread concern that overextended borrowers may become unable to meet their obligations and that proliferating defaults could then lead to some kind of rupture of the financial system, with ensuing consequences for the nonfinancial economy as well. The thesis advanced in this paper, however, is that the more likely threat posed by a continuing rapid rise of corporate indebtedness is instead a return to rapid price inflation. In particular, a review of recent developments lead to four specific conclusions: First, problems of debt service within the private sector are more likely to arise among business borrowers, not households. Because businesses, and especially corporations, have used much of the proceeds of their borrowing merely to pay down their own or other firms' equity, their interest payments have risen to postwar record levels compared to either their earnings or their cash flows.
Second, despite these high debt service burdens, debt default on a scale large enough to threaten the financial system as a whole is unlikely in the absence of a general economic downturn. But the sharp increase in indebtedness has made U.S. businesses crucially dependent on continued strong earnings growth.
Third, the consequent need to prevent a serious recession -- so as to preclude the possibility of a systemic debt default -- will increasingly constrain the Federal Reserve System's conduct of monetary policy. The Federal Reserve's reluctance to risk a situation of spreading business (and LDC) debt defaults, especially with the U.S. commercial banking system in its current exposed position, will increasingly prevent it from either acquiescing in a recession or bringing one about on its own initiative.
Fourth, over time this constraint will severely limit the ability of monetary policy to contain or reduce price inflation. Episodes of disj in the United States since World War II have invariably involved business recessions, including declines in business earnings and increases in bankruptcies and defaults. If the economy's financial system has become fragile to withstand any but the shortest and shallowest recession, it is unlikely to be able to support a genuine attack on inflation by monetary policy.
Handle: RePEc:nbr:nberwo:3266
Template-Type: ReDIF-Paper 1.0
Title: Men, Women, and Addiction: The Case of Cigarette Smoking
Author-Name: Frank J. Chaloupka
Author-Person: pch236
Note: EH
Number: 3267
Creation-Date: 1990-02
Order-URL: http://www.nber.org/papers/w3267
File-URL: http://www.nber.org/papers/w3267.pdf
File-Format: application/pdf
Abstract: Cigarette demand equations, derived from the Becker-Murphy model of rational addictive behavior, are estimated separately for men and women. These demand equations account for the reinforcement, tolerance, and withdrawal factors characterizing addictive consumption. Results obtained from these demand equations support the hypothesis that cigarette smoking is an addictive behavior. Particularly interesting are the findings that men are responsive to changes in the price of cigarettes, with a long run price elasticity centered on -0.60, while women are virtually unresponsive to price changes. Men, however, are found to behave more myopically than women.
Handle: RePEc:nbr:nberwo:3267
Template-Type: ReDIF-Paper 1.0
Title: Rational Addictive Behavior and Cigarette Smoking
Author-Name: Frank J. Chaloupka
Author-Person: pch236
Note: EH
Number: 3268
Creation-Date: 1990-02
Order-URL: http://www.nber.org/papers/w3268
File-URL: http://www.nber.org/papers/w3268.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Political Economy, Vol. 99, No. 4, pp. 722-742, (August 1991).
Abstract: After a discussion of cigarette smoking in the context of the Becker-Murphy (1988) model of rational addictive behavior, demand equations are derived accounting for the tolerance, reinforcement, and withdrawal characteristic of addictive consumption. These are contrasted to equations developed under the competing hypotheses that smoking is not addictive or that cigarettes are addictive but individuals behave myopically. The demand equations are estimated using adults interviewed as part of the Second National Health and Nutrition Examination Survey. Estimates support the assumptions that cigarette smoking is an addictive behavior and that individuals do not behave myopically. Long run price elasticities of demand, fall in the range from -0.38 to -0.27. These estimates suggest that increased excise taxation would be an effective way of reducing cigarette smoking. Estimates for samples of current and ever smokers indicate that price increases would lead to lower cigarette consumption among both groups. Finally, the Becker-Murphy model's implications concerning the rate of tine preference and addictive consumption are tested by estimating the demand for cigarettes separately using samples based on age or education. Less educated and younger individuals are found to behave much more myopically than their more educated or older counterparts. Additionally, more addicted (myopic) individuals are found to be more responsive, in the long run, to changes in price than less addicted (myopic) individuals.
Handle: RePEc:nbr:nberwo:3268
Template-Type: ReDIF-Paper 1.0
Title: Why is Trade Reform so Unpopular? On Status Quo Bias in Policy Reforms
Author-Name: Raquel Fernandez
Author-Person: pfe17
Author-Name: Dani Rodrik
Author-Person: pro60
Note: ITI IFM
Number: 3269
Creation-Date: 1990-02
Order-URL: http://www.nber.org/papers/w3269
File-URL: http://www.nber.org/papers/w3269.pdf
File-Format: application/pdf
Publication-Status: published as "Resistance to Reform: Status Quo Bias in the Presence of Individual-Specific Uncertainty," The American Economic Review, December 1991.
Abstract: Despite the well-known gains from trade, trade liberalization is politically one of the most contentious actions that a government can take. We propose and formalize a new argument, having to do with uncertainty, which is complementary to the usual explanations for why that is the case; many individuals will simply not know how they will fare under trade reform, and this can reduce support for a reform which would have been otherwise popular, even in the absence of risk aversion. We show that reforms that would have received adequate popular support ex post (i.e., which once enacted will last) may fail to carry the day ex ante, because of uncertainty regarding the distribution of gains and losses. Moreover, the role of uncertainty in determining the outcomes is not symmetric, since reforms that are initially rejected will continue to be so in the future while reforms that are initially accepted may find themselves reversed over time. We discuss empirical illustrations drawn from the experiences of South Korea, Chile and Turkey to provide support for the argument.
Handle: RePEc:nbr:nberwo:3269
Template-Type: ReDIF-Paper 1.0
Title: Taxation and Housing Markets: Preliminary Evidence on the Effects of Recent Tax Reforms
Author-Name: James M. Poterba
Author-Person: ppo19
Note: PE
Number: 3270
Creation-Date: 1990-02
Order-URL: http://www.nber.org/papers/w3270
File-URL: http://www.nber.org/papers/w3270.pdf
File-Format: application/pdf
Publication-Status: published as Slemrod, Joel (ed.) Do Taxes Matter? The Impact of the Tax Reform Act of 1986. Cambridge, MA: The MIT Press, 1990.
Abstract: The tax changes of the 1980s altered the incentives for housing consumption. Marginal tax rate reductions in both the Economic Recovery Tax Act (1981) and the Tax Reform Act (1986) reduced the attraction of homeownership, particularly at high income levels. The Tax Reform Act, by lowering depreciation allowances and implementing anti-tax shelter provisions, also reduced the net tax subsidy to rental housing. In the long run these changes will raise real rents and reduce the fraction of national income that is allocated to housing. Preliminary evidence shows a pronounced decline in rental housing construction since the 1986 tax bill, as well as a decline in the real price of owner-occupied homes which may be partly attributable to the tax change.
Handle: RePEc:nbr:nberwo:3270
Template-Type: ReDIF-Paper 1.0
Title: Are Nonconvexities Important For Understanding Growth?
Author-Name: Paul Romer
Author-Person: pro45
Note: EFG
Number: 3271
Creation-Date: 1990-02
Order-URL: http://www.nber.org/papers/w3271
File-URL: http://www.nber.org/papers/w3271.pdf
File-Format: application/pdf
Publication-Status: published as The American Economic Review, Vol. 80, No. 2, pp. 97-103, (May 1990).
Abstract: Everyday experience and a simple logical argument show that nonconvexities are essential for understanding growth. Compared to previous statements of this well known argument, the presentation here places more emphasis on the distinction between two of the fundamental attributes of any economic good: rivalry and excludability. It also emphasizes the difference between public goods and the technological advances that are fundamental to economic growth. Like public goods, technological advances are rionrival goods. Hence, they are inextricably linked to nonconvexities. But in contrast to public goods, which are nonexcludable, technological advances generate benefits that are at least partially excludable. Hence, innovations in the technology are for the most part privately provided. This means that nonconvexities are relevant for goods that trade in private markets. Consequently, an equilibrium with price-taking in all markets cannot be sustained. Concluding remarks describe some of the recent equilibrium growth models that do not rely on price-taking and highlight some of the implications of these models.
Handle: RePEc:nbr:nberwo:3271
Template-Type: ReDIF-Paper 1.0
Title: A Positive Theory of Social Security
Author-Name: Guido Tabellini
Author-Person: pta37
Note: ME
Number: 3272
Creation-Date: 1990-02
Order-URL: http://www.nber.org/papers/w3272
File-URL: http://www.nber.org/papers/w3272.pdf
File-Format: application/pdf
Publication-Status: published as Scandinavian Journal of Economics, 102(3), June 2000: 523-45.
Abstract: In many countries. social security is a large fraction of the government budget. Why is it, given that at any moment in time the number of recipients of social security benefits is smaller than the number of contributors? Kore generally, what determines the size of social security? To answer these questions, this paper studies an overlapping generations model in which all individuals currently alive vote on social security. There is no commitment to preserve the legislation inherited from the past. Voters are weakly altruistic and there is heterogeneity within each generation. The paper shows that in equilibrium the size of social security is larger the greater is the proportion of elderly people in the population, and the greater is the inequality of pretax income. Both predictions of the theory are supported by the empirical evidence in cross-country data.
Handle: RePEc:nbr:nberwo:3272
Template-Type: ReDIF-Paper 1.0
Title: The Impact of Tax Reform on Charitable Giving: A 1989 Perspective
Author-Name: Charles T. Clotfelter
Author-Person: pcl34
Note: PE
Number: 3273
Creation-Date: 1990-03
Order-URL: http://www.nber.org/papers/w3273
File-URL: http://www.nber.org/papers/w3273.pdf
File-Format: application/pdf
Publication-Status: published as Do Taxes Matter?, Slemrod, Joel, ed., Cambridge: MIT Press, 1990.
Abstract: The purpose of this paper is to examine the predicted effects of tax reform in the 1980s (the tax acts of 1981 and 1986) on charitable contributions by individuals and to compare them to the actual and apparent effects, viewed from the perspective of 1989. The paper discusses what the economic models can and cannot be expected to do. Then, using published data from tax returns, the paper compares actual and predicted changes in giving as a result of both of the major tax reform acts. The paper concludes that the changes in contributions are quite consistent with the economic model of giving. As a result of these tax changes, average giving in high income classes declined. These results imply that tax policy should continue to be considered one important determinant of the level of individual charitable contributions.
Handle: RePEc:nbr:nberwo:3273
Template-Type: ReDIF-Paper 1.0
Title: Asymmetries and Rigidities in Wage Adjustments by Firms
Author-Name: Harry J. Holzer
Author-Person: pho162
Author-Name: Edward B. Montgomery
Note: LS
Number: 3274
Creation-Date: 1990-03
Order-URL: http://www.nber.org/papers/w3274
File-URL: http://www.nber.org/papers/w3274.pdf
File-Format: application/pdf
Publication-Status: published as Review of Economics and Statistics, August 1993.
Abstract: In this paper we use micro data from the Employment Opportunity Pilot Project (EOPP) surveys of firms in 1980 and 1982 to test for labor market rigidities and asymmetries in response to demand shifts. We analyze wage and employment adjustments to positive and negative shifts, as measured by sales growth between 1979 and 1981. The analysis is done for both entire sample of firms and for selected subsamples based on firm size, unionization, industry and skill mix. The results show that wage adjustments appear to be fairly rigid, compared with employment adjustments. They also appear to be quite asymmetric, with significant adjustments in response to positive shifts but little adjustment in response to negative shifts. These asymmetries are not more pronounced in large firms, manufacturing, heavily-waged or highly-skilled industries than in other firms or industries. In contrast, employment adjustments show no consistent pattern of asymmetry.
Handle: RePEc:nbr:nberwo:3274
Template-Type: ReDIF-Paper 1.0
Title: Increasing Returns and Economic Geography
Author-Name: Paul Krugman
Author-Person: pkr10
Note: ITI IFM
Number: 3275
Creation-Date: 1990-03
Order-URL: http://www.nber.org/papers/w3275
File-URL: http://www.nber.org/papers/w3275.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Political Economy, Vol. 99, no. 3 (June 1991): 483-499.
Publication-Status: Published as "Urban Concentration: The Role of Increasing Returns and Transport Goods," International Regional Science Review, Vol. 19, nos. 1/2 (April 1996): 5-30.
Abstract: This paper develops a two-region, two-sector general equilibriun model of location. The location of agricultural production is fixed, but ionopolistcally competitive manufacturing finns choose their location to maximize profits. If transportation costs are high, returns to scale weak, and the share of spending on manufactured goods low, the incentive to produce close to the market leads to an equal division of manufacturing between the regions. With lower transport costs, stronger scale economies, or a higher manufacturing share, circular causation sets in: the more manufacturing is located in one region, the larger that region's share of demand, and this provides an incentive to locate still more manufacturing there. Thus when the parameters of the economy lie even slightly on one side of a critical "phase boundary", all manufacturing production ends up concentrated in only one region.
Handle: RePEc:nbr:nberwo:3275
Template-Type: ReDIF-Paper 1.0
Title: Trade and Uneven Growth
Author-Name: Robert C. Feenstra
Author-Person: pfe116
Note: ITI IFM
Number: 3276
Creation-Date: 1990-03
Order-URL: http://www.nber.org/papers/w3276
File-URL: http://www.nber.org/papers/w3276.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Development Economics, Vol. 49, no. 1 (April 1996): 229-256.
Abstract: We consider trade between two countries of unequal size, where the creation of new intermediate inputs occurs in both. We assume that the knowledge gained from R&D in one country does not spillover to the other. Under autarky, the larger country would have a higher rate of product creation. When trade occurs in the final goods, we find that the smaller country has its rate of product creation stowed, even in the long run. In contrast, the larger country enjoys a temporary increase in its rate of R&D. We also examine the welfare consequences of trade in the final goods, which depend on whether the intermediate inputs are traded or not.
Handle: RePEc:nbr:nberwo:3276
Template-Type: ReDIF-Paper 1.0
Title: Distributing the Gains from Trade With Incomplete Information
Author-Name: Robert Feenstra
Author-Person: pfe116
Author-Name: Tracy R. Lewis
Note: ITI IFM
Number: 3277
Creation-Date: 1990-03
Order-URL: http://www.nber.org/papers/w3277
File-URL: http://www.nber.org/papers/w3277.pdf
File-Format: application/pdf
Publication-Status: published as Economics and Politics, 3(1) March 1991, pp. 21-39
Abstract: We argue that the incomplete information which the government has about domestic agents means that tariffs become an optimal instrument to protect them from import competition. We solve for the optimal government policies. subject to the political constraint of ensuring Pareto gains from trade, the incentive compatibility constraint, and the government's budget constraint. We find that the optimal policies take the form of nonlinear tariffs, so that both buyers and sellers of the import face an effective price which exceeds its world level. We find that the tariffs are never complete, in the sense of bringing prices (or all individuals back to their initial level. Rather, it will always be possible to make some individuals strictly better off than at the initial prices, while ensuring that no persons are worse off.
Handle: RePEc:nbr:nberwo:3277
Template-Type: ReDIF-Paper 1.0
Title: Changing Effects of Monetary Policy on Real Economic Activity
Author-Name: Benjamin M. Friedman
Note: ME
Number: 3278
Creation-Date: 1990-03
Order-URL: http://www.nber.org/papers/w3278
File-URL: http://www.nber.org/papers/w3278.pdf
File-Format: application/pdf
Publication-Status: published as Monetary Policy Issues in the 1990s, pp. 55-111. Kansas City: The Federal Reserve Bank of Kansas City, 1989.
Abstract: Major changes have taken place in the U.S. economy within the past quarter century. Changes with implications that are at least potentially important for the effect of monetary policy on real economic activity include the elimination of Regulation Q interest ceilings and the development of the secondary mortgage market, the greater openness of the U.S. economy including both goods markets and financial markets, and the rapidly increasing indebtedness of private borrowers including especially nonfinancial business corporations. Examination of relationships between monetary policy and economic activity at a detailed, disaggregated level indicates several changes within the past quarter century that are broadly consistent with these changes in the underlying economic environment: First, the elimination of major episodes of credit rationing in the mortgage market has clearly rendered housing less sensitive to restrictive monetary policy; moreover, there is no solid evidence of change in the sensitivity of homebuilding to mortgage interest rates. Second, business fixed investment has become more sensitive to financial market conditions, at least in the short run. Third, consumer spending has become less sensitive to interest rate increases and stock price declines, at least in situations that persist for lengthy periods of time. Fourth, although foreign trade has clearly grown relative to aggregate U.S. economic activity, both exports and imports exhibit less sensitivity to exchange rate changes, and hence presumably less sensitivity to monetary policy actions, than in earlier years.
Handle: RePEc:nbr:nberwo:3278
Template-Type: ReDIF-Paper 1.0
Title: Asset Prices under Habit Formation and Catching up with the Joneses
Author-Name: Andrew B. Abel
Author-Person: pab10
Note: ME
Number: 3279
Creation-Date: 1990-03
Order-URL: http://www.nber.org/papers/w3279
File-URL: http://www.nber.org/papers/w3279.pdf
File-Format: application/pdf
Publication-Status: published as The American Economic Review, Vol. 80, No. 2, pp. 38-42, (May 1990).
Abstract: This paper introduces a utility function that nests three classes of utility functions: (1) time-separable utility functions; (2) "catching up with the Joneses" utility functions that depend on the consumer's level of consumption relative to the lagged cross-sectional average level of consumption; and (3) utility functions that display habit formation. Closed-form solutions for equilibrium asset prices are derived under the assumption that consumption growth is i.i.d. The equity premia under catching up with the Joneses and under habit formation are, for some parameter values, as large as the historically observed equity premium in the United States.
Handle: RePEc:nbr:nberwo:3279
Template-Type: ReDIF-Paper 1.0
Title: The Effects of Colleges and Universities on Local Labor Markets
Author-Name: Patricia Beeson
Author-Name: Edward B. Montgomery
Note: LS
Number: 3280
Creation-Date: 1990-03
Order-URL: http://www.nber.org/papers/w3280
File-URL: http://www.nber.org/papers/w3280.pdf
File-Format: application/pdf
Publication-Status: published as Review of Economics and Statistics November 1993.
Abstract: Despite the presence of anecdotal evidence linking regional economic growth and the presence of quality universities in such areas as the Silicon Valley in California and Route 128 in Boston, there have been few systematic studies of the relationship between universities and local economies. In this paper we examined the relationship between four measures of the quality or extent of activities of colleges and universities in an area and various measures of the local labor market activity, including employment, income and migration. We could not reject the hypothesis that there is no relationship between our measures of university activity and the overall employment rate in an SMSA. We did, however, find evidence that colleges and universities affect the composition of employment in an SMSA. The probability of being employed as a scientist or engineer and the probability of being employed in a high- tech industry were both found to increase with the amount of R&D funding at local universities. The probability of being employed in a high- tech industry was also found to be positively related to the number of graduates from local universities. We also found evidence that employment growth rates and earnings are higher in areas with good universities. Finally, the data can not reject the hypothesis that net migration is unrelated to universities.
Handle: RePEc:nbr:nberwo:3280
Template-Type: ReDIF-Paper 1.0
Title: Capital Market Integration: Issues of International Taxation
Author-Name: Assaf Razin
Author-Person: pra388
Author-Name: Efraim Sadka
Author-Person: psa492
Note: ITI PE IFM
Number: 3281
Creation-Date: 1990-03
Order-URL: http://www.nber.org/papers/w3281
File-URL: http://www.nber.org/papers/w3281.pdf
File-Format: application/pdf
Publication-Status: published as Reforming Capital Income Taxation, edited by Horst Siebert, pp. 155-165. Tubingen, Germany: J.C.B. Mohr, 1991.
Abstract: The paper analyzes three issues in international taxation: (a) How the opening of the economy to international capital movements affects the size and structure of the fiscal branch of government: (b) Optimal restrictions on capital exports in the face of capital flight; and (c) The structure of taxes on mobile factors which emerges from international tax competitions and the gains from international tax harmonization.
Handle: RePEc:nbr:nberwo:3281
Template-Type: ReDIF-Paper 1.0
Title: Was There a "Peso Problem" in the U.S. Term Structure of Interest Rates:1979-1982?
Author-Name: Karen K. Lewis
Author-Person: ple1119
Note: ITI IFM
Number: 3282
Creation-Date: 1990-03
Order-URL: http://www.nber.org/papers/w3282
File-URL: http://www.nber.org/papers/w3282.pdf
File-Format: application/pdf
Publication-Status: published as Karen K. Lewis, 1991. "Was there a "Peso Problem" in the U.S. Term Structure of Interest Rates: 1979-1982?," International Economic Review, vol 32(1).
Abstract: During the period following October 1979 through 1982, the U.S. Federal Reserve allowed interest rates to fluctuate widely, in contrast to its previous policy of targeting these rates in the 1970. The policy was abandoned in 1982 in favor of an operating procedure that reduced the variation in interest rates. This paper implements an estimation method to identify from the term structure of Eurodollar returns the market's beliefs that the Fed may revert to interest rate targeting. The model is not rejected and gives plausible estimates of the probability of a switch in monetary regimes.
Handle: RePEc:nbr:nberwo:3282
Template-Type: ReDIF-Paper 1.0
Title: Endogenous Market Structures in International Trade
Author-Name: Ignatius J. Horstmann
Author-Person: pho167
Author-Name: James R. Markusen
Author-Person: pma528
Note: ITI IFM
Number: 3283
Creation-Date: 1990-03
Order-URL: http://www.nber.org/papers/w3283
File-URL: http://www.nber.org/papers/w3283.pdf
File-Format: application/pdf
Publication-Status: published as Journal of International Economics, Volume 32, 1992, pp. 109-129
Abstract: Almost all of the large literature on international trade with imperfect competition assumes exogenous market structures. The purpose of this paper is to develop a simple model that generates alternative market structures as Nash equilibria for different parameterizations of the basic model. Familiar configurations such as a duopoly competing in exports or a single multinational producing in both markets arise as special cases. Small tax-policy changes can produce large welfare effects as the equilibrium market structure shifts, implying discontinuous jumps in prices, quantities, and profits.
Handle: RePEc:nbr:nberwo:3283
Template-Type: ReDIF-Paper 1.0
Title: First Mover Advantages, Blockaded Entry, And the Economics of Uneven Development
Author-Name: James R. Markusen
Author-Person: pma528
Note: ITI IFM
Number: 3284
Creation-Date: 1990-03
Order-URL: http://www.nber.org/papers/w3284
File-URL: http://www.nber.org/papers/w3284.pdf
File-Format: application/pdf
Publication-Status: published as International Trade and Trade Policy, MIT Press: Cambridge, 1991, pp.613-62 4
Abstract: A two-sector, two-period trade model is developed in which one sector has increasing returns based on the creation of specialized intermediate inputs. One of the two (otherwise identical) countries is not able to enter the increasing returns sector in the first period through some "accident of history". A theoretical and numerical analysis solves for parameter regimes under which firms in the disadvantaged country are or are not able to enter the increasing returns sector in the second period. The welfare consequences of the two alternative second period outcomes are compared to one another and to an equilibrium with both countries entering in the first period. The disadvantaged country may fall further behind in the second period even when its firms are able to enter.
Handle: RePEc:nbr:nberwo:3284
Template-Type: ReDIF-Paper 1.0
Title: Does It Matter What We Trade? Trade and Industrial Policies When Labor Markets Don't Clear
Author-Name: William T. Dickens
Note: LS
Number: 3285
Creation-Date: 1990-03
Order-URL: http://www.nber.org/papers/w3285
File-URL: http://www.nber.org/papers/w3285.pdf
File-Format: application/pdf
Publication-Status: published as Industrial Relations Research Association Series: Second Annual Meeting, December 28-30, 1989, Atlanta, pp. 527-535, 1990.
Abstract: In efficiency wage models firms set employment so that the value of the marginal revenue product of labor (VMRPL) equals the wage. If the payment of efficiency wages results in inter-industry wage differences for comparable workers there exist welfare enhancing industrial and trade policies which shift employment from low to high wage industries. Previous attempts to measure the potential impact of such policies have assumed that wages equal the VMRPL, but not all explanations for inter-industry wage differences have that property. This paper argues, from the evidence on inter-industry wage differences that rent-sharing/extraction models should be preferred to other explanations. However, such models do not all have the property that wages equal the VMRPL. In the model presented VNRPL is set equal to the opportunity cost of labor so policies to shift employment to high wage industries would be of no value. Further, the empirical work that has been done to assess the importance of labor market distortions for trade and industrial policy is inapplicable if such models are the correct explanation for inter-industry wage differences. A rent-extraction model that takes into account workers' limited information about the profitability of the company they work for is developed. In that model high wage industries have high VPL so policies to shift employment to high wage industries are appropriate and past empirical studies of the effects of trade and industrial policy are approximately correct.
Handle: RePEc:nbr:nberwo:3285
Template-Type: ReDIF-Paper 1.0
Title: The Effect of the Medicaid Program on Welfare Participation and Labor Supply
Author-Name: Robert Moffitt
Author-Person: pmo48
Author-Name: Barbara Wolfe
Author-Person: pwo47
Note: EH LS PE
Number: 3286
Creation-Date: 1990-03
Order-URL: http://www.nber.org/papers/w3286
File-URL: http://www.nber.org/papers/w3286.pdf
File-Format: application/pdf
Publication-Status: published as Review of Economic Statistics, Volume 74, No. 4, (November 1992), pp. 615-626.
Publication-Status: published as Moffitt, Robert & Wolfe, Barbara L, 1992. "The Effect of the Medicaid Program on Welfare Participation and Labor Supply," The Review of Economics and Statistics, MIT Press, vol. 74(4), pages 615-26, November.
Abstract: Although there is a large literature on the effect of AFDC and Food Stamps on labor supply and welfare participation, there has been little work on the effects of Medicaid, despite its importance in the O.S. transfer system. In this paper we use 1986 data from the Survey of Income and Program Participation to examine the effect of Medicaid on the labor supply and welfare participation decisions of female heads of family. A key contribution is the development of a family-specific proxy for the valuation of Medicaid benefits which depends upon the health and other characteristics of the family. We find that Medicaid has strong and significant effects on labor supply and welfare participation that are negative and positive in sign, respectively, but which are concentrated in the tail of the distribution with the highest expected medical expenditures. We also find that the availability and level of private health insurance have very large effects opposite in sign to those of Medicaid.
Handle: RePEc:nbr:nberwo:3286
Template-Type: ReDIF-Paper 1.0
Title: Debt, Deficits and Inflation: An Application to the Public Finances of India
Author-Name: Willem H. Buiter
Author-Person: pbu137
Author-Name: Urjit R. Patel
Note: ITI ME IFM
Number: 3287
Creation-Date: 1990-03
Order-URL: http://www.nber.org/papers/w3287
File-URL: http://www.nber.org/papers/w3287.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Public Economics, Vol. 47, pp. 171-205, (1992).
Abstract: The paper studies the solvency of the Indian public sector and the eventual monetization and inflation implied by stabilization of the debt-GNP ratio without any changes in the primary deficit. The nonstationarity of the discounted public debt suggests that indefinite continuation of the pattern of behavior reflected in the historical discounted debt process is inconsistent with the maintenance of solvency. This message is reinforced by the recent behavior of the debt-GNP ratio and the ratio of primary surplus plus seigniorage to GNP. Our estimates of the base money demand function suggest that even maximal use of seigniorage will not be sufficient to restore solvency.
Handle: RePEc:nbr:nberwo:3287
Template-Type: ReDIF-Paper 1.0
Title: Pareto Efficient Tax Structures
Author-Name: Dagobert L. Brito
Author-Name: Jonathan H. Hamilton
Author-Name: Steven M. Slutsky
Author-Name: Joseph E. Stiglitz
Note: PE
Number: 3288
Creation-Date: 1990-03
Order-URL: http://www.nber.org/papers/w3288
File-URL: http://www.nber.org/papers/w3288.pdf
File-Format: application/pdf
Publication-Status: published as Oxford Economic Papers, Vol. 42, pp. 61-77, (1990).
Abstract: Most analyses of optimal income taxation make restrictive technical assumptions on preferences (such as single-crossing) and only derive properties of welfare-maximizing tax schedules. Here, for an economy with any finite numbers of groups and commodities, Pareto efficient tax structures are described assuming only continuity and monotonicity of preferences. Most results follow directly from a property of self-selection: at an optimum, one group will never envy the bundle of another group which pays a larger total tax. The bundle of a group paying the largest total tax is undistorted. Assuming normality, undistorted outcomes for a group form a connected segment on the constrained utility possibility frontier. The tax structure at distorted outcomes is also described.
Handle: RePEc:nbr:nberwo:3288
Template-Type: ReDIF-Paper 1.0
Title: Randomization in Optimal Income Tax Schedules
Author-Name: Dagobert L. Brito
Author-Name: Jonathan H. Hamilton
Author-Name: Steven M. Slutsky
Author-Name: Joseph E. Stiglitz
Note: PE
Number: 3289
Creation-Date: 1990-03
Order-URL: http://www.nber.org/papers/w3289
File-URL: http://www.nber.org/papers/w3289.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Public Economics, vol. 56, (1995), pp. 189-223
Abstract: The optimal income tax problem, since it requires self-selection constraints which define nonconvex feasible sets, is one of the many problems in economics for which randomization in the solution may be desirable. For a two-class economy. we characterize the optimal random tax schedules and we present necessary and sufficient conditions for the desirability of local randomization. The standard single-crossing restriction on preferences is not required for these results. We also show that randomization can be beneficial without violating (ex post as well as ex ante) horizontal equity. Lastly, we give an example to demonstrate that the gains from randomization may be large.
Handle: RePEc:nbr:nberwo:3289
Template-Type: ReDIF-Paper 1.0
Title: Were Japanese Stock Prices Too High?
Author-Name: Kenneth R. French
Author-Person: pfr33
Author-Name: James M. Poterba
Author-Person: ppo19
Note: PE ME
Number: 3290
Creation-Date: 1990-03
Order-URL: http://www.nber.org/papers/w3290
File-URL: http://www.nber.org/papers/w3290.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Financial Economics, Vol. 29, (October 1991), 37-364
Abstract: The difference between reported price-earnings ratios in the United States and Japan is not as puzzling as it appears at first glance. Nearly half the disparity is caused by differences in accounting practices with respect to consolidation of earnings from subsidiaries and depreciation of fixed assets. If Japanese firms used U.S. accounting rules, we estimate that the P/E ratio for the Tokyo Stock Exchange would have been 32.1, not the reported 54.3, at the end of 1988. Accounting differences are unable, however, to explain the sharp rise in the Japanese stock market during the mid-1980s. Changes in required returns on equities, or in investor expectations of future growth for Japanese firms, must be invoked to explain this phenomenon. Real interest rates declined during the period of rapid price increase, but there is little evidence that growth expectations became more optimistic. The real interest rate changes do not, however, appear large enough to fully account for the change in stock prices.
Handle: RePEc:nbr:nberwo:3290
Template-Type: ReDIF-Paper 1.0
Title: Non-Cointegration and Econometric Evaluation of Models of Regional Shift and Share
Author-Name: Scott J. Brown
Author-Name: N. Edward Coulson
Author-Person: pco379
Author-Name: Robert F. Engle
Note: ME
Number: 3291
Creation-Date: 1990-03
Order-URL: http://www.nber.org/papers/w3291
File-URL: http://www.nber.org/papers/w3291.pdf
File-Format: application/pdf
Abstract: This paper tests for cointegration between regional output of an industry and national output of the same industry. An equilibrium economic theory is presented to argue for the plausibility of cointegration, however, regional economic forecasting using the shift and share framework often acts as if cointegration does not exist. Data analysis on broad industrial sectors for 20 states finds very little evidence for cointegration. Forecasting models with and without imposing cointegration are than constructed and used to forecast out of sample. The simplest, non-cointegrating models are the best.
Handle: RePEc:nbr:nberwo:3291
Template-Type: ReDIF-Paper 1.0
Title: Determinants of Saving and Labor Force Participation of the Elderly in Japan
Author-Name: Tetsuji Yamada
Author-Name: Tadashi Yamada
Author-Name: Guorn Liu
Note: LS
Number: 3292
Creation-Date: 1990-03
Order-URL: http://www.nber.org/papers/w3292
File-URL: http://www.nber.org/papers/w3292.pdf
File-Format: application/pdf
Publication-Status: published as "Interdependency of Personal Saving and Labor Force Participation of the Elderly and Social Security Wealth: A Time-Series Analysis" Applied Economics Volume 24, No. 4, pp. 379-388, April 1992
Abstract: Japanese annual time series data covering the period 1951 to 1982 reveals that changes in the program of social security retirement benefits have substantial influence on personal saving and retirement behavior. The empirical results show that social security retirement benefits depress personal saving by approximately 13.5 thousand yen per capita in real terms from 1951 to 1982. However, declining labor force participation of the elderly (i.e., earlier retirement), stimulates personal saving by an estimated .5 thousand yen over the same period. The study finds that the benefit effect dominates the retirement effect. The net effect is consequently a downward impact on personal saving. The parameter estimates indicate that the retirement behavior induced by social security retirement benefits tends to become more sensitive and responsive to a rise in the benefits. In addition this study has identified a negative interdependency between the personal saving and labor retirement behaviors; that is, an individual saves more before retirement if he expects to stay a shorter time in the labor market, and vice versa. Moreover, personal saving influenced by retirement behavior tends to become less and less responsive, though the results indicate a relatively large response, and although very small, the retirement behavior gradually becomes more responsive to change in personal saving.
Handle: RePEc:nbr:nberwo:3292
Template-Type: ReDIF-Paper 1.0
Title: American Firms Face Europe: 1992
Author-Name: Robert E. Lipsey
Author-Person: pli259
Note: ITI IFM
Number: 3293
Creation-Date: 1990-03
Order-URL: http://www.nber.org/papers/w3293
File-URL: http://www.nber.org/papers/w3293.pdf
File-Format: application/pdf
Publication-Status: published as U.S. - Japan Economic Forum, Vol. 1, edited by Martin Feldstein and Yutaka Kosai, pp. 9-32, (1990).
Abstract: The press and business magazines are filled with stories about a rush of American firms into the European Community to take advantage of, or avoid the adverse consequences of, the expected formation of a single market in 1992. Yet, it is hard o find evidence of a large shift in plant and equipment expenditures, employment, or financial investment toward the EC countries by American firms. The main reason seems to be that large American manufacturing firms are already well entrenched in the EC, and may even be better positioned to take advantage of the single market than most of their European rivals. The U.S. firms (unlike most Japanese companies) already supply almost all their share of the EC market from operations within the EC and depend very little on importing from the U.S. There is some indication of moves toward EC production by non-manufacturing operations such as distribution and services, by smaller companies, by those not now producing extensively in the EC, and by firms hoping to take part in public procurement.
Handle: RePEc:nbr:nberwo:3293
Template-Type: ReDIF-Paper 1.0
Title: Specific Capital, Mobility, and Wages: Wages Rise with Job Seniority
Author-Name: Robert H. Topel
Author-Person: pto111
Note: LS
Number: 3294
Creation-Date: 1990-03
Order-URL: http://www.nber.org/papers/w3294
File-URL: http://www.nber.org/papers/w3294.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Political Economy, Vol. 99, pp.145-76, February 1991.
Abstract: The idea that wages rise relative to alternatives as job seniority accumulates is the foundation of the theory of specific human capital, as well as other widely accepted theories of compensation. The fact that persons with longer job tenures typically earn higher wages tends to support these views, yet this evidence ignores the decisions that have brought individuals to the combination of wages, job tenure, and experience that are observed in survey data. Allowing for sources of bias generated by these decisions, this paper uses longitudinal data to estimate a lower bound on the avenge return to job seniority among adult men. I find that 10 years of current job seniority raises the wage of the typical male worker in the U.S. by over 25 percent. This is an estimate of what the typical worker would lose if his job were to end exogenously. Overall, the evidence implies that accumulation of specific capital is an important ingredient of the typical employment relationship, and of life-cycle earnings and productivity as well. Continuation of these relationships has substantial specific value for workers.
Handle: RePEc:nbr:nberwo:3294
Template-Type: ReDIF-Paper 1.0
Title: Inventories and the Short-Run Dynamics of Commodity Prices
Author-Name: Robert S. Pindyck
Author-Person: ppi130
Note: ME
Number: 3295
Creation-Date: 1990-03
Order-URL: http://www.nber.org/papers/w3295
File-URL: http://www.nber.org/papers/w3295.pdf
File-Format: application/pdf
Publication-Status: published as The RAND Journal of Economics, vol 25, no 1, pp 141-159, Spring 1994
Abstract: The idea that wages rise relative to alternatives as job seniority accumulates is the foundation of the theory of specific human capital, as well as other widely accepted theories of compensation. The fact that persons with longer job tenures typically earn higher wages tends to support these views, yet this evidence ignores the decisions that have brought individuals to the combination of wages, job tenure, and experience that are observed in survey data. Allowing for sources of bias generated by these decisions, this paper uses longitudinal data to estimate a lower bound on the avenge return to job seniority among adult men. I find that 10 years of current job seniority raises the wage of the typical male worker in the U.S. by over 25 percent. This is an estimate of what the typical worker would lose if his job were to end exogenously. Overall, the evidence implies that accumulation of specific capital is an important ingredient of the typical employment relationship, and of life-cycle earnings and productivity as well. Continuation of these relationships has substantial specific value for workers.
Handle: RePEc:nbr:nberwo:3295
Template-Type: ReDIF-Paper 1.0
Title: Stock Returns and Real Activity: A Century of Evidence
Author-Name: G. William Schwert
Author-Person: psc116
Note: ME
Number: 3296
Creation-Date: 1990-03
Order-URL: http://www.nber.org/papers/w3296
File-URL: http://www.nber.org/papers/w3296.pdf
File-Format: application/pdf
Publication-Status: published as The Journal of Finance, Vol. XLV, No. 4, pp. 1237-1257, (September 1990).
Abstract: This paper analyzes the relation between real stock returns and real activity from 1889-1988. It replicates Fama's (1990) results for the 1953-87 period using an additional 65 years of data. It also compares two measures of industrial production in the tests: (1) the series produced by Babson for 1889-1918, spliced with the Federal Reserve Board index of industrial production for 1919-1988, and (2) the new Miron and Romer (1989) index spliced with the Fed index in 1941. Fama's findings are robust for a much longer period -- future production growth rates explain a large fraction of the variation in stock returns. The new Miron-Romer measure of industrial production is less closely related to stock price movements than the older Babson and Federal Reserve Board measures.
Handle: RePEc:nbr:nberwo:3296
Template-Type: ReDIF-Paper 1.0
Title: Predictable Stock Returns: Reality or Statistical Illusion?
Author-Name: Charles R. Nelson
Author-Person: pne247
Author-Name: Myung J. Kim
Note: ME
Number: 3297
Creation-Date: 1990-03
Order-URL: http://www.nber.org/papers/w3297
File-URL: http://www.nber.org/papers/w3297.pdf
File-Format: application/pdf
Publication-Status: Published as "Predictable Stock Returns: The Role of Small Sample Bias", JF, Vol. 48, no. 2 (1993): 641-661.
Abstract: Recent research suggests that stock returns are predictable from fundamentals such as dividend yield, and that the degree of predictability rises with the length of the horizon over which return is measured. This paper investigates the magnitude of two sources of small simple bias in these results. First, it is a standard result in econometrics that regression on the lagged value of the dependent variable is biased in finite samples. Since a fundamental such as the price/dividend ratio is a statistical proxy for lagged price, predictive regressions are potentially subject to a corresponding small sample bias. This may create the illusion that one can buy low and sell high in the sample even if the relationship is useless for forecasting. Second, multiperiod returns are positively autocorrelated by construction, raising the possibility of spurious regression. Standard errors which are computed from the asymptotic formula may not be large enough in small samples. A set of Monte Carlo experiments are presented in which data are generated by a version of the present value model in which the discount rate is constant so returns are not in fact predictable. We show that a number of the characteristica of the historical results can be replicated simply by the combined effects of the two small sample biases.
Handle: RePEc:nbr:nberwo:3297
Template-Type: ReDIF-Paper 1.0
Title: Investment Tax Credit in an Open Economy
Author-Name: Partha Sen
Author-Name: Stephen J. Turnovsky
Author-Person: ptu5
Note: ITI IFM
Number: 3298
Creation-Date: 1990-03
Order-URL: http://www.nber.org/papers/w3298
File-URL: http://www.nber.org/papers/w3298.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Public Economics, Vol. 42, No. 3, pp. 277-299, (August 1990).
Abstract: This paper contrasts the effects of a permanent and temporary investment tax credit in an open economy. In both cases an ITC will initially stimulate investment, while reducing employment and output, and generating a current account deficit. If the ITC is permanent, the accumulation of capital leads to a higher equilibrium capital stock, higher employment and output, and a reduction in the economy's stock of net credit. If the ITC is temporary, after its removal, the economy eventually moves to a new steady-state equilibrium having a lower permanent capital stock and employment, together with a higher stock of net credit.
Handle: RePEc:nbr:nberwo:3298
Template-Type: ReDIF-Paper 1.0
Title: Does Foreign Exchange Intervention Matter? Disentangling the Portfolio and Expectations Effects for the Mark
Author-Name: Kathryn M. Dominguez
Author-Person: pdo227
Author-Name: Jeffrey Frankel
Author-Person: pfr12
Note: ITI IFM
Number: 3299
Creation-Date: 1990-03
Order-URL: http://www.nber.org/papers/w3299
File-URL: http://www.nber.org/papers/w3299.pdf
File-Format: application/pdf
Publication-Status: Published as "Does Foreign Exchange Intervention Matter? The Portfolio Effect," American Economic Review, vol. 83, no. 5, p. 1356-1369 (December 1993)
Publication-Status: published as Kathryn Dominguez & Jeffrey Frankel, 1991. "Does foreign exchange intervention matter? disentangling the portfolio and expectations effects for the mark," Proceedings, Federal Reserve Bank of San Francisco, issue Nov.
Abstract: The time is ripe for a re-examination of the question whether foreign exchange intervention can affect the exchange rate. We attempt to isolate two distinct effects: the portfolio effect, whereby an increase in the supply of marks must reduce the dollar/mark rate (for given expected rates of return) and the additional expectations effect, whereby intervention that is publically known may alter investors expectations of the future exchange rate, which will feed back to the current equilibrium price. We estimate a system consisting of two equations, one describing investors' portfolio behavior and the other their formation of expectations, where the two endogenous variables are the current spot rate and investors' expectation of the future spot rate. We use relatively new data sources: actual daily data on intervention by the Bundesbank, newspaper stories on known intervention, and survey data on investors' expectations. We find evidence of both an expectations effect and a portfolio effect. The statistical significance of the portfolio effect suggests that even sterilized intervention may have had positive effects during the sample period. (It tends to be significant only during the later of our two sample periods, October 1984 to December 1987. That intervention appears less significant statistically during the earlier period, November 1982 to October 1984, could be attributed to the fact that little intervention was undertaken until 1985.) For the magnitude of the effects to be large requires that intervention be publically known. Our (still preliminary) estimates suggest that a typical $100 million of "secret" intervention has an effect of less than 0.1 per cent on the exchange rate, but that the effect of news reports of intervention can be as large as an additional 4 per cent.
Handle: RePEc:nbr:nberwo:3299
Template-Type: ReDIF-Paper 1.0
Title: Premature Liberalization, Incomplete Stabilization: the Ozal Decade in Turkey
Author-Name: Dani Rodrik
Author-Person: pro60
Note: ITI IFM
Number: 3300
Creation-Date: 1990-03
Order-URL: http://www.nber.org/papers/w3300
File-URL: http://www.nber.org/papers/w3300.pdf
File-Format: application/pdf
Publication-Status: published as Michael Bruno, et al, editors. Lessons of Economic Stabilization and Its Aftermath. Cambridge, MA: The MIT Press, 1991.
Abstract: In late 1979, Turkey stood in the throes of a foreign exchange crisis, with widespread shortages, negative growth, and inflation into triple digits. A decade later, Turkey has a comfortable balance-of-payments situation, and sits atop considerable foreign exchange reserves. The economy has achieved a remarkable transformation from an inward-oriented outlook to an outwardoriented one. Yet, after some success in the early 1980s, inflation remains unconquered and the public sector budget is out of control. This paper provides an interpretation of the Turkish experience in the 1980s. It is argued that foreign capital inflows in the early 1980s cushioned the fiscal squeeze, and allowed a relatively painless reduction in inflation alongside a process of export-oriented growth. In the best of all possible worlds, the outward-oriented reforms would have taken sufficient root by the mid-1980s to allow the public sector to undertake the delayed retrenchment as the inflows came to an end, at no great cost to output. Instead, policy followed a mix of liberalization with patronage politics detrimental to monetary discipline. Financial liberalization reduced demand for base money at the same time that fiscal balances came under increasing strain due to the external transfer. Inflation was rekindled under the dual influence of fiscal deficits and a shrinking base for the inflation tax.
Handle: RePEc:nbr:nberwo:3300
Template-Type: ReDIF-Paper 1.0
Title: Patent Statistics as Economic Indicators: A Survey
Author-Name: Zvi Griliches
Note: PR
Number: 3301
Creation-Date: 1990-03
Order-URL: http://www.nber.org/papers/w3301
File-URL: http://www.nber.org/papers/w3301.pdf
File-Format: application/pdf
Publication-Status: published as "Patent Statistics as Economic Indicators: A Survey." Journal of Economic Literature, Vol. XXVIII, pp. 1661-1707, (December 1990).
Publication-Status: published as Patent Statistics as Economic Indicators: A Survey, Zvi Griliches. in R&D and Productivity: The Econometric Evidence, Griliches. 1998
Abstract: This survey reviews the growing use of patent data in economic analysis. After describing some of the main characteristics of patents and patent data, it focuses on the use of patents as an indicator of technological change. Cross-sectional and time-series studies of the relationship of patents to R&D expenditures are reviewed, as well as scattered estimates of the distribution of patent values and the value of patent rights, the latter being based on recent analyses of European patent renewal data. Time-series trends of patents granted in the U.S. are examined and their decline in the 1970s is found to be an artifact of the budget stringencies at the Patent Office. The longer run downward trend in patents per R&D dollar is interpreted not as an indication of diminishing returns but rather as a reflection of the changing meaning of such data over time. The conclusion is reached that, in spite of many difficulties and reservations, patent data remain a unique resource for the study of technical change.
Handle: RePEc:nbr:nberwo:3301
Template-Type: ReDIF-Paper 1.0
Title: From Stabilization to Growth
Author-Name: Rudiger Dornbusch
Note: ITI IFM
Number: 3302
Creation-Date: 1990-03
Order-URL: http://www.nber.org/papers/w3302
File-URL: http://www.nber.org/papers/w3302.pdf
File-Format: application/pdf
Publication-Status: published as "Policies to Move from Stabilization to Growth." From Proceedings of the World Bank Annual Conference on Development Economics 1990, edited by Stanley Fischer, Dennis de Tray, and Shekhar Shah, pp. 19-48. Washington, DC: World Bank Publications, 1991.
Abstract: The 1980s were a lost decade for Latin America, will the 1990s also be lost? For some countries stabilization has not even started. In other countries the stabilization accomplishments remain tentative and vulnerable. And even those countries that have established firmly a new path for their economic management are still waiting for economic growth to return. The hardest part of stabilization is the transition to growth. Even with major adjustment efforts in place, growth does not resume spontaneously. If the lack of recovery is due to a coordination failure than market forces cannot resolve the difficulty, a mechanism must be found to bring about the coordination.
Handle: RePEc:nbr:nberwo:3302
Template-Type: ReDIF-Paper 1.0
Title: Do Publicly Traded Corporations Act in the Public Interest?
Author-Name: Roger H. Gordon
Author-Person: pgo95
Note: ME
Number: 3303
Creation-Date: 1990-03
Order-URL: http://www.nber.org/papers/w3303
File-URL: http://www.nber.org/papers/w3303.pdf
File-Format: application/pdf
Publication-Status: published as "Gordon, Roger H. (2003) "Do Publicly Traded Corporations Act in the Public Interest?," Advances in Economic Analysis & Policy: Vol. 3: Iss. 1, Article 2. Available at: http://www.bepress.com/bejeap/advances/vol3/iss1/art2
Publication-Status: published as Roger H. Gordon, 2003. "Do Publicly Traded Corporations Act in the Public Interest?," The B.E. Journal of Economic Analysis & Policy, Berkeley Electronic Press, vol. 0(1), pages 2.
Abstract: Models of corporate behavior normally assume that a firm acts in the interest of shareholders, and that shareholders care only about the returns they receive on the shares they own in that firm. But shareholders should also care about the effects of a manager's decisions on the value of shares they own in other firms, on the price they pay as consumers of the firm's output, on the value of the firm's bonds they own, on government tax revenue which finances public expenditures benefiting shareholders, etc. These effects are normally presumed to be of second order. This paper reexamines this presumption, argues that many of these effects are likely to be important, and examines how a variety of conventional conclusions about corporate behavior change as a result.
Handle: RePEc:nbr:nberwo:3303
Template-Type: ReDIF-Paper 1.0
Title: The International Comparison Program: Current Status and Problems
Author-Name: Irving B. Kravis
Author-Name: Robert E. Lipsey
Author-Person: pli259
Note: ITI IFM
Number: 3304
Creation-Date: 1990-03
Order-URL: http://www.nber.org/papers/w3304
File-URL: http://www.nber.org/papers/w3304.pdf
File-Format: application/pdf
Publication-Status: published as International Economic Transactions: Issues in Measurement and Empirical Research, edited by Peter Hooper and J. David Richardson, pp. 437-464. Chicago: The University of Chicago Press, 1991.
Publication-Status: published as The International Comparison Program: Current Status and Problems, Irving B. Kravis, Robert E. Lipsey. in International Economic Transactions: Issues in Measurement and Empirical Research, Hooper and Richardson. 1991
Abstract: This paper reviews the International Comparison Program (ICP), a worldwide effort to produce international comparisons of real GDP and its components and purchasing power parities of currencies (PPPs). The robustness of results and future work are considered.
A generous estimate of margins of uncertainty in the benchmark estimates might be 20-25 per cent for low-income countries and 7 per cent for high-income countries. The errors in extrapolations to countries not covered by the surveys could go as high as 30-35 per cent. That is still a small range of error compared to that stemming from the use of exchange rates to convert own-currency to common currency measures of output. Furthermore, exchange rate conversions are even more sensitive to methodology than PPP conversions. The notion that exchange comparisons rest on a simple and transparent procedure using standard market data is illusory. The future of ICP measures seems assured in Europe, particularly in the European Community. The prospects for systematic worldwide comparisons do not look as bright. A renewed effort by the United Nations Statistical Office and the World Bank would be needed to maintain an ICP with comprehensive coverage and comparable methods in all major regions.
Handle: RePEc:nbr:nberwo:3304
Template-Type: ReDIF-Paper 1.0
Title: Measuring the Persistence of Expected Returns
Author-Name: John Y. Campbell
Author-Person: pca54
Note: ME
Number: 3305
Creation-Date: 1990-03
Order-URL: http://www.nber.org/papers/w3305
File-URL: http://www.nber.org/papers/w3305.pdf
File-Format: application/pdf
Publication-Status: published as The American Economic Review, Vol. 80, No. 2, pp. 43-47, (May 1990).
Abstract: This paper summarizes earlier research On the sources of variation in monthly U.S. stock returns in the period 1927-88. A log-linear model is used to break unexpected returns into changing expectations about future dividends and changing expectations about future returns. Even though stock returns are not highly forecastable, the model attributes one-third of the variation in returns to changing expected returns, one-third to changing future dividends, and one-third to the covariance between these components. Changing expected returns have a large effect on the stock market because their movements are persistent and negatively correlated with changing expected dividends.
Handle: RePEc:nbr:nberwo:3305
Template-Type: ReDIF-Paper 1.0
Title: Is the Japanese Distribution System Really Inefficient?
Author-Name: Takatoshi Ito
Author-Name: Masayoshi Maruyama
Note: ITI ME IFM
Number: 3306
Creation-Date: 1990-03
Order-URL: http://www.nber.org/papers/w3306
File-URL: http://www.nber.org/papers/w3306.pdf
File-Format: application/pdf
Publication-Status: published as Trade With Japan: Has the Door Opened Wider?, ed. Paul Krugman. Chicago: The University of Chicago Press, 1991, pp. 149-173.
Publication-Status: published as Is the Japanese Distribution System Really Inefficient?, Takatoshi Ito, Masayoshi Maruyama. in Trade with Japan: Has the Door Opened Wider?, Krugman. 1991
Abstract: This paper investigates the efficiency of the Japanese distribution system, measured by the distribution margin. Most of the discussions on the Japanese distribution system have so far relied on institutional descriptions and anecdotal evidence, failing to substantiate the case. The present paper will show that the Japanese and U.S. distribution sectors are about the same in terms of value added and distribution margins. Therefore, it is not true that the distribution sector adds up unnecessary distribution costs or earns monopolistic operating profits. This paper will not address a question whether the distribution system is acting as a non-tariff barrier. Thus, even if the distribution sector in Japan is judged to be "efficient," it leaves open a possibility that the distribution system works as a barrier to potential new entrants from both home and foreign manufacturers.
Handle: RePEc:nbr:nberwo:3306
Template-Type: ReDIF-Paper 1.0
Title: Irreversibility, Uncertainty, and Investment
Author-Name: Robert S. Pindyck
Author-Person: ppi130
Note: ME
Number: 3307
Creation-Date: 1990-03
Order-URL: http://www.nber.org/papers/w3307
File-URL: http://www.nber.org/papers/w3307.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Economic Literature, Vol. XXIX, pp. 1110-1148, (September 1991).
Abstract: Most investment expenditures have two important characteristics: First, they are largely irreversible; the firm cannot disinvest, so the expenditures are sunk costs. Second, they can be delayed, allowing the firm to wait for new information about prices, costs, and other market conditions before committing resources. An emerging literature has shown that this has important implications for investment decisions, and for the determinants of investment spending. Irreversible investment is especially sensitive to risk, whether with respect to future cash flows, interest rates, or the ultimate cost of the investment. Thus if a policy goal is to stimulate investment, stability and credibility may be more important than tax incentives or interest rates. This paper presents some simple models of irreversible investment, and shows how optimal investment rules and the valuation of projects and firms can be obtained from contingent claims analysis, or alternatively from dynamic programming. It demonstrates some strengths and limitations of the methodology, and shows how the resulting investment rules depend on various parameters that come from the market environment. It also reviews a number of results and insights that have appeared in the literature recently, and discusses possible policy implications.
Handle: RePEc:nbr:nberwo:3307
Template-Type: ReDIF-Paper 1.0
Title: Incentive Conflict in the International Regulatory Agreement on Risk-Based Analysis
Author-Name: Edward J. Kane
Author-Person: pka853
Note: ME
Number: 3308
Creation-Date: 1990-03
Order-URL: http://www.nber.org/papers/w3308
File-URL: http://www.nber.org/papers/w3308.pdf
File-Format: application/pdf
Publication-Status: published as "Incentive Conflict in the International Regulatory Agreement on Risk-Based Capital." From Pacific-Basin Capital Markets Research, Volume II, editedby S.G. Rhee and R.P. Chang, pp. 3-21. Amsterdam: Elsevier Science Publishers B.V., 1991.
Abstract: Intergovernmental regulatory cooperation is fundamentally cartel behavior and subject to principal-agent conflict. In negotiating the 1988 risk-based capital agreement, most Western officials' unstated goal may arguably be described as postponing the pain of adapting their domestic regulatory schemes to successor officials' watch. They hoped they could buy time by raising book-value capital requirements for Japanese banks. Efficient-market theory indicates that the market value rather than the book value of a bank's capital impacts its funding cost. It also clarifies that restrictions on domestic and foreign bank competition for Japanese deposits unfairly enhance Japanese banks' ability to intermediate that country's massive capital exports.
Handle: RePEc:nbr:nberwo:3308
Template-Type: ReDIF-Paper 1.0
Title: Real Rents and Household Formation: The Effect of the 1986 Tax Reform Act
Author-Name: Donald R. Haurin
Author-Person: pha178
Author-Name: Patric H. Hendershott
Author-Name: Dongwook Kim
Note: PE
Number: 3309
Creation-Date: 1990-03
Order-URL: http://www.nber.org/papers/w3309
File-URL: http://www.nber.org/papers/w3309.pdf
File-Format: application/pdf
Publication-Status: published as Review of Economic Statistics, August 1993, pp. 289-293.
Abstract: Although the economic literature has analyzed some components of the headship decision, study of household formation has been primarily in the realm of demography. We begin with a pure demographic model and expand it to include additional determinants of the decision to remain with parents or not, to marry or not, and to live with a group or separately. Our results, based on a sample of 2355 youth in their twenties, indicate that (1) rental costs, wealth, and the potential wage that a youth could earn are important variables in explaining the outcomes of these choices am (2) including the economic variables significantly changes the estimated impacts of the demographic variables. One insight that the expanded economic model allows is the prediction that some public policies will affect headship rates of youth. This prediction is of interest because choices of living arranqements often have implications for demands upon public services and housing. We use as an example the 1986 Tax Reform Act and focus on a single outcome: the expectation of higher rental costs. If rentals rise by 20 percent, as predicted by some tax analysts, we estimate a half million reduction in the number of 1986 households formed by youth ages 21 to 29.
Handle: RePEc:nbr:nberwo:3309
Template-Type: ReDIF-Paper 1.0
Title: Tenure Choice of American Youth
Author-Name: Donald R. Haurin
Author-Person: pha178
Author-Name: Patric H. Hendershott
Author-Name: Dongwook Kim
Note: PE
Number: 3310
Creation-Date: 1990-03
Order-URL: http://www.nber.org/papers/w3310
File-URL: http://www.nber.org/papers/w3310.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Urban Economics, January 1994, pp 28-45.
Abstract: While there seems to be no end to estimates of housing tenure determinants, prior studies have not accounted for the simultaneity of tenure choice with household formation, labor supply or the marriage decision. Our estimates are superior to those in the literature both because we address these issues and because we better measure the cost of owning relative to renting. Accounting for simultaneity with the household formation and labor supply decisions matter. Using a household's predicted wage rate rather than its observed income doubles the response of tenure choice to the price of owning relative to renting. Including household formation selectivity correction variables cuts the response to tenure choice to the predicted wage by 25 percent. Moreover, the impact of variations in demographic variables on tenure choice is sharply reduced after correcting for selectivity bias.
Handle: RePEc:nbr:nberwo:3310
Template-Type: ReDIF-Paper 1.0
Title: Risk and Return on Real Estate: Evidence from Equity REITs
Author-Name: K.C. Chan
Author-Name: Patric H. Hendershott
Author-Name: Anthony B. Sanders
Author-Person: psa474
Note: ME
Number: 3311
Creation-Date: 1990-03
Order-URL: http://www.nber.org/papers/w3311
File-URL: http://www.nber.org/papers/w3311.pdf
File-Format: application/pdf
Publication-Status: published as K. C. Chan & Patric H. Hendershott & Anthony B. Sanders, 1990. "Risk and Return on Real Estate: Evidence from Equity REITs," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 18(4), pages 431-452.
Abstract: We analyze monthly returns on an equally-weighted index of 18 to 23 equity (real property) real estate investment trusts (REITs) that were traded on major stock exchanges over the 1973-87 period. We employ a multifactor Arbitrage Pricing Model using prespecified macroeconomic factors. We also test whether equity REIT returns are related to changes in the discount on closed-end stock funds, which seems plausible given the closed-end nature of REITs. Three factors, and the percentage change in the discount on closed-end stock funds, consistently drive equity REIT returns: unexpected inflation and changes in the risk and term structures of interest rates. The impacts of these variables on equity REIT returns is around 60 percent of the impacts on corporate stock returns generally. As expected, the impacts are greater for more heavily levered REITs than for less levered REITs. Real estate, at least as measured by the return performance of equity REITs, is less risky than stocks generally, but does not offer a superior risk-adjusted return and is not a hedge against unexpected inflation.
Handle: RePEc:nbr:nberwo:3311
Template-Type: ReDIF-Paper 1.0
Title: Does Labor Supply Explain Fluctuations in Average Hours Worked?
Author-Name: Joshua D. Angrist
Author-Person: pan29
Note: LS
Number: 3312
Creation-Date: 1990-03
Order-URL: http://www.nber.org/papers/w3312
File-URL: http://www.nber.org/papers/w3312.pdf
File-Format: application/pdf
Abstract: Economists have long debated over what labor supply has to do with fluctuations in hours worked. This paper uses a time series of cross-sections from the 1964-88 Current Population Surveys to study whether microeconomic intertemporal substitution models can explain time series fluctuations in annual averages. Conditional on a parametric trend, labor supply equations fit the 1975-87 data remarkably well. But estimates for 1963-74 are not robust, and estimated labor supply elasticities are much lower in the earlier period.
Handle: RePEc:nbr:nberwo:3312
Template-Type: ReDIF-Paper 1.0
Title: Fiscal Policy and the External Deficit: Siblings, but not Twins
Author-Name: John F. Helliwell
Author-Person: phe368
Note: ITI IFM
Number: 3313
Creation-Date: 1990-04
Order-URL: http://www.nber.org/papers/w3313
File-URL: http://www.nber.org/papers/w3313.pdf
File-Format: application/pdf
Publication-Status: published as "The Fiscal Deficit and the External Deficit: Siblings But Not Twins." From The Great Fiscal Experiment, edited by Rudolph G. Penner, pp. 23-58. Washington, DC: The Urban Institute Press, 1991.
Abstract: This paper first surveys a number of partial and macroeconomic approaches to the determination of the current account, and then summarizes the evidence from multicountry economic models about the linkages between U.S. government spending and the U.S. current account during the 1 980s. The available evidence from a large number of multicountry models suggests that the U.S. fiscal policy of the first half of the 1980s was responsible for about half of the buildup in the external deficit, and that the accumulated net foreign debt is about 500 billion dollars higher than it would have been without the fiscal expansion.
Handle: RePEc:nbr:nberwo:3313
Template-Type: ReDIF-Paper 1.0
Title: Risk Adjusted Deposit Insurance for Japanese Banks
Author-Name: Ryuzo Sato
Author-Name: Rama V. Ramachandran
Author-Name: Bohyong Kang
Note: ME
Number: 3314
Creation-Date: 1990-04
Order-URL: http://www.nber.org/papers/w3314
File-URL: http://www.nber.org/papers/w3314.pdf
File-Format: application/pdf
Publication-Status: published as Sato, Ryuzo (ed.) The selected essays of Ryuzo Sato. Volume 2. Production, stability and dynamic symmetry, Economists of the Twentieth Century series. Cheltenham, U.K. and Northampton, MA: Elgar, 1999.
Abstract: The purpose of this paper is to evaluate the Japanese deposit insurance scheme by contrasting the flat insurance rate with a market-determined risk-adjusted rate. The model used to calculate the risk-adjusted rate is that of Ronn and Verrna (1986) . It utilizes the notion of Merton(1977) that the deposit insurance can be based on a one-to-one relation between it and the put option; this permits the application of Black and Scholes(1973) model for the calculation of the insurance rate. The risk adjusted premiums are calculated for the thirteen city banks and twenty-two regional banks. The inter-bank spread in risk-adjusted rates in Japan is found to be as wide as in the United States. But the insurance system is only one component of the safety network for a county's banking system. The difference in the American and Japanese networks is described and its implications for the evaluation of the insurance system is discussed.
Handle: RePEc:nbr:nberwo:3314
Template-Type: ReDIF-Paper 1.0
Title: Tariffs and Sectoral Adjustments in an Open Economy
Author-Name: Stephen J. Turnovsky
Author-Person: ptu5
Note: ITI IFM
Number: 3315
Creation-Date: 1990-04
Order-URL: http://www.nber.org/papers/w3315
File-URL: http://www.nber.org/papers/w3315.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Economic Dynamics and Control, Vol. 15, No. 1, pp. 53-89, (1991) .
Abstract: This paper analyzes the impact of a tariff on sectoral adjustments in an economy which produces two traded consumption goods, one of which is exported, and a non-traded investment good. The importance of sectoral capital intensities is emphasized. In particular, the qualitative dynamic adjustment depends upon the relative capital intensities of the import-competing consumption good sector and the non-traded investment good sector. Sectoral labor allocation effects are analyzed and the long-run effect on aggregate capital accumulation is shown to depend upon the relative capital intensities of the import and export sectors. Temporary as well as permanent tariffs are discussed.
Handle: RePEc:nbr:nberwo:3315
Template-Type: ReDIF-Paper 1.0
Title: The Welfare Economics of Moral Hazard
Author-Name: Richard Arnott
Author-Person: par13
Author-Name: Joseph Stiglitz
Note: PE
Number: 3316
Creation-Date: 1990-04
Order-URL: http://www.nber.org/papers/w3316
File-URL: http://www.nber.org/papers/w3316.pdf
File-Format: application/pdf
Publication-Status: published as Risk, Information and Insurance, edited by Henri Louberge, pp. 91-121. Norwell, MA: Kluwer Academic Publishers 1990.
Abstract: This paper shows that, except in certain limiting cases, competitive equilibrium with moral hazard is constrained inefficient. The first section compares the competitive equilibrium and the constrained social optimum in a fairly general model, and identifies types of market failure. Each of the subsequent sections focuses on a particular market failure.
Handle: RePEc:nbr:nberwo:3316
Template-Type: ReDIF-Paper 1.0
Title: World Real Interest Rates
Author-Name: Robert J. Barro
Author-Person: pba251
Author-Name: Xavier Sala-i-Martin
Author-Person: psa510
Note: EFG
Number: 3317
Creation-Date: 1990-04
Order-URL: http://www.nber.org/papers/w3317
File-URL: http://www.nber.org/papers/w3317.pdf
File-Format: application/pdf
Publication-Status: published as Blanchard, Olivier Jean and Stanley Fischer (eds.) NBER Macroeconomics Annual 1990. Cambridge, MA: MIT Press, 1990.
Publication-Status: published as World Real Interest Rates, Robert J. Barro, Xavier Sala-i-Martin. in NBER Macroeconomics Annual 1990, Volume 5, Blanchard and Fischer. 1990
Abstract: We think of the expected real interest rate for ten OECD countries (our counterpart of the world economy) as determined by the equation of aggregate investment demand to aggregate desired saving. Stock-market returns isolate shifts to investment demand, and changes in oil prices, monetary growth, and fiscal variables isolate shifts to desired saving. We estimated the reduced form for CDP-weighted world averages of the expected short-term real interest rate and the investment ratio over the period 1959-88. The estimates reveal significant effects in the predicted direction for world stock returns, oil prices, and world monetary growth, but fiscal variables turned out to be unimportant. Structural estimation implies that an increase by one percentage point in the expected real interest rate raises the desired saving rate by onethird of a percentage point. Simulations of the model indicated that fluctuations in world stock returns and oil prices explain a good deal of the time series for the world average of expected real interest rates; specifically, why the rates were low in 1974-79 and high in 1981-86. The model also explains the fall in real rates in 1987-88 and the subsequent upturn in 1989. The fitted relation forecasts an increase in the world average of real interest rates in 1990 to a value, 5.6 %, that is nearly a full percentage point above the highest value attained in the entire prior sample, 1958-89. We estimated systems of equations for individual countries' expected real interest rates and investment ratios. One finding is that each country's expected real interest rate depends primarily on world factors, rather than own-country factors, thereby suggesting a good deal of integration of world capital and goods markets.
Handle: RePEc:nbr:nberwo:3317
Template-Type: ReDIF-Paper 1.0
Title: Entry, Contestability, and Deregulated Airline Markets: An Event Study Analysis of People Express
Author-Name: Michael D. Whinston
Author-Person: pwh46
Author-Name: Scott C. Collins
Note: PR
Number: 3318
Creation-Date: 1990-04
Order-URL: http://www.nber.org/papers/w3318
File-URL: http://www.nber.org/papers/w3318.pdf
File-Format: application/pdf
Publication-Status: published as RAND Journal of Economics, Vol. 23, No. 4, pp. 445-462, Winter 1992.
Abstract: A number of recent papers have studied the relationship between price and market structure in the deregulated airline industry through a cross-sectional analysis of city-pair markets. Yet, while interesting, several potential difficulties underlie the inferences drawn in these analyses. In this paper, we consider an alternative approach that uses stock price reactions to entry announcements to shed light on the nature of competitive behavior in this industry. The analysis sheds light on three issues. First, it offers a clean test of contestable market theory. Second, it provides evidence on the level of profits or sunk costs present in these markets. Third, it sheds light on the degree of competitive "localization" existing in the industry. The particular entry events that we focus on are those involving People Express Airline in 1984 and 1985. To provide a more complete picture of the effects of these entry events, we also examine the price and quantity changes that occurred following entry.
Handle: RePEc:nbr:nberwo:3318
Template-Type: ReDIF-Paper 1.0
Title: Re-Interpreting the Failure of Foreign Exchange Market Efficiency Tests:Small Transaction Costs, Big Hysteresis Bands
Author-Name: Richard E. Baldwin
Author-Person: pba124
Note: ITI IFM
Number: 3319
Creation-Date: 1990-04
Order-URL: http://www.nber.org/papers/w3319
File-URL: http://www.nber.org/papers/w3319.pdf
File-Format: application/pdf
Abstract: Small transaction costs and uncertainty imply that optimal cross-currency interest rate speculation is marked by a first-order hysteresis band. Consequently uncovered interest parity does not hold and market efficiency tests based on it are misspecified. Indeed measured prediction errors are a combination of true prediction errors and a wedge that consists of the "option value" of being in foreign currency and either plus or minus the transaction cost. Due to the nature of this wedge, we should expect measured prediction errors to be serially correlated, correlated with the current forward rate and perhaps have a non-zero mean, if the interest differential itself is serially correlated. The existence of the wedge helps account both for the failure of market efficiency tests and the difficulties in finding an empirically successful model of the risk premium.
Handle: RePEc:nbr:nberwo:3319
Template-Type: ReDIF-Paper 1.0
Title: Predicting Exchange Rate Crises: Mexico Revisited
Author-Name: Linda S. Goldberg
Author-Person: pgo256
Note: ITI IFM
Number: 3320
Creation-Date: 1990-04
Order-URL: http://www.nber.org/papers/w3320
File-URL: http://www.nber.org/papers/w3320.pdf
File-Format: application/pdf
Publication-Status: published as Journal of International Economics, vol. 36, no. 3/4, May 1994, p.413-430.
Abstract: This paper predicts ex-ante the probability of currency crises end size of expected devaluations month by month for Mexico between 1980 and 1986 using a heterodox linear discrete time model of exchange rate crises. The forces contributing to speculative attacks on the Mexican peso include internal money creation, external credit shocks, and relative price shocks. The framework proves highly successful for generating forecasts of the probability of speculative attacks on the peso and for predicting lower bounds for post- collapse exchange rates using a range of assumptions about critical levels of central bank reserve floors. Simulation results suggest that reducing domestic credit growth, increasing the uncertainty surrounding this growth, and reducing the size and perhaps increasing the frequency of currency realignments might have greatly reduced the amount of currency speculation against the peso in some of the crisis periods between 1980 and 1986.
Handle: RePEc:nbr:nberwo:3320
Template-Type: ReDIF-Paper 1.0
Title: The Internationalization of the U.S. Labor Market
Author-Name: John M. Abowd
Author-Person: pab175
Author-Name: Richard B. Freeman
Author-Person: pfr23
Note: LS
Number: 3321
Creation-Date: 1990-04
Order-URL: http://www.nber.org/papers/w3321
File-URL: http://www.nber.org/papers/w3321.pdf
File-Format: application/pdf
Publication-Status: published as Abowd, J.M. and R.B. Freeman (eds.) Immigration, Trade and the Labor Market. Chicago: NBER, 1991.
Abstract: During the 1970s and 1980s immigration, trade, and foreign investment became increasingly important in the U.S. labor market. The number of legal and illegal immigrants to the country increased, altering the size and composition of the work force and substantially raising the immigrant share of labor in gateway cities. The national origins of immigrants changed from primarily European to Mexican, Latin American, and Asian. Foreign trade rose relative to gross national product, and a massive trade deficit developed in the 1980s. Foreign investment in the U.S. grew rapidly, with foreign direct investment increasing until three percent of American workers were employed in foreign-owned firms. Whereas once labor market analysts could look upon the U.S. as a largely closed economy, the changes of the 1970s and 1980s brought about the internationalization of the U.S. labor market. In this paper we show that the first order effects of immigration on the labor market arise primarily from the geographic variation in immigrant shares of the local labor force. The first order effects of goods flows on the labor market arise from industrial variation in the openness of the product market. Direct foreign investments, though significant, do not give rise to businesses substantially different from existing American-owned businesses. The paper also summarizes the findings of the NBER research volume Immigration, Trade, and Labor Markets.
Handle: RePEc:nbr:nberwo:3321
Template-Type: ReDIF-Paper 1.0
Title: An Empirical Analysis of Cigarette Addiction
Author-Name: Gary S. Becker
Author-Name: Michael Grossman
Author-Person: pgr107
Author-Name: Kevin M. Murphy
Author-Person: pmu108
Note: EH
Number: 3322
Creation-Date: 1990-04
Order-URL: http://www.nber.org/papers/w3322
File-URL: http://www.nber.org/papers/w3322.pdf
File-Format: application/pdf
Publication-Status: published as American Economic Review, Vol. 84, no. 3, pp. 396-418, (June 1994).
Abstract: We use a framework suggested by a model of rational addiction to analyze empirically the demand for cigarettes. The data consist of per capita cigarettes sales (in packs) annually by state for the period 1955 through 1985. The empirical results provide support for the implications of a rational addiction model that cross price effects are negative (consumption in different periods are complements), that long-run price responses exceed short-run responses, and that permanent price effects exceed temporary price effects. A 10 percent permanent increase in the price of cigarettes reduces current consumption by 4 percent in the short run and by 7.5 percent in the long run. In contrast, a 10 percent increase in the price for only one period decreases consumption by only 3 percent. In addition, a one period price increase of 10 percent reduces consumption in the previous period by approximately .7 percent and consumption in the subsequent period by 1.5 percent. These estimates illustrate the importance of the intertemporal linkages in cigarette demand implied by rational addictive behavior.
Handle: RePEc:nbr:nberwo:3322
Template-Type: ReDIF-Paper 1.0
Title: Financial Innovation and Current Trends in U.S. Financial Markets
Author-Name: Frederic S. Mishkin
Author-Person: pmi37
Note: ME
Number: 3323
Creation-Date: 1990-04
Order-URL: http://www.nber.org/papers/w3323
File-URL: http://www.nber.org/papers/w3323.pdf
File-Format: application/pdf
Publication-Status: published as U.S.-Japan Economic Forum, Vol. 1, pp. 63-77, (1990).
Abstract: This paper discusses recent developments in U.S. financial markets and provides an economic analysis of why various recent financial innovations have occurred. This will not only provide us with s better understanding of existing financial markets in the United States and why they have been undergoing so much change in recent years, but it also may provide us with clues as to where our financial system may be heading.
Handle: RePEc:nbr:nberwo:3323
Template-Type: ReDIF-Paper 1.0
Title: Do Stock Prices Move Together Too Much?
Author-Name: Robert S. Pindyck
Author-Person: ppi130
Author-Name: Julio J. Rotemberg
Author-Person: pro30
Note: ME
Number: 3324
Creation-Date: 1990-04
Order-URL: http://www.nber.org/papers/w3324
File-URL: http://www.nber.org/papers/w3324.pdf
File-Format: application/pdf
Publication-Status: published as "The Co-movement of Stock Prices,[ Quarterly Journal of Economics, Nov. 1993]"
Abstract: We show that comovements of individual stock prices cannot be justified by economic fundamentals. This finding is a rejection of the present value model of security valuation. Unlike other tests of this model, ours is robust in that it allows for volatility in ex ante rates of return. The only constraint we impose is that investors' utilities are functions of a single consumption index. This implies that changes in discount rates must be related to changes in macroeconomic variables, and hence stock prices of companies in unrelated lines of business should move together only in response to changes in current or expected future macroeconomic conditions. We also show that this constraint implies that any priced factors in the APT model must be related to macroeconomic variables. Hence our results are also a rejection of the APT, so constrained.
Handle: RePEc:nbr:nberwo:3324
Template-Type: ReDIF-Paper 1.0
Title: Long Run Policy Analysis and Long Run Growth
Author-Name: Sergio T. Rebelo
Note: EFG
Number: 3325
Creation-Date: 1990-04
Order-URL: http://www.nber.org/papers/w3325
File-URL: http://www.nber.org/papers/w3325.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Political Economy, Vol. 99, No. 3, pp. 500-521, (June 1991).
Abstract: The wide cross-country disparity in rates of economic growth is the most puzzling feature of the development process. This paper describes a class of models in which this type of heterogeneity in growth experiences can arise as a result of cross-country differences in government policy. These differences in policy regimes can also create incentives for labor migration from slow growing to fast growing countries. In the class of models that we study growth is endogenous but the technology exhibits constant returns to scale and there is a steady state path that accords with Kaldor's stylized facts of economic development. The key to making growth endogenous in the absence of increasing returns is the presence of a "core" of capital goods that can be produced without the direct or indirect contribution of factors that cannot be accumulated, such as land.
Handle: RePEc:nbr:nberwo:3325
Template-Type: ReDIF-Paper 1.0
Title: The Relation Between Firm Growth and Q with Multiple Capital Goods: Theory and Evidence from Panel Data on Japanese Firms
Author-Name: Fumio Hayashi
Author-Person: pha83
Author-Name: Tohru Inoue
Note: PR ME
Number: 3326
Creation-Date: 1990-04
Order-URL: http://www.nber.org/papers/w3326
File-URL: http://www.nber.org/papers/w3326.pdf
File-Format: application/pdf
Publication-Status: published as Econometrica, Vol. 59, No. 3, May 1991, pp. 731-753.
Abstract: We derive from a model of investment with multiple capital goods a one-to-one relation between the growth rate of the capital aggregate and the stock market-based Q. We estimate the growth-Q relation using a panel of Japanese manufacturing firms taking into account the endogeneity of Q. Identification is achieved by combining the theoretical structure of the Q model and an assumed serial correlation structure of the technology shock which is the error term in the growth-Q equation. For early years of our sample. cash flow has significant explanatory power over and above Q. The significance of cash flow disappears for more recent years for the heavy industry when Japanese capital markets was liberalized. The estimated Q coefficient implies that the adjustment cost is less than a half of gross profits net of the adjustment cost.
Handle: RePEc:nbr:nberwo:3326
Template-Type: ReDIF-Paper 1.0
Title: Canada - U.S. Free Trade and Pressures for Tax Harmonization
Author-Name: Roger H. Gordon
Author-Person: pgo95
Note: PE
Number: 3327
Creation-Date: 1990-04
Order-URL: http://www.nber.org/papers/w3327
File-URL: http://www.nber.org/papers/w3327.pdf
File-Format: application/pdf
Publication-Status: published as Canada-U.S. Tax Comparisons John B. Shoven and John Whalley Eds., University of Chicago Press, 1992
Abstract: To what degree will the recent free-trade agreement create pressure on the U.S. and Canada to modify, and perhaps harmonize, their tax systems? What will be the implications of the more extensive policy changes now going on within the E.C.? This paper examines the types of pressures for reform created by recent agreements, focussing in turn on the pressures created by capital mobility, elimination to tariff and nontariff barriers, and mobility of individuals. As shown in the local public finance literature, unrestricted individuals and firms pay tax in accordance with the costs they impose on the community. More limited mobility should have more limited effects. Since existing national tax structures differ dramatically from those that have evolved to finance local governments, however, even limited mobility can force substantial changes in each country's fiscal structure. In addition to characterizing the equilibrium tax structure that should result, given increased mobility, the paper also explores the circumstances in which there can be mutual gains from moving away from the equilibrium tax structure.
Handle: RePEc:nbr:nberwo:3327
Template-Type: ReDIF-Paper 1.0
Title: Fiscal Policy Interdependence and Efficiency
Author-Name: Willem H. Buiter
Author-Person: pbu137
Author-Name: Kenneth M. Kletzer
Note: ITI IFM
Number: 3328
Creation-Date: 1990-04
Order-URL: http://www.nber.org/papers/w3328
File-URL: http://www.nber.org/papers/w3328.pdf
File-Format: application/pdf
Publication-Status: published as Buiter, Willem H. and Kenneth M. Kletzer. "Fiscal Policy Coordination As Fiscal Federalism: Economic Integration, Public Goods And Efficiency In Growing Economies," European Economic Review, 1992, v36(2/3), 647-653.
Abstract: international transmission of fiscal policy among open interdependent economies under free international capital mobility. With only lump-sum taxes and transfers, international transmission involves only pecuniary externalities: barring dynamic inefficiency, only distributional issues (intergenerational and international) are involved. With age-specific taxes and transfers, the ability to run deficits and issue debt does not enhance the choice set of the governments. Source-based taxes on the rentals from capital and residence-based taxes on all property income are also studied.
Handle: RePEc:nbr:nberwo:3328
Template-Type: ReDIF-Paper 1.0
Title: The Welfare Economics of Cooperative and Noncooperative Fiscal Policy
Author-Name: Willem H. Buiter
Author-Person: pbu137
Author-Name: Kenneth M. Kletzer
Note: ITI IFM
Number: 3329
Creation-Date: 1990-04
Order-URL: http://www.nber.org/papers/w3329
File-URL: http://www.nber.org/papers/w3329.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Economic Dynamics and Control, Vol. 15, pp. 215-244, (1991).
Abstract: In a competitive two-country overlapping generations model with perfect capital mobility, a plan that is individually Pareto optimal (that is Pareto optimal with respect to individual preferences) can be sustained without coordination of national fiscal policies when the fiscal arsenal is restricted to lump-sum taxes and government borrowing. Cooperation is required to achieve a Pareto optimum with respect to the two utilitarian national social welfare functions. Cooperation and international side payments are required to achieve an optimum with respect to a utilitarian global social welfare function. Without international lump-sum transfers, when distortionary taxes on capital income are permitted, Pareto optima with respect to national social welfare functions and global social welfare optima will not be individual Pareto optima: efficiency is traded off for a more desirable intergenerational and international distribution of resources. With nationally provided international public goods, the achievement of individual Pareto efficiency requires coordination of public spending but not of financing.
Handle: RePEc:nbr:nberwo:3329
Template-Type: ReDIF-Paper 1.0
Title: The Output, Employment, and Interest Rate Effects of Government Consumption
Author-Name: S. Rao Aiyagari
Author-Name: Lawrence J. Christiano
Author-Person: pch45
Author-Name: Martin Eichenbaum
Author-Person: pei4
Note: EFG
Number: 3330
Creation-Date: 1990-04
Order-URL: http://www.nber.org/papers/w3330
File-URL: http://www.nber.org/papers/w3330.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Monetary Economics, 1992
Abstract: This paper investigates the impact on aggregate variables of changes in government consumption in the context of a stochastic, neoclassical growth model. We show, theoretically, that the impact on output and employment of a persistent change in government consumption exceeds that of a temporary change. We also show that, in principle, there can be an analog to the Keynesian multiplier in the neoclassical growth model. Finally, in an empirically plausible version of the model, we show that the interest rate impact of a persistent government consumption shock exceeds that of a temporary one. Our results provide counter examples to existing claims in the literature.
Handle: RePEc:nbr:nberwo:3330
Template-Type: ReDIF-Paper 1.0
Title: Pensions and the U.S. Labor Market
Author-Name: Alan L. Gustman
Author-Person: pgu327
Author-Name: Olivia S. Mitchell
Author-Person: pmi73
Note: LS
Number: 3331
Creation-Date: 1990-04
Order-URL: http://www.nber.org/papers/w3331
File-URL: http://www.nber.org/papers/w3331.pdf
File-Format: application/pdf
Publication-Status: published as Zvi Bodie and Alicia Munnell, editors. Pensions and the Economy: Sources, Uses, and Limitations of Data, Philadelphia: University of Pennsylvania Press, Pension Research Council, Wharton School, University of Pennsylvania 1992, pp. 39-87
Abstract: Pensions have played a key role in the transformation of the way workers are paid in the US labor market This paper reviews and synthesizes what is known about the form and function of employer-provided pensions, and identifies areas where further information is most needed. for increasing our understanding of behavior and for guiding the pension policies of the next decade. There are a number of studies which explore the tax advantages of pensions. the special value of pension annuities and related insurance, and the value of pensions to the firm in regulating retirement, mobility and productivity. This paper investigates whether available evidence is consistent with behavioral models, highlights remaining questions, and attempts to determine what types of data would be most helpful in furthering our understanding of pension plans in the labor market.
Available evidence indicates that pensions must be viewed as part of a long-term employment relation. For this reason, researchers must move beyond descriptive studies toward structural models which permit tests between diverse pension theories. Studies of this kind have heavy data requirements. Specifically, we believe there is a pressing need for a nationally representative survey where the unit of observation is the firm, the establishment, or the pension plan. To understand the pension-wage and the pension-turnover/retirement relationship, more information is required on the processes determining compensation and employment Combining information on employee characteristics, turnover and retirement patterns, company inputs and outputs, and the firm's overall financial characteristics would go a long way toward helping researchers distinguish among the leading explanations for why firms offer pensions. Of even greater utility would be longitudinal data combining company-side information with employment and wage histories of employees.
Handle: RePEc:nbr:nberwo:3331
Template-Type: ReDIF-Paper 1.0
Title: Systematic Movements in Real Exchange Rates in the G-5: Evidence on theIntegration of Internal and External Markets
Author-Name: Richard C. Marston
Note: ITI IFM
Number: 3332
Creation-Date: 1990-04
Order-URL: http://www.nber.org/papers/w3332
File-URL: http://www.nber.org/papers/w3332.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Banking and Finance, Vol. 14, November 1990, pp. 1023-1044
Abstract: Many recent studies have documented the random behavior of real exchange rates. This paper shows that real exchange rates defined for different sectors of an economy move closely together with one another even though each of the sectoral real exchange rates taken alone has a large random component. The sectoral real exchange rates are tied together by internal price links due to factor mobility within each national economy. Any differences between real exchange rates which develop, moreover, can be explained almost entirely by productivity differentials, at least in the long run. This paper contrasts the strong ties which bind together prices from different sectors internally with ties that bind the prices of goods from the same sector internationally. Prices are shown to be much more highly correlated internally than externally because flexible exchange rates disrupt normal pricing relationships between goods from different countries.
Handle: RePEc:nbr:nberwo:3332
Template-Type: ReDIF-Paper 1.0
Title: Capital Flight and Tax Competition: Are There Viable Solutions to Both Problems?
Author-Name: Alberto Giovannini
Author-Name: James R. Hines, Jr.
Author-Person: phi111
Note: PE
Number: 3333
Creation-Date: 1990-04
Order-URL: http://www.nber.org/papers/w3333
File-URL: http://www.nber.org/papers/w3333.pdf
File-Format: application/pdf
Publication-Status: published as European Financial Integration, A. Giovannini and C. Mayer, eds., Cambridge: Cambridge University Press, 1991., p. 172-210
Abstract: This paper discusses a model corporate tax system based on the application of the residence principle. This tax system, while preserving national sovereignties, minimizes the distortions from international capital mobility. The paper is motivated by an analysis of European capital income tax systems, and of the distortions they might give rise to as obstacles to international capital flows diminish. The alternative system we analyze has two main properties: it exploits the territoriality of law enforcement, and allows countries to set the corporate tax rate - and the extent of double taxation of corporate income - independently from their partners. The paper concludes with some suggestive evidence of the potential revenue effects among European countries of this tax system.
Handle: RePEc:nbr:nberwo:3333
Template-Type: ReDIF-Paper 1.0
Title: Ownership, Agency and Wages: An Examination in the Fast Food Industry
Author-Name: Alan B. Krueger
Author-Person: pkr63
Note: LS
Number: 3334
Creation-Date: 1990-04
Order-URL: http://www.nber.org/papers/w3334
File-URL: http://www.nber.org/papers/w3334.pdf
File-Format: application/pdf
Publication-Status: published as The Quarterly Journal of Economics, 106, February 1991, pp. 75-102
Abstract: This paper estimates the difference in compensation between company-owned and franchisee-owned fast food restaurants. The contrast is of interest because contractual arrangements give managers of company-owned outlets less of an incentive to monitor and supervise employees. Estimates based on two data sets suggest that employee compensation is slightly greater at company-owned outlets than franchisee-owned outlets. The earnings gap is 9 percent for assistant and shift managers and 2 percent for full-time crew workers. Furthermore. the tenure-earnings profile is steeper at company-owned restaurants. These findings suggest that monitoring difficulties influence the timing and generosity of compensation.
Handle: RePEc:nbr:nberwo:3334
Template-Type: ReDIF-Paper 1.0
Title: Drawing Inferences From Statistics Based on Multi-Year Asset Returns
Author-Name: Matthew Richardson
Author-Name: James H. Stock
Author-Person: pst148
Note: ME
Number: 3335
Creation-Date: 1990-04
Order-URL: http://www.nber.org/papers/w3335
File-URL: http://www.nber.org/papers/w3335.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Financial Economics, 25, pp. 323-348 (1989)
Abstract: The possibility of mean reversion in stock prices recently has been examined using statistics based on multi-year returns. Previous researchers have noted difficulties in drawing inferences about these statistics because of poor performance of the usual approximating asymptotic distributions. We therefore develop an alternative asymptotic distribution theory for statistics involving multi-year returns. These distributions differ markedly from those implied by the conventional theory. This alternative theory provides substantially better approximations to the relevant finite-sample distributions. It also leads to empirical inferences much less at odds with the hypothesis of no mean reversion.
Handle: RePEc:nbr:nberwo:3335
Template-Type: ReDIF-Paper 1.0
Title: Wage Levels and Method of Pay
Author-Name: Charles Brown
Author-Person: pbr341
Note: LS
Number: 3336
Creation-Date: 1990-04
Order-URL: http://www.nber.org/papers/w3336
File-URL: http://www.nber.org/papers/w3336.pdf
File-Format: application/pdf
Publication-Status: published as RAND Journal of Economics, Vol. 23, Autumn 1992, pp.366-375
Abstract: The traditional research on method of pay and wages compares those paid piece rates with those paid by the hour, and finds (as predicted by the theory) that those paid piece rates earn more. In this paper, those paid by the hour are divided into those paid standard rates (wage does not vary with performance) and those paid by merit pay plans. An extension of the standard theory predicts that those paid piece rates would have the highest earnings, and those paid standard rates the lowest, with merit pay an "in between" status. The evidence, however, from the Industry Wage Surveys is that those under merit pay receive lower wages than those in the other two groups.
Handle: RePEc:nbr:nberwo:3336
Template-Type: ReDIF-Paper 1.0
Title: The Quality Dimension in Army Retention
Author-Name: Charles Brown
Author-Person: pbr341
Note: LS
Number: 3337
Creation-Date: 1990-04
Order-URL: http://www.nber.org/papers/w3337
File-URL: http://www.nber.org/papers/w3337.pdf
File-Format: application/pdf
Publication-Status: published as Carnegie-Rochester Conference Series on Public Policy, Volume 33, 1990.
Abstract: While there has been a great deal of research on the characteristics of those who enter the U.S. Armed Forces, there has been little work which asks whether those who re-enlist are those who were above- or below-average performers. Despite the relatively "egalitarian" (little pay for performance) structure of military compensation, I find that those who do better on tests of proficiency in their military occupation are more likely to re-enlist than those who do worse, and this difference is not primarily due to the Army's unwillingness to allow its worse performers to re-enlist. In contrast, those with the best scores on the general ability test given prior to enlistment are less likely to re-enlist.
Handle: RePEc:nbr:nberwo:3337
Template-Type: ReDIF-Paper 1.0
Title: Public Policy and Economic Growth: Developing Neoclassical Implications
Author-Name: Robert G. King
Author-Person: pki21
Author-Name: Sergio Rebelo
Note: EFG
Number: 3338
Creation-Date: 1990-04
Order-URL: http://www.nber.org/papers/w3338
File-URL: http://www.nber.org/papers/w3338.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Political Economy 98, October 1990, No. 5 part 2 5126-5150
Abstract: Why do the countries of the world display considerable disparity in long term growth rates? This paper examines the hypothesis that the answer lies in differences in national public policies which affect the incentives that individuals have to accumulate capital in both its physical and human forms. Our analysis shows that these incentive effects can induce large difference in long run growth rates. Since many of the key tax rates are difficult to measure, our procedure is an indirect one We work within a calibrated, two sector endogenous growth model, which has its origins in the microeconomic literature on human capital formation. We show that national taxation can substantially affect long run growth rates. In particular, for small open economies with substantial capital mobility, national taxation can readily lead to "development traps" (in which countries stagnate or regress) or to "growth miracles" (in which countries shift from little growth to rapid expansion) This influence of taxation on the rate of economic growth has important welfare implications: in basic endogenous growth models, the welfare cost of a 10 % increase in the rate of income tax can be 40 times larger than in the basic neoclassical model.
Handle: RePEc:nbr:nberwo:3338
Template-Type: ReDIF-Paper 1.0
Title: Internal Net Worth and the Investment Process: An Application to U.S. Agriculture
Author-Name: R. Glenn Hubbard
Author-Person: phu97
Author-Name: Anil Kashyap
Author-Person: pka35
Note: ME EFG
Number: 3339
Creation-Date: 1990-04
Order-URL: http://www.nber.org/papers/w3339
File-URL: http://www.nber.org/papers/w3339.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Political Economy, Vol. 100, June 1992, pp. 506-534
Abstract: Recent models of firm investment decisions stressing informational imperfections in capital markets provide a foundation for interpreting evidence that movements in internal finance can predict investment opportunities. While such evidence is suggestive, it is often open to other interpretations. We present new evidence in favor of these models that addresses this gap in two ways. First, we focus on the U.S. agricultural sector; the sector has experienced large fluctuations in net worth and the profitability of investment, and reasonable measures of net worth can be constructed. Second, rather than relying on investment function representations (e.g., the q-theory approach), we make use of predictions generated by firms' Euler equation for capital accumulation. Intuitively, during periods in which net worth is high, the Euler equation should hold across adjacent periods; the equation will not hold for periods in which the shadow price of external finance is high because of low net worth. Such an approach offers an alternative model for periods in which internal net worth is low (holding constant investment opportunities), and generates a link between internal net worth and investment spending during periods of significant deflation in the value of net worth. Our empirical evidence is presented in three parts. First, the neoclassical, perfect-capital-markets model for investment is rejected by the data. Omitting periods during which there were substantial negative shocks to farmers' net equity positions, the model's overidentifying restrictions can no longer be rejected. Second, allowing for movements in net equity positions contributes importantly to explaining investment. Third, the effect of changes in net worth on investment is significantly more important during the deflationary periods than during "boom" periods. Taken together, these findings provide support for a class of "internal funds" models of investment under asymmetric information.
Handle: RePEc:nbr:nberwo:3339
Template-Type: ReDIF-Paper 1.0
Title: Government Failures in Development
Author-Name: Anne O. Krueger
Note: ITI EFG IFM
Number: 3340
Creation-Date: 1990-04
Order-URL: http://www.nber.org/papers/w3340
File-URL: http://www.nber.org/papers/w3340.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Economic Perspectives, Vol. 4, No. 3, pp. 9-23, (Summer 1990).
Abstract: This paper takes as a given the proposition that, in many developing countries, governmental policies have been highly distortive and harmful to economic growth. These policies have included omissions, such as neglect of infrastructure, and commission such as highly restrictive trade regimes and credit rationing. The issues arising from recognition that governments, like markets, are imperfect are discussed.
Handle: RePEc:nbr:nberwo:3340
Template-Type: ReDIF-Paper 1.0
Title: What is National Saving?: Alternative Measures in Historical and International Context
Author-Name: David F. Bradford
Note: PE
Number: 3341
Creation-Date: 1990-04
Order-URL: http://www.nber.org/papers/w3341
File-URL: http://www.nber.org/papers/w3341.pdf
File-Format: application/pdf
Publication-Status: published as Eds., Charls E. Walker, MArk A. Bloomfield, Margo Thorning, The U.S. Savings Challenge: Policy Options for Productivity and Growth, Boulder, CO: Westview Press, 1990,pp. 31-75
Abstract: Most discussion of national saving behavior is based on national income account data. This paper lays out some of the main alternative conceptions of saving and to present data comparing recent U.S. saving behavior with its own past and with that of other nations. I argue, in particular, that more attention should be paid to measures of national wealth at asset market values. The main empirical contribution is to pull together data from the national balance sheets on wealth at market value compiled for the United States by the Flow of Funds Division of the Board of Governors of the Federal Reserve System (1989) and by various agencies sources in three other countries for which market value figures could be found: Japan, and Sweden, and the United Kingdom.
Handle: RePEc:nbr:nberwo:3341
Template-Type: ReDIF-Paper 1.0
Title: Going Different Ways: Unionism in the U.S. and Other Advanced O.E.C.D. Countries
Author-Name: David G. Blanchflower
Author-Person: pbl22
Author-Name: Richard B. Freeman
Author-Person: pfr23
Note: LS
Number: 3342
Creation-Date: 1990-04
Order-URL: http://www.nber.org/papers/w3342
File-URL: http://www.nber.org/papers/w3342.pdf
File-Format: application/pdf
Publication-Status: published as "Unionism in the U.S. and Other Advanced OECD Countries" with David G. Blanchflower, Industrial Relations Vol 31:1 (Winter 1992): 56-79
Publication-Status: published as Chapter 4 in Mario F. Bognanno and Morris M. Kleiner (eds) Labor Market Institutions and the Future Role of Unions (Cambridge, MA: Blackwell Pub, 1992): 56-79.
Abstract: In this paper we compare the changing pattern of unionization in OECD countries, review existing evidence, and present new information on cross-country differences in union-nonunion differentials in labor market outcomes, largely from the micro data files of the International Social Survey Programme cross-country surveys of 1985-87. Our analysis shows that American unions have a larger effect on wages but not on other outcomes than unions in other countries. We argue that the high union premium in the U.S. contributed to the decline in U.S. union density and to the consequent divergence of the U.S. industrial relations system from those in most OECD countries. Looking to the future, our findings suggest that U.S. unions must make major innovations in their tactics and policies to regain a position of strength in the private sector and that the nation will have to develop new industrial relations institutions to avoid the Congress and the judiciary intervening frequently in workplace decisions.
Handle: RePEc:nbr:nberwo:3342
Template-Type: ReDIF-Paper 1.0
Title: Health, Children, and Elderly Living Arrangements: A Multiperiod-Multinomial Probit Model with Unobserved Heterogeneity and Autocorrelated Errors
Author-Name: Axel Borsch-Supan
Author-Name: Vassilis Hajivassiliou
Author-Name: Laurence J. Kotlikoff
Author-Person: pko44
Author-Name: John N. Morris
Note: AG
Number: 3343
Creation-Date: 1990-04
Order-URL: http://www.nber.org/papers/w3343
File-URL: http://www.nber.org/papers/w3343.pdf
File-Format: application/pdf
Publication-Status: published as David Wise, ed. Topics in the Economics of Aging. Chicago: The University of Chicago Press, pp. 79-108, April 1992.
Publication-Status: published as Health, Children, and Elderly Living Arrangements: A Multiperiod-Multinomial Probit Model with Unobserved Heterogeneity and Autocorrelated Errors, Axel Borsch-Supan, Vassilis Hajivassiliou, Laurence J. Kotlikoff. in Topics in the Economics of Aging, Wise. 1992
Abstract: This paper develops a general multiperiod-multinomial probit model for panel data to estimate the living arrangements of the elderly. The model has the following features:
(a) In each period choices do not necessarily obey the assumption of independence of irrelevant alternatives.
(b) Unobserved person-specific attributes are treated as random effects. These random effects may also be correlated across alternatives.
(c) In addition, unobserved choice-specific utility components may persist over some time, creating an autoregressive and/or heteroscedastic error structure.
The model is estimated by simulating the choice probabilities in the likelihood function. We examine several variants of the specification of the correlation structure and investigate the extent the biases created by ignoring intertemporal correlations.
Handle: RePEc:nbr:nberwo:3343
Template-Type: ReDIF-Paper 1.0
Title: Homework in Macoreconomics I: Basic Theory (Part I of II)
Author-Name: Jess Benhabib
Author-Person: pbe53
Author-Name: Randall Wright
Author-Person: pwr2
Author-Name: Richard Rogerson
Author-Person: pro53
Note: EFG
Number: 3344
Creation-Date: 1990-04
Order-URL: http://www.nber.org/papers/w3344
File-URL: http://www.nber.org/papers/w3344.pdf
File-Format: application/pdf
Publication-Status: published as Benhabib, Jess, R. Rogerson and R. Wright. "Homework in Macroeconomics." Journal of Political Economy 99 (1991): 1166-1185.
Abstract: This paper argues that the home, or nonmarket, sector is empirically large, whether measured in terms of the time devoted to household production activities or in terms of the value of home produced output. We also argue that there may be a good deal of substitutability between the market and nonmarket sectors, and that this may be an important missing element in existing macroeconomic models. We pursue this within a framework that labor economists have studied for some time. Symmetrically with the market, household production uses labor and capital to produce a nonmarket consumption good according to a possibly stochastic technology. We show any model with home production is observationally equivalent to another model without home production, but with different preferences. However, for a given set of preferences, incorporating household production can dramatically change the nature and the interpretation of several macroeconomic phenomena. As an example, we show that it is possible to have involuntary unemployment and normal leisure at the same time in models with home production, something that cannot arise in models without it. As another example, we discuss how home production affects the interpretation of models with consumer durables.
Handle: RePEc:nbr:nberwo:3344
Template-Type: ReDIF-Paper 1.0
Title: Provision of Child Care: Cost Functions for Profit-Making and Not-for-Profit Day Care Centers
Author-Name: Swati Mukerjee
Author-Name: Ann Dryden Witte
Author-Name: Sheila Hollowell
Note: LS
Number: 3345
Creation-Date: 1990-04
Order-URL: http://www.nber.org/papers/w3345
File-URL: http://www.nber.org/papers/w3345.pdf
File-Format: application/pdf
Publication-Status: published as "Output Quality and the Nature of Production of Day Care for Children." Journal of Productivity Analysis, vol. 4, no. 2 June 1993, p. 145-163
Abstract: This paper estimates cost functions for day care centers in Massachusetts. The production technology assumed is the generalized homothetic Cobb-Douglas production function. The cost function dual to this production function is estimated separately for profit-making (P1Os) and not-for-profit (NPOs) organizations. The results are discussed in the context of current NPO literature. NPOs are found to be operating at higher average coats than PMOs for most output levels as predicted by the literature. However, the provision of more staff per child hour, our measure of quality, increases coats by similar amounts in PMOs and NPOs. Further, present forms of subsidies do not help either PMOs or NPOs, and in fact, promote 'shirking' in NPOs. PMOs are not optimizing with reference to the amount of education and experience in their personnel. The results suggest that experienced labor may be working for less than its marginal product in the day care industry.
Handle: RePEc:nbr:nberwo:3345
Template-Type: ReDIF-Paper 1.0
Title: Labor Market Distortions and Structural Adjustments in Developing Countries
Author-Name: Sebastian Edwards
Author-Person: ped3
Author-Name: Alejandra Cox Edwards
Note: ITI IFM
Number: 3346
Creation-Date: 1990-05
Order-URL: http://www.nber.org/papers/w3346
File-URL: http://www.nber.org/papers/w3346.pdf
File-Format: application/pdf
Abstract: The purpose of this paper is to provide a typology of different labor market configurations and investigate how two major structural adjustment policies, namely a trade liberalization reform and the relaxation of capital controls, affect the level of aggregate employment and the rate of unemployment. We consider a number of models starting from the traditional Australian approach. We then analyze a multiple sectors intertemporal setting and a model with uncertainty and search. We identify situations under which structural adjustment results in unemployment.
Handle: RePEc:nbr:nberwo:3346
Template-Type: ReDIF-Paper 1.0
Title: On Uniform Import Tariffs in Developing Countries
Author-Name: Sebastian Edwards
Author-Person: ped3
Note: ITI IFM
Number: 3347
Creation-Date: 1990-05
Order-URL: http://www.nber.org/papers/w3347
File-URL: http://www.nber.org/papers/w3347.pdf
File-Format: application/pdf
Abstract: The purpose of this paper is to theoretically assess, from a welfare perspective, the desirability of uniform import tariffs. Since the eruption of the debt crisis, many proposals for structural reforms in the developing countries have contemplated a trade liberalization process that would create a low and uniform tariff structure. In this paper I review the literature on the subject and construct a general equilibrium model to evaluate the consequences of alternative structural adjustment policies. Throughout the analysis it is assumed that labor markets and nontradables markets are subject to some distortions.
Handle: RePEc:nbr:nberwo:3347
Template-Type: ReDIF-Paper 1.0
Title: Does Corporate Performance Improve After Mergers?
Author-Name: Paul M. Healy
Author-Name: Krishna G. Palepu
Author-Name: Richard C. Rubak
Note: ME PE
Number: 3348
Creation-Date: 1990-05
Order-URL: http://www.nber.org/papers/w3348
File-URL: http://www.nber.org/papers/w3348.pdf
File-Format: application/pdf
Publication-Status: published as Paul M. Healy & Krishna G. Palepu & Richard S. Ruback, 1992. "Does corporate performance improve after mergers?," Journal of Financial Economics, vol 31(2), pages 135-175.
Abstract: We examine the post-acquisition operating performance of merged firms using a sample of the 50 largest mergers between U.S. public industrial firms completed in the period 1979 to 1983. The results indicate that merged firms have significant improvement in asset productivity relative to their industries after the merger, leading to higher post-merger operating cash flow returns. Sample firms maintain their capital expenditure and R&D rates relative to their industries after the merger, indicating that merged firms do not reduce their long-term investments. There is a strong positive relation between postmerger increases in operating cash flows and abnormal stock returns at merger announcements, indicating that expectations of economic improvements underlie the equity revaluations of the merging firms.
Handle: RePEc:nbr:nberwo:3348
Template-Type: ReDIF-Paper 1.0
Title: Testing the Positive Theory of Government Finance
Author-Name: David S. Bizer
Author-Name: Steven N. Durlauf
Author-Person: pdu117
Note: EFG PE
Number: 3349
Creation-Date: 1990-05
Order-URL: http://www.nber.org/papers/w3349
File-URL: http://www.nber.org/papers/w3349.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Monetary Economics, Vol. 26, No. 1, pp. 123-141, July 1990.
Abstract: Researchers characterizing optimal tax policies for dynamic economies have reasoned that optimally chosen tax rates should approximately follow a random walk. We conduct a frequency-domain examination of the properties of the tax rate series and conclude that while there is a substantial smoothing role for debt, one rejects the hypothesis that the first difference in the series is white noise. This conclusion follows both from an analysis of the entire spectral distribution function of tax changes as well as from the behavior of individual frequencies. The source of the rejection is pronounced activity of tax changes at an eight year cycle which is suggestive of an electoral component to tax changes. Regression analysis confirms the finding that there is a cyclical component to tax changes corresponding to changes in political party administration. The results suggest that the positive theory of government finance needs to be refined to incorporate features of political equilibrium.
Handle: RePEc:nbr:nberwo:3349
Template-Type: ReDIF-Paper 1.0
Title: Valuation of Variance Forecast with Simulated Option Markets
Author-Name: Robert F. Engle
Author-Name: Che-Hsiung Hong
Author-Name: Alex Kane
Author-Person: pka501
Note: ME
Number: 3350
Creation-Date: 1990-05
Order-URL: http://www.nber.org/papers/w3350
File-URL: http://www.nber.org/papers/w3350.pdf
File-Format: application/pdf
Publication-Status: published as Robert Engle, Che-Hsuing Hong, Alex Kane, and Jaesun Noh, "Arbitrage Valuation of Variance Forecasts with Simulated Options," Advances in Futures and Options Research, Vol. 6, 1992, pp. 393-416.
Abstract: An appropriate metric for the success of an algorithm to forecast the variance of the rate of return on a capital asset could be the incremental profit from substituting it for the next best alternative. We propose a framework to assess incremental profits for competing algorithms to forecast the variance of a prespecified asset. The test is based on the return history of the asset in question. A hypothetical insurance market is set up, where competing forecasting algorithms are used. One algorithm is used by each hypothetical agent in an "ex post ante" forecasting exercise, using the available history of the asset returns. The profit differentials across agents (in various groupings) reflect incremental values of the forecasting algorithms. The technique is demonstrated with the NYSE portfolio, over the period of July 22, 1966 to December 31, 1985. For the limited set of alternative specifications, we find that GARCH(1,1) yields better profits than the 3 competing specifications. The profit from pricing one-day options on the NYSE portfolio significant. The evidence also suggests that using a limited estimation period may be preferable to estimating specification parameters from all available observations. Finally, the hedging activity that requires a variance determined hedge ratio is an important component of the success of a variance forecast-algorithm.
Handle: RePEc:nbr:nberwo:3350
Template-Type: ReDIF-Paper 1.0
Title: The NBER Immigration, Trade, and Labor Markets Data Files
Author-Name: John M. Abowd
Author-Person: pab175
Note: ITI LS IFM
Number: 3351
Creation-Date: 1990-05
Order-URL: http://www.nber.org/papers/w3351
File-URL: http://www.nber.org/papers/w3351.pdf
File-Format: application/pdf
Publication-Status: published as Abowd, John M. and Richard B. Freeman (eds.) Immigration, trade, and the labor market, A National Bureau of Economic Research Project Report. Chicago and London: University of Chicago Press, 1991.
Abstract: The NEER Immigration, Trade, and Labor Markets Data Files were developed from public data sources to facilitate industry-based and area-based research on the effects of international trade and immigration on labor markets in the United States. The industry data files contain shipments, a shipments deflator, value added, employment, payroll, hours, real capital stock, imports, exports, unionization, and immigrant ratios for 450 four-digit (1972 Standard Industrial Classification) manufacturing industries. The primary source of the industry production and factor use data is the Annual Survey of Manufactures. The primary source of the international trade data is the defunct BLS Trade Monitoring System (1972 to 1981). which was extended to earlier and later years using U.S. Commodity Exports and Imports as Related to Output, U.S. Department of Commerce Official Statistics, and the Annual Survey of Manufactures. The primary source of the unionization data is the Current Population Survey (1973 to 1984), which cannot be extended to earlier years. The primary source of the immigrant ratio data is the Census of Population (1960, 1970, and 1980). The area data files contain information on immigrants in the work force by state and major SMSA from the Census of Population 1970 and 1980. The data are available fro. the author on floppy disk (Stata or ASCII format), computer tape (SAS format) or by electronic mail.
Handle: RePEc:nbr:nberwo:3351
Template-Type: ReDIF-Paper 1.0
Title: The Effects of International Competiton on Collective Bargaining Outcomes: A Comparison of the United States and Canada
Author-Name: John M. Abowd
Author-Person: pab175
Author-Name: Thomas Lemieux
Author-Person: ple92
Note: ITI LS IFM
Number: 3352
Creation-Date: 1990-05
Order-URL: http://www.nber.org/papers/w3352
File-URL: http://www.nber.org/papers/w3352.pdf
File-Format: application/pdf
Publication-Status: published as John Abowd and Richard Freeman, eds., Immigration, Trade and the Labor Market. Chicago: University of Chicago Press, 1991, pp. 343-367.
Publication-Status: published as Abowd, John A. and Thomas Lemieux. "The Effects Of Product Market Competition On Collective Bargaining Agreements: The Case Of Foreign Competition In Canada," Quarterly Journal of Economics, 1993, v108(4), 983-1014.
Publication-Status: published as The Effects of International Competition on Collective Bargaining Outcomes: A Comparison of the United States and Canada, John M. Abowd, Thomas Lemieux. in Immigration, Trade, and the Labor Market, Abowd and Freeman. 1991
Abstract: We study the effects of import and export competition on collectively bargained wage settlements and bargaining unit employment from the sixties to the mid-eighties for the United States and Canada. Both value-based and pricebased measures of international competition are considered. We distinguish between the expected effects of increased international trade on new collective bargaining agreements and the realized effects over the life of existing agreements. Using value-based trade measures, the estimated effect of an increase in import domestic market share, holding constant the rate of growth of the domestic market, is negative for employment in both countries and exceeds the effect of a comparable change in the size of the domestic market. The import effect on wage rates is also negative for the United States but not for Canada. The import wage effect in the U.S. is also larger than the effect of a comparable change in the domestic market size. The estimated effect of increased export growth is positive for employment in both countries. The export effect on employment is comparable in magnitude to the effect of a change in the size of the domestic market. The export effect on wage rates is mixed-weakly positive for the U.S. and ambiguous for Canada. For Canada, we also estimate world price effects. Increases in the world import price index for the industry are associated with increased union employment. Increases in the world import price index for the industry are associated with increased union employment and lower wage settlements.
Handle: RePEc:nbr:nberwo:3352
Template-Type: ReDIF-Paper 1.0
Title: Product Market Competition, Union Organizing Activity, and Employer Resistence
Author-Name: John M. Abowd
Author-Person: pab175
Author-Name: Henry S. Farber
Note: LS
Number: 3353
Creation-Date: 1990-05
Order-URL: http://www.nber.org/papers/w3353
File-URL: http://www.nber.org/papers/w3353.pdf
File-Format: application/pdf
Abstract: We develop and estimate a model of the union's optimal extent of organizing activity that accounts for the decision of employers regarding resistance to union organizing. The central exogenous variable in the analysis is the quantity of quasi-rents per worker available to be split between unions and employers. We measure available quasi-rents per worker as the difference per worker between total industry revenues net of raw materials costs and labor costs evaluated at the opportunity cost of the workers. Using two-digit industry level data for thirty-five U.S. industries for the period 1955 through 1986, we find that both organizing activity and employer resistance to unionization are positively related to available quasi-rents per worker. However, there is still a strong negative trend in union organizing activity and a strong positive trend in employer resistance after controlling for quasi-rents per worker. Thus, the explanation for the decline in union organizing activity and the increase in employer resistance to unionization since the mid 1970's lies elsewhere.
Handle: RePEc:nbr:nberwo:3353
Template-Type: ReDIF-Paper 1.0
Title: Some Inefficiency Implication of Generational Politics and Exchange
Author-Name: Laurence J. Kotlikoff
Author-Person: pko44
Author-Name: Robert W. Rosenthal
Note: AG PE
Number: 3354
Creation-Date: 1990-05
Order-URL: http://www.nber.org/papers/w3354
File-URL: http://www.nber.org/papers/w3354.pdf
File-Format: application/pdf
Publication-Status: published as Economics and Politics, Vol. 5, No. 1, pp. 27-42 (March 1993)
Abstract: Generational selfishness is a central assumption in the vast literature on the life cycle model. Much of this literature deals with the impact of alternative government policies in light of self-interested generational behavior. Surprisingly, the choices of governments in virtually all of these analyses are assumed to be independent of the preferences of the selfish generations these governments presumably represent. We address this anomaly by modeling each generation as having a government that strictly represents the economy along a number of dimensions. We consider two types of inefficiencies that have received little or no attention in the literature. The first is the monopolization of factor supplies, and the second is the under- or overprovision of durable public goods. We demonstrate that selfish generations may place sizable marginal taxes on their factor supplies in order to monopolize their factor markets. We also show that selfish generations will provide inefficient levels of durable public goods both at the local and national levels. Finally, we demonstrate that generational inefficiencies can arise even in models of cooperative bargaining because of the first-mover advantage of earlier generations.
Handle: RePEc:nbr:nberwo:3354
Template-Type: ReDIF-Paper 1.0
Title: Market Power, Economic Profitability and Productivity Growth Measurement: An Integrated Structural Approach
Author-Name: Catherine J. Morrison
Note: PR
Number: 3355
Creation-Date: 1990-05
Order-URL: http://www.nber.org/papers/w3355
File-URL: http://www.nber.org/papers/w3355.pdf
File-Format: application/pdf
Publication-Status: Published as "Productive and Financial Performance in the U.S. Manufacturing Industries: An Integrated Structural Approach", SEJ, Vol.60,no. 2 (1993): 376-392.
Abstract: The purpose of this paper is to treat scale economies, profit-maximizing markups, economic profitability, capacity utilization and productivity growth within an integrated structural model, and to assess their interactions empirically using annual two-digit U.S. manufacturing data. Attention is focused on error biases in measuring productivity using traditional accounting procedures. An important conjecture by Robert Hall, that the coexistence of normal economic profits and positive markups of price over marginal cost imply the existence of substantial scale economies and excess capacity, is then examined using this structure. The empirical results suggest that markups in most U.S. manufacturing firms have increased over time, and tend to the countercyclical. However, procyclical capacity utilization and scale economies tend to offset the short run profit potential from markup behavior. As a result, on average economic profits are normal, but declining profitability is prevalent in most industries since the early 1970s. Also, although cost and revenue shares tend to be approximately equal, the error biases in standard productivity growth measures resulting from input fixity and scale economies are substantial, particularly over business cycles.
Handle: RePEc:nbr:nberwo:3355
Template-Type: ReDIF-Paper 1.0
Title: A Genral Model of Dynamic Labor Demand
Author-Name: Daniel S. Hamermesh
Author-Person: pha78
Note: LS
Number: 3356
Creation-Date: 1990-05
Order-URL: http://www.nber.org/papers/w3356
File-URL: http://www.nber.org/papers/w3356.pdf
File-Format: application/pdf
Publication-Status: published as Review of Economics and Statistics, Vol.74, No. 4, pp.733-737,(Nov.1992).
Publication-Status: published as Hamermesh, Daniel S. "A General Model Of Dynamic Labor Demand," Review of Economics and Statistics, 1992, v74(4), 733-736.
Abstract: This study derives and estimates a dynamic model of factor demand that includes both fixed and quadratic variable costs of adjustment. Using quarterly data on the employment of mechanics at seven airlines, it finds that both types of adjustment costs characterize the dynamic constraints facing employers. Using monthly data covering production-worker employment in seven manufacturing plants, it shows that only fixed costs are important. The apparent diversity of the underlying costs of adjustment means it is difficult to draw useful inferences from macroeconometric estimates. It suggests the importance of examining broader arrays of microeconomic time series describing labor demand.
Handle: RePEc:nbr:nberwo:3356
Template-Type: ReDIF-Paper 1.0
Title: Volatiltiy and Links Between National Stock Markets
Author-Name: Mervyn King
Author-Name: Enrique Sentana
Author-Person: pse39
Author-Name: Sushil Wadhwani
Author-Person: pwa225
Note: ME
Number: 3357
Creation-Date: 1990-05
Order-URL: http://www.nber.org/papers/w3357
File-URL: http://www.nber.org/papers/w3357.pdf
File-Format: application/pdf
Publication-Status: published as Econometrica, vol 62, no. 4, (July 1994) pp. 901-933
Abstract: The empirical objective of this study is to account for the time-variation the covariances between markets. Using data on sixteen national stock markets, we estimate a multivariate factor model in which the volatility of returns is induced by changing volatility in the orthogonal factors. Excess returns are assumed to depend both on innovations in observable economic variables and on unobservable factors. The risk premium on an asset is a near combination of the risk premia associated with factors. The main empirical finding is that only a small proportion of the time variation in the covariances between national stock markets can be accounted for by observable economic variables. Changes in correlations markets are given primarily by movements in unobservable variables. We also estimate the risk premia for each country, and are able to identify substantial movements in the required return on equity. Our results also suggest that, although inter-correlations between markets have risen since the 1987 stock market crash this is not necessarily evidence of a trend decrease.
Handle: RePEc:nbr:nberwo:3357
Template-Type: ReDIF-Paper 1.0
Title: Does School Quality Matter? Returns to Education and the Characteristics of Public Schools in the United States
Author-Name: David Card
Author-Person: pca271
Author-Name: Alan Krueger
Author-Person: pkr63
Note: LS
Number: 3358
Creation-Date: 1990-05
Order-URL: http://www.nber.org/papers/w3358
File-URL: http://www.nber.org/papers/w3358.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Political Economy, Vol. 100, No. 1, (February 1992).
Abstract: This paper estimates the effects of school quality - - measured by the pupil-teacher ratio, the average term length, and the relative pay of teachers -- on the rate of return to education for men born between 1920 and 1949. Using earnings data from the 1980 Census, we find that men who were educated in states with higher quality schools have a higher return to additional years of schooling, holding constant their current state of residence, their state of birth, the average return to education in the region where they currently reside, and other factors. A decrease in the pupil-teacher ratio from 30 to 25, for example, is associated with a 0.4 percentage point increase in the rate of return to education. The estimated relationship between the return to education and measures of school quality is similar for blacks and whites. Since improvements in school quality for black students were mainly driven by political and judicial pressures, we argue that the evidence for blacks reinforces a causal interpretation of the link between school quality and earnings. We also find that returns to schooling are higher for students educated in states with a higher fraction of female teachers, and in states with higher average teacher education. Holding constant school quality measures, however, we find no evidence that parental income or education affects state-level rates of return.
Handle: RePEc:nbr:nberwo:3358
Template-Type: ReDIF-Paper 1.0
Title: Asymmetric Information and the New Theory of the Firm: Financial Constraints and Risk Behavior
Author-Name: Bruce C. Greenwald
Author-Name: Joseph E. Stiglitz
Note: ME
Number: 3359
Creation-Date: 1990-05
Order-URL: http://www.nber.org/papers/w3359
File-URL: http://www.nber.org/papers/w3359.pdf
File-Format: application/pdf
Publication-Status: published as American Economic Review, Volume 80, Number 2, pp. 160-165 (May 1990)
Abstract: This paper summarizes recent developments in the theory of the firm that have arisen in examining the implications of imperfect information. It shows that a wide range of these models have similar implications for the likely reaction of firms to external environmental and policy changes. Two significant implications are (1) that firms behave as if they are risk averse individuals maximizing a utility function of terminal wealth (profitability) -- even when the risks involved are unsystematic -- and (2), in many circumstances, because this utility function is likely to be characterized by decreasing absolute risk aversion, firms are likely to respond significantly (and positively) to changes in cash flow and profitability. Together these two phenomena are able to account for a wide range of firm behaviors that have been empirically observed (both formally and informally) and that are difficult to explain in terms of the traditional theory of the firm. Furthermore, the responses of such firms to policy interventions are likely to differ significantly from those of neoclassical firms.
Handle: RePEc:nbr:nberwo:3359
Template-Type: ReDIF-Paper 1.0
Title: Equilibrium Models of Endogenous Fluctuations: an Introduction
Author-Name: Michael Woodford
Author-Person: pwo3
Note: EFG
Number: 3360
Creation-Date: 1990-05
Order-URL: http://www.nber.org/papers/w3360
File-URL: http://www.nber.org/papers/w3360.pdf
File-Format: application/pdf
Publication-Status: published as A. Vercelli and N. Dimitri, eds., Macroeconomics: A Survey of Research Strategies, New York, Oxford University Press, 1992
Abstract: These lectures comment upon recent theoretical models of endogenous fluctuations in economic dynamics, including both the literature on nonlinear deterministic cycles arid the literature on "sunspot equilibria". Two important themes include (1) reasons to be interested in models of purely endogenous fluctuations, even though actual economics are admittedly subject to exogenous stochastic shocks; and (2) the importance of market imperfections in making possible equilibria characterized by endogenous fluctuations of either of the two types.
Handle: RePEc:nbr:nberwo:3360
Template-Type: ReDIF-Paper 1.0
Title: Self-Fulfilling Expectations and Fluctuations in Aggregate Demand
Author-Name: Michael Woodford
Author-Person: pwo3
Note: EFG
Number: 3361
Creation-Date: 1990-05
Order-URL: http://www.nber.org/papers/w3361
File-URL: http://www.nber.org/papers/w3361.pdf
File-Format: application/pdf
Publication-Status: published as N.G. Mankiw and D. Romer, eds., New Keynesian Economics, Vol. 2, pp.77-110, Cambridge: MIT Press, 1991.
Abstract: The paper presents an intertemporal general equilibrium model with rationing in the product market, in which stationary sunspot equilibria are shown to exist, indicating the possibility of fluctuations in economic activity simply due to self-fulfilling variations in economic agents' expectations. Specifically, revised expectations about future aggregate demand change current investment demand, which (amplified by a multiplier" process) then affects current aggregate demand. Parameter values required for endogenous fluctuations are discussed, as well as quantitative properties of the fluctuations predicted. Countercyclical stabilization policies are shown to rule out such equilibria.
Handle: RePEc:nbr:nberwo:3361
Template-Type: ReDIF-Paper 1.0
Title: Public Finance in Models of Economic Growth
Author-Name: Robert J. Barro
Author-Person: pba251
Author-Name: Xavier Sala-i-Martin
Author-Person: psa510
Note: EFG PE EFG
Number: 3362
Creation-Date: 1990-05
Order-URL: http://www.nber.org/papers/w3362
File-URL: http://www.nber.org/papers/w3362.pdf
File-Format: application/pdf
Publication-Status: Published as "Public Finance in Models of Economic Growth", Review of Economic Studies, Vol. 59, no. 201 (1992): 645-662.
Abstract: The recent literature on endogenous economic growth allows for effects of fiscal policy on long-term growth. If the social rate of return on investment exceeds the private return, then tax policies that encourage investment can raise the growth rate and levels of utility. An excess of the social return over the private return can reflect learning-by-doing with spillover effects, the financing of government consumption purchases with an income tax, and monopoly pricing of new types of capital goods. Tax incentives for investment are not called for if the private rate of return on investment equals the social return. This situation applies in growth models if the accumulation of a broad concept of capital does not entail diminishing returns, or if technological progress appears as an expanding variety of consumer products. In growth models that incorporate public services, the optimal tax policy hinges on the characteristics of the services. If the public services are publicly-provided private goods, which are rival and excludable, or publiclyprovided public goods, which are non-rival and non-excludable, then lump-sum taxation is superior to income taxation. Many types of public goods are subject to congestion, and are therefore rival but to some extent nonexcludable. In these cases, income taxation works approximately as a user fee and can therefore be superior to lump-sum taxation. In particular, the incentives for investment and growth are too high if taxes are lump sum. We argue that the congestion model applies to a wide array of public expenditures, including transportation facilities, public utilities, courts, and possibly national defense and police.
Handle: RePEc:nbr:nberwo:3362
Template-Type: ReDIF-Paper 1.0
Title: The Provision of Time to the Elderly by Their Children
Author-Name: Axel Borsch-Supan
Author-Name: Jagadeesh Gokhale
Author-Name: Laurence J. Kotlikoff
Author-Person: pko44
Author-Name: John N. Morris
Note: AG
Number: 3363
Creation-Date: 1990-05
Order-URL: http://www.nber.org/papers/w3363
File-URL: http://www.nber.org/papers/w3363.pdf
File-Format: application/pdf
Publication-Status: published as David A. Wise, editor. Topics in the Economics of Aging. Chicago: The University of Chicago Press, pp. 109-134, April 1992.
Publication-Status: published as The Provision of Time to the Elderly by Their Children, Axel Borsch-Supan, Jagadeesh Gokhale, Laurence J. Kotlikoff, John N. Morris. in Topics in the Economics of Aging, Wise. 1992
Abstract: This paper uses matched data on the elderly and their children to study the provision of time by children to the elderly. It develops a Tobit model as well as a structural model to analyze the determinants of this decision. The main determinants of the amount of time given to parents appear to be the parent's age, reported health, and institutionalization status, and the children's age, health, and sex. Older parents, less healthy parents, and non-institutionalized parents receive more time from their children, while younger children, healthier children, and female children provide more time. In contrast to these demographic determinants, economic variables, such as children's wage rate and income levels, appear to play a rather insignificant role in the provision of time. In addition, the evidence does not support the hypothesis that parents purchase time from their children.
Handle: RePEc:nbr:nberwo:3363
Template-Type: ReDIF-Paper 1.0
Title: Price Behavior in Japanese and U.S. Manufacturing
Author-Name: Richard C. Marston
Note: ITI IFM
Number: 3364
Creation-Date: 1990-05
Order-URL: http://www.nber.org/papers/w3364
File-URL: http://www.nber.org/papers/w3364.pdf
File-Format: application/pdf
Publication-Status: published as Trade With Japan: Has the Door Opened Wider?, ed. Paul Krugman. Chicago: The University of Chicago Press, 1991, pp. 121-141.
Publication-Status: published as Price Behavior in Japanese and U. S. Manufacturing, Richard C. Marston. in Trade with Japan: Has the Door Opened Wider?, Krugman. 1991
Abstract: Relative price changes in Japanese and U.S. manufacturing are driven by two forces, productiviry growth which leads to secular changes in costs and exchange rate fluctuations which change relative prices between the two countries. In sectors where productivity growth is high, reductions in costs can neutralize exchange rate appreciations to keep prices competitive with those abroad, at least in the long run, But even in these sectors, exchange rate fluctuations are the dominant influence on relative competitiveness in the short run.
Faced with swings in exchange rates, firms adopt defensive measures to defend their export markets. The paper presents estimates of "pricing to market" elasticities which suggest that firms lower their export prices in domestic currency relative to their domestic prices in order to limit the effects of currency appreciations. There is evidence that firms in both countries pursue such pricing strategies, but pricing to market is more extensive in Japan. In response to a appreciation of the yen, Japanese firms reduce their export prices in yen sharply so as to limit the pass-through of the appreciation into the dollar prices of their exports.
Handle: RePEc:nbr:nberwo:3364
Template-Type: ReDIF-Paper 1.0
Title: Fear, Unemployment and Pay Flexibility
Author-Name: David G. Blanchflower
Author-Person: pbl22
Note: LS
Number: 3365
Creation-Date: 1990-05
Order-URL: http://www.nber.org/papers/w3365
File-URL: http://www.nber.org/papers/w3365.pdf
File-Format: application/pdf
Publication-Status: published as The Economic Journal, Vol. 101, No. 406, pp.483-496, (May 1991).
Abstract: The paper uses newly available cross-section data to study wage determination in the United Kingdom in the 1980s. The results are contrasted with those from a comparable sample from the US from 1977-1988. 1) Fear of unemployment substantially depresses pay in both countries. 2) There is some evidence of a wage ratchet in the UK whereby rates of pay are more flexible upwards than downwards. 3) The unemployment elasticity of pay averages -0.1 in the UK and apparently zero in the US. 4) Wages are almost twice as flexible in non-union and small workplaces in the UK.
Handle: RePEc:nbr:nberwo:3365
Template-Type: ReDIF-Paper 1.0
Title: The Manufacturing Sector Master File: 1959-1987
Author-Name: Bronwyn H. Hall
Author-Person: pha54
Note: PR
Number: 3366
Creation-Date: 1990-05
Order-URL: http://www.nber.org/papers/w3366
File-URL: http://www.nber.org/papers/w3366.pdf
File-Format: application/pdf
Abstract: This document describes the panel of publicly traded United States manufacturing firms which was created and updated at the National Bureau of Economic Research from 1978 through 1990 within the Productivity Program. The panel consists of 2726 large manufacturing firms with one to twenty-nine years of data each; the period covered by the sampling frame was 1976 through 1987, with data back to 1959 where possible. There are about 90 variable for each firm-year of data: the variables give the complete income statement, balance sheet, statement of changes, and data on the market value f the common stock. The firms on the file are identified both by their CUSIP number and by name, making it feasible to match this data to other sources. A special feature of this data file is that all exits from the file between 1976 and 1987 have been identified and the reasons for exit have been tabulated in a diskette file. This file is described in Appendix A of this document.
Handle: RePEc:nbr:nberwo:3366
Template-Type: ReDIF-Paper 1.0
Title: The Gold Standard as a Rule
Author-Name: Michael D. Bordo
Author-Person: pbo243
Author-Name: Finn E. Kydland
Author-Person: pky2
Note: ME
Number: 3367
Creation-Date: 1990-05
Order-URL: http://www.nber.org/papers/w3367
File-URL: http://www.nber.org/papers/w3367.pdf
File-Format: application/pdf
Publication-Status: published as Explorations in Economic History, vol. 32, pp. 423-464, (October 1995).
Abstract: In this paper, we show that the monetary rule followed by a number of key countries, especially England and to a lesser extent the U. S., before 1914 represented a commitment technology preventing the monetary authorities from changing planned future policy. The experiences of these major countries suggest that the gold standard was intended as a contingent rule. By that, we mean, that the authorities could temporarily abandon the fixed price of gold during a wartime emergency on the understanding that convertibility at the original price of gold would be restored when the emergency passed. The experiences of other countries, however, suggest that the gold standard rule was often viewed more as a desirable goal than an operational constraint.
Handle: RePEc:nbr:nberwo:3367
Template-Type: ReDIF-Paper 1.0
Title: Forecasting Prices and Excess Returns in the Housing Market
Author-Name: Karl E. Case
Author-Person: pca484
Author-Name: Robert J. Shiller
Author-Person: psh69
Note: ME
Number: 3368
Creation-Date: 1990-05
Order-URL: http://www.nber.org/papers/w3368
File-URL: http://www.nber.org/papers/w3368.pdf
File-Format: application/pdf
Publication-Status: published as Real Estate Economics, vol. 18, no. 3, pp. 253-273, (September 1990)
Abstract: The U. S. market for homes appears not to be efficient. A number of information variables predict housing price changes and excess returns of housing relative to debt over the succeeding year. Price changes observed over one year tend to continue for one more year in the same direction. Construction cost divided by price, the change in per capita real income, the change in adult population are all positively related to price changes or excess returns over the subsequent year. The results are based on time-series cross section regressions with quarterly data 1970-1 to 1987-3 and for cities Atlanta, Chicago, Dallas, and San Francisco.
Handle: RePEc:nbr:nberwo:3368
Template-Type: ReDIF-Paper 1.0
Title: Efficient Windows and Labor Force Reduction
Author-Name: Robin L. Lumsdaine
Author-Name: James H. Stock
Author-Person: pst148
Author-Name: David A. Wise
Author-Person: pwi45
Note: AG LS
Number: 3369
Creation-Date: 1990-05
Order-URL: http://www.nber.org/papers/w3369
File-URL: http://www.nber.org/papers/w3369.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Public Economics, Vol. 43, pp. 131-159, 1990.
Abstract: Recently many U.S. firms have offered "window" plans that provide bonuses to a group of workers if the worker retires within a specified short time span. This paper examines a window plan at a Fortune 500 firm, and addresses two main issues. First, what was the effect of the window plan on departures? Second, assuming a variety of possible firm objectives, what would be the design of an efficient window plan? These questions are addressed using the retirement model in Stock and Wise [1988a, 1988b] . The model, estimated using data for an earlier year, predicts well out-of-sample the subsequent large increase in retirements under the window plan. We find that while the firm successfully maximized departures, if its goal was to minimize either expected future wage payments or the current cost per induced retirement, the firm could have saved more with efficient plans constructed using the model. One interpretation is that the firm was primarily interested in reducing the overall size of the labor force or in retiring older employees to allow promotion of younger employees.
Handle: RePEc:nbr:nberwo:3369
Template-Type: ReDIF-Paper 1.0
Title: The Stock Market, Profit and Investment
Author-Name: Olivier Blanchard
Author-Person: pbl2
Author-Name: Changyong Rhee
Author-Name: Lawrence Summers
Author-Person: psu137
Note: ME
Number: 3370
Creation-Date: 1990-05
Order-URL: http://www.nber.org/papers/w3370
File-URL: http://www.nber.org/papers/w3370.pdf
File-Format: application/pdf
Publication-Status: published as Quarterly Journal of Economics, Vol. 108, no. 1 (February 1993): 115-136.
Abstract: Should managers, when making investment decisions, follow the signals given by the stock market even if those do not coincide with their own assessments of fundamental value? This paper reviews the theoretical arguments and examines the empirical evidence, constructing and using a new US time series of data on the q ratio from 1900 to 1988. We decompose q - - the ratio of the market value of corporate capital to its replacement cost - - into the product of two terms, reflecting "fundamentals" and "valuation", the ratio of market value to fundamentals. We then examine the relation of investment to each of the two, using a number of alternative proxies for fundamentals. We interpret our results as pointing, strongly but not overwhelmingly, to a larger role of "fundamentals" than of "valuation" in investment decisions.
Handle: RePEc:nbr:nberwo:3370
Template-Type: ReDIF-Paper 1.0
Title: The Cost of Capital in Japan: Recent Evidence and Further Results
Author-Name: Albert Ando
Author-Name: Alan J. Auerbach
Author-Person: pau33
Note: ITI ME IFM
Number: 3371
Creation-Date: 1990-05
Order-URL: http://www.nber.org/papers/w3371
File-URL: http://www.nber.org/papers/w3371.pdf
File-Format: application/pdf
Publication-Status: published as Journal of the Japanese and International Economies, Vol. 4, No. 4, pp. 323-350, (1990).
Abstract: We extend our recent work measuring the cost of capital in Japan and the United States by considering several questions that such results raised. Among our findings are: (1) The small firm - large firm distinction appears to be more significant in Japan, not in the United States; (2) Correcting Japanese accounting statements for cross-holding raises the estimated Japanese cost-of-capital by about 1 percentage point; (3) Correcting Japanese accounting statements for unmeasured returns to land has a significantly more important effect: the most conservative correction we attempt raises the implied Japanese return to capital to parity with the United States during the mid-1980's.
Handle: RePEc:nbr:nberwo:3371
Template-Type: ReDIF-Paper 1.0
Title: Can Severe Fiscal Contractions be Expansionary? Tales of Two Small European Countries
Author-Name: Francesco Giavazzi
Author-Person: pgi18
Author-Name: Marco Pagano
Author-Person: ppa56
Note: ITI IFM
Number: 3372
Creation-Date: 1990-05
Order-URL: http://www.nber.org/papers/w3372
File-URL: http://www.nber.org/papers/w3372.pdf
File-Format: application/pdf
Publication-Status: published as NBER Macroeconomic Annual 1990. Cambridge, MA: MIT Press.
Publication-Status: published as Can Severe Fiscal Contractions Be Expansionary? Tales of Two Small European Countries, Francesco Giavazzi, Marco Pagano. in NBER Macroeconomics Annual 1990, Volume 5, Blanchard and Fischer. 1990
Abstract: According to conventional wisdom, a fiscal consolidation is likely to contract real aggregate demand. It has often been argued, however, that this conclusion is misleading as it neglects the role of expectations of future policy: if the fiscal consolidation is read by the private sector as a signal that the share of government spending in GDP is being permanently reduced, households will revise upwards their estimate of their permanent income, and will raise current and planned consumption. Only the empirical evidence can sort out which of these two contending views about fiscal policy is more appropriate -- i.e how often the contractionary effect of a fiscal consolidation prevails on its expansionary expectational effect. This paper brings new evidence to bear on this issue drawing on the European exercise in fiscal rectitude of the 1980s, and focusing, in particulars on its two most extreme cases -- Denmark and Ireland. We find that at least in the experience of these two countries the expectations' view has a serious claim to empirical relevance.
Handle: RePEc:nbr:nberwo:3372
Template-Type: ReDIF-Paper 1.0
Title: Moral Hazard in Partnerships
Author-Name: Martin Gaynor
Author-Person: pga1
Author-Name: Paul Gertler
Author-Person: pge194
Note: EH
Number: 3373
Creation-Date: 1990-06
Order-URL: http://www.nber.org/papers/w3373
File-URL: http://www.nber.org/papers/w3373.pdf
File-Format: application/pdf
Publication-Status: published as "Moral Hazard and Risk Spreading in Medical Partnerships," Rand Journal of Economics, Winter 1995, V. 26, #4, pp. 591-613
Abstract: In this paper, we investigate incentive structures within partnerships. Partnerships provide a classic example of the tradeoff between risk spreading and moral hazard. The degree to which firms choose to spread risk and sacrifice efficiency incentives depends upon risk preferences, for which data are typically unavailable. We are able to overcome this difficulty due to the existence of a unique data set on a prominent form of professional partnership; medical group practice. We consider a two-stage model in which agents choose effort in response to incentives and in which the firm can choose two different instruments to affect incentives and to spread risk: the compensation method and the number of members. There are two new theoretical results. First, relative to the compensation method or group size which would be chosen in the absence of risk or risk aversion, the best compensation method will be one which sacrifices efficiency incentives in order to spread risk, and the best membership size will exceed the first best size for the same reasons. Second, a further increase in risk or risk aversion leads the firm to sacrifice more efficiency incentives in order to spread more risk. Hence, firms who are more risk averse or face greater uncertainty pay larger risk premiums in terms of sacrificed output due to shirking. The empirical results are striking and consistent with the theory. Firms which report more risk aversion have greater departures from first-best organizational incentive structures. Specifically, increased risk aversion leads to compensation arrangements which spread more risk through greater sharing of output and to decreased group size in order to counteract diminished incentives. We also find that compensation arrangements that have greater degrees of sharing of output across physicians significantly reduce each physician's productivity, whereas reductions in group size significantly increase productivity. The estimated premium associated with risk aversion accounts for almost eleven percent of gross income, comparing the most risk averse to the least risk averse physicians in the sample.
Handle: RePEc:nbr:nberwo:3373
Template-Type: ReDIF-Paper 1.0
Title: The Term Structure of Interest Rate Differentials in a Target Zone: Theory and Swedish Data
Author-Name: Lars E.O. Svensson
Author-Person: psv2
Note: ITI IFM
Number: 3374
Creation-Date: 1990-06
Order-URL: http://www.nber.org/papers/w3374
File-URL: http://www.nber.org/papers/w3374.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Monetary Economics, Vol. 28, pp. 87-116, (1991).
Abstract: The term structure of interest rate differentials is derived in a model of a small open economy with a target zone exchange rate regime. The target zone is modeled as a regulated Brownian motion. The interest rate differentials are computed as the solution to a parabolic partial differential equation with derivative boundary conditions, both via a Fourier-series analytical solution and via a direct numerical solution. Several specific properties of the term structure of interest rate differentials are derived. For instance, for given time to maturity the interest rate differential is decreasing in the exchange rate, and for given exchange rate the interest rate differential's absolute value and its instantaneous variability are both decreasing in the time to maturity. Devaluation/realignment risks are incorporated and imply upward shifts of the interest rate differentials. Some implications of the theory are found to be broadly consistent with data on Swedish exchange rates and interest differentials for the period 1986-1989.
Handle: RePEc:nbr:nberwo:3374
Template-Type: ReDIF-Paper 1.0
Title: An Alternative View of Tax Incidence Analysis for Developing Countries
Author-Name: Anwar Shah
Author-Person: psh62
Author-Name: John Whalley
Author-Person: pwh8
Note: ITI PE IFM
Number: 3375
Creation-Date: 1990-06
Order-URL: http://www.nber.org/papers/w3375
File-URL: http://www.nber.org/papers/w3375.pdf
File-Format: application/pdf
Publication-Status: published as World Bank Economic Review, vol. 5, no. 3, September 1991
Abstract: This paper revisits the long-standing issue of the incidence of taxes in developing countries. Its central theme is that despite many decades of studies, tax incidence analyses for developing countries continue to be based upon the same shifting assumptions used in developed country studies, despite some obvious pitfalls. Taxes are assumed to be shifted forward to consumers, or backwards onto factor incomes, as has been the case for developed country tax incidence work from Bowley and Stamp to Peclunan and Okner. Developing countries typically have a much different non-tax policy and regulatory environment from developed countries, with higher protection, rationed foreign exchange, price controls, black markets, credit rationing and many other features. The paper argues that all these features can greatly complicate and even obscure the incidence effects of taxes in developing countries. For several taxes, taking such features into account can reverse signs and/or substantially revise estimates of incidence effects from conventional thinking and by substantial orders of magnitude. A final section sets out some implications for country lending programs, both by type of country and level of development, and comments on how the extent to which non-tax policy reform has already been implemented affects the significance of the points raised here.
Handle: RePEc:nbr:nberwo:3375
Template-Type: ReDIF-Paper 1.0
Title: Business Cycle Properties of Selected U.S. Economic Time Series, 1959-1988
Author-Name: James H. Stock
Author-Person: pst148
Author-Name: Mark W. Watson
Author-Person: pwa582
Note: EFG
Number: 3376
Creation-Date: 1990-06
Order-URL: http://www.nber.org/papers/w3376
File-URL: http://www.nber.org/papers/w3376.pdf
File-Format: application/pdf
Abstract: This paper catalogs the business cycle properties of 163 monthly U.S. economic time series over the three decades from 1959 through 1988. Two general sets of summary statistics are reported. The first set measures the comovement of each individual time series with a reference series representing real economic activity. These statistics focus on comovements at business cycle horizons. The second set of statistics examines the predictive content of each of the series for aggregate activity, relative to different sets of conditioning (or predictive) variables. These statistics are constructed and presented in a way that facilitates comparisons across series and across conditioning sets. They also provide new lists of leading indicators based on predictive content for overall economic activity. Some of the results confirm previously recognized empirical regularities, while others provide new or different insights into the business cycle properties of various series.
Handle: RePEc:nbr:nberwo:3376
Template-Type: ReDIF-Paper 1.0
Title: Taxes, Outward Orientation, and Growth Performance in Korea
Author-Name: Irene Trela
Author-Name: John Whalley
Author-Person: pwh8
Note: PE ITI IFM
Number: 3377
Creation-Date: 1990-06
Order-URL: http://www.nber.org/papers/w3377
File-URL: http://www.nber.org/papers/w3377.pdf
File-Format: application/pdf
Publication-Status: published as "Taxes, Outward Orientation, and Growth Performance ...Korea", in J. Khalilzadeh-Shirazi and A. Shah, eds., Tax Policy in Developing Countries, The World Bank 1991/ and in Fiscal Incentives for Investment in DCs, Oxford University Press/Johns Hopkins for the World Bank, forthcoming
Publication-Status: published as Takatoshi Ito and Anne O. Krueger, eds. "The Role of Tax Policy in Korea's Economic Growth," in The Political Economy of Tax Reform. Chicago: The University of Chicago Press, 1992.
Publication-Status: published as The Role of Tax Policy in Korea's Economic Growth, Irene Trela, John Whalley. in The Political Economy of Tax Reform, Ito and Krueger. 1992
Abstract: This paper both discusses and evaluates the role of tax policy in the Korean growth process from the early 1960s to the late 1980s. It begins by reviewing the evolution of Korean policy over this developmental sequence, emphasizing three distinct regime switches, and the tax policies which were part of them. It then presents an analytical framework for quantitative assessment of the contribution of tax policies to this growth through induced intersectoral resource transfers and impacts on effort and labour supply in agriculture and manufacturing sectors. What emerges from the model calculations is that tax policy has played a relatively modest role in Korean growth and that one should look outside of tax policy for the main factors underlying strong Korean growth.
Handle: RePEc:nbr:nberwo:3377
Template-Type: ReDIF-Paper 1.0
Title: Price Indexes for Microcomputers: An Exploratory Study
Author-Name: Ernst R. Berndt
Author-Name: Zvi Griliches
Note: PR
Number: 3378
Creation-Date: 1990-06
Order-URL: http://www.nber.org/papers/w3378
File-URL: http://www.nber.org/papers/w3378.pdf
File-Format: application/pdf
Publication-Status: published as Price Measurements and Their Uses, edited by Murray Foss, Marilyn Manser and Allan Young, Studies in Income and Wealth Vol 57, Chicago: University of Chicago Press, 1993. pp. 63-93
Publication-Status: published as Price Indexes for Microcomputers: An Exploratory Study, Ernst R. Berndt, Zvi Griliches. in Price Measurements and Their Uses, Foss, Manser, and Young. 1993
Abstract: In this paper we focus on alternative procedures for calculating and interpreting quality-adjusted price indexes for microcomputers, based on a variety of estimated hedonic price equations. Our data set comprises an unbalanced panel for 1265 model observations from 1982 to 1988, and includes both list and discount prices. We develop and implement empirically a specification test for selecting preferable hedonic price equations, and consider in detail the alternative interpretations of dummy variable coefficients having time and age, vintage and age, and all of the time, age, and vintage dummy variables as regressors. We then calculate a variety of quality-adjusted price indexes; for the Divisja indexes we employ estimated hedonic price equations to predict prices of unobserved models (pre-entry and post-exit). Although our indexes show a modest amount of variation, we find that on average over the 1982-88 time period in the US, quality-adjusted real prices for microcomputers decline at about 28% per year.
Handle: RePEc:nbr:nberwo:3378
Template-Type: ReDIF-Paper 1.0
Title: Tax Policy Toward Art Museums
Author-Name: Don Fullerton
Author-Person: pfu10
Note: PE
Number: 3379
Creation-Date: 1990-06
Order-URL: http://www.nber.org/papers/w3379
File-URL: http://www.nber.org/papers/w3379.pdf
File-Format: application/pdf
Publication-Status: published as The Economics of Art Museums, ed. M. Feldstien. Chicago: The University of Chicago Press, 1991, pp. 195-235.
Publication-Status: published as Tax Policy Toward Art Museums, Don Fullerton. in The Economics of Art Museums, Feldstein. 1991
Abstract: Although art museums do not pay any substantial taxes, they are greatly affected by various U.S. tax rules. The individual receives a deduction for donations of art to museums, the estate gets a deduction for bequests, and the corporation gets a deduction for charitable gifts. Art museums also are not taxed on investment income or on some "related" business activities. This paper reviews the logic for these rules and discusses their economic effects. In combination, this set of tax provisions is found to have a tax expenditure that is larger than direct federal expenditures on art museums in the U.S. The amount of this tax expenditure or implicit subsidy has been falling in recent years because of reductions in the marginal personal income tax rates at which individuals deduct gifts. High income taxpayers are found to be the most responsive to marginal tax rates, and they also tend to give the largest amounts to the arts. Therefore the level of the top personal marginal tax rate is particularly important to art museums. Simulations here suggest that the personal marginal rate reduction in the Tax Reform Act of 1986 could reduce gifts to the arts by as much as 24 percent.
Handle: RePEc:nbr:nberwo:3379
Template-Type: ReDIF-Paper 1.0
Title: Before the Accord: U.S. Monetary-Financial Policy 1945-51
Author-Name: Barry Eichengreen
Author-Person: pei2
Author-Name: Peter Garber
Author-Person: pga124
Note: ME
Number: 3380
Creation-Date: 1990-06
Order-URL: http://www.nber.org/papers/w3380
File-URL: http://www.nber.org/papers/w3380.pdf
File-Format: application/pdf
Publication-Status: published as Reprinted in Deutsche Bank Emerging Markets, April 1999.
Publication-Status: published as Before the Accord: U.S. Monetary-Financial Policy, 1945-51, Barry Eichengreen, Peter M. Garber. in Financial Markets and Financial Crises, Hubbard. 1991
Abstract: Thia paper analyzes U.S. monetary-financial policy in the period leading up to the Treasury-Fed Accord. We model policy as an implicit target zone for the price level and an explicit zone for interest rates, and the difficulties on the eve of the Accord as an incipient run on a collapsing target-zone regime. The regime was implemented to maintain the stability of the financial system in a period when there was a serious maturity mismatch between the assets and liabilities of the banking system.
Handle: RePEc:nbr:nberwo:3380
Template-Type: ReDIF-Paper 1.0
Title: Banks in the Market for Liquidity
Author-Name: Peter Garber
Author-Person: pga124
Author-Name: Steven Weisbrod
Note: ME
Number: 3381
Creation-Date: 1990-06
Order-URL: http://www.nber.org/papers/w3381
File-URL: http://www.nber.org/papers/w3381.pdf
File-Format: application/pdf
Abstract: Banks are unique among financial institutions because they are the cheapest source of liquidity in the economy. Banks choose to hold reserves to facilitate settlement of end-of-day net due to positions arising from payments operations. Money market substitutes for bank liabilities do not escape from the cost of reserves since their issuers lean on banks to provide liquidity. Since the cost of reserves falls on all issuers of less liquid liabilities seeking access to payment services, including non-bank intermediaries, reserves cannot represent a tax on the banking system alone.
Handle: RePEc:nbr:nberwo:3381
Template-Type: ReDIF-Paper 1.0
Title: Rules versus Discretion in Trade Policy: An Empirical Analysis
Author-Name: Robert W. Staiger
Author-Person: pst85
Author-Name: Guido Tabellini
Author-Person: pta37
Note: ITI IFM
Number: 3382
Creation-Date: 1990-06
Order-URL: http://www.nber.org/papers/w3382
File-URL: http://www.nber.org/papers/w3382.pdf
File-Format: application/pdf
Publication-Status: published as Robert Baldwin, editor. Empirical Studies in Commercial Policy. Empirical Studies in Commercial Policy. Chicago: The University of Chicago Press,(1991).
Publication-Status: published as Rules versus Discretion in Trade Policy: An Empirical Analysis, Robert W. Staiger, Guido Tabellini. in Empirical Studies of Commercial Policy, Baldwin. 1991
Abstract: We test empirically for evidence that government tariff-setting behavior depends on the degree of discretion with which policy-makers are endowed. We do this by studying government tariff choices under two distinct environments. One environment is that of tariffs set under the Escape Clause (Section 201 of the U.S. Trade Act of 1974). We argue that these decisions afford the government with ample opportunity to reoptimize, and with correspondingly little ability to commit. The other environment is the Tokyo Round of GATT negotiations and the determination of the set of exclusions from the general formula cuts. We argue that these decisions provided the government with a much diminished opportunity to reoptimize, and with a correspondingly greater ability to commit. Comparing decisions made in these two environments allows us to ask whether the degree of policy discretion has a measurable impact on trade policy decisions. Our findings suggest that it does.
Handle: RePEc:nbr:nberwo:3382
Template-Type: ReDIF-Paper 1.0
Title: Money and Prices in Colonial America: A New Test of Competing Theories
Author-Name: Bennett T. McCallum
Note: ME DAE
Number: 3383
Creation-Date: 1990-06
Order-URL: http://www.nber.org/papers/w3383
File-URL: http://www.nber.org/papers/w3383.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Political Economy, Vol. 100, No. 1, pp. 143-161, (1992).
Abstract: A long-standing but unsettled controversy concerning monetary experiences in colonial America has recently been reopened with considerable vigor. Ignoring doctrinal aspects, the main substantive issue concerns the relationship between money holdings and price levels during episodes in which various colonial governments issued paper currency (bills of credit) in large amounts. In several instances, large and rapid increases in the stock of outstanding paper currency led to negligible changes in price levels. But alternative interpretations are possible, since colonial money included specie as well as paper currency. According to the "quantity theory" or classical hypothesis, total money stock magnitudes did not rise sharply during the disputed episodes; instead, the sharp paper currency increases led to corresponding losses of specie--as suggested by standard commodity-money analysis. According to the "backing theory" or anti-classical hypothesis, by contrast, there was little specie present so money stock magnitudes could and did rise sharply (in percentage terms). This fundamental factual disagreement has eluded resolution because data on both stocks and flows of specie are almost nonexistent. The present study develops and applies a strategy for circumventing the unavailability of specie data by exploiting conflicting implications of the two hypotheses regarding magnitudes of real per capita holdings of paper currency, relative to normal real money balances, at dates of maximum paper issue. A major feature of the analysis is a new method for the estimation of normal real money holdings, one that relies on paper currency data for a few inflationary episodes.
Handle: RePEc:nbr:nberwo:3383
Template-Type: ReDIF-Paper 1.0
Title: International Costs and Benefits from EMU
Author-Name: George Alogoskoufis
Author-Person: pal385
Author-Name: Richard Portes
Author-Person: ppo132
Note: ITI IFM
Number: 3384
Creation-Date: 1990-06
Order-URL: http://www.nber.org/papers/w3384
File-URL: http://www.nber.org/papers/w3384.pdf
File-Format: application/pdf
Publication-Status: published as European Economy, Special Edition No. 1, Pt. 5, pp. 231-245, (1991).
Abstract: In this paper we examine the international implications of monetary union in the European Community (EMU), and the associated international costs and benefits. We consider prospective changes in international institutions, the potential role of the ecu as an international currency, and the implications of EMU for the international coordination of monetary and fiscal policies.
Handle: RePEc:nbr:nberwo:3384
Template-Type: ReDIF-Paper 1.0
Title: Waiting for Work
Author-Name: George A. Akerlof
Author-Name: Andrew K. Rose
Author-Person: pro71
Author-Name: Janet L. Yellen
Author-Person: pye21
Note: EFG
Number: 3385
Creation-Date: 1990-06
Order-URL: http://www.nber.org/papers/w3385
File-URL: http://www.nber.org/papers/w3385.pdf
File-Format: application/pdf
Publication-Status: published as George A. Akerlof & Andrew K. Rose & Janet L. Yellen, 1990. "Waiting for work," Proceedings, Federal Reserve Bank of San Francisco, issue Nov.
Abstract: This paper explains upward job mobility and observed patterns of unemployment by skill as an economy recovers from a recession. Skilled unemployment is due to rational waiting by workers looking for long-term jobs when there is a "lock-in" effect. Lock-in occurs if the conditions in the labor market when a worker first accepts a job have a persistent effect on wages. Using longitudinal data, we provide empirical evidence of the cyclical pattern of wages predicted by the theory and also of lock-in.
Handle: RePEc:nbr:nberwo:3385
Template-Type: ReDIF-Paper 1.0
Title: Revenue and Welfare Implications for a Capital Gains Tax Cut
Author-Name: Patric H. Hendershott
Author-Name: Eric Toder
Author-Person: pto287
Author-Name: Yunhi Won
Note: PE
Number: 3386
Creation-Date: 1990-06
Order-URL: http://www.nber.org/papers/w3386
File-URL: http://www.nber.org/papers/w3386.pdf
File-Format: application/pdf
Publication-Status: published as "Effects of Capital Gains Taxes on Revenue and Economic Efficiency." From National Tax Journal, Vol. XLIV, No. 1, pp. 21-40, (March 1991).
Abstract: This paper uses a general equilibrium model to simulate both the effects of a preferential capital-gains tax rate on total income tax revenues and the effects of a revenue-neutral substitution between a capital gains preference and marginal income tax rates on economic efficiency and the distribution of income. In the simulations, a capital gains preference increases efficiency by reducing tax distortions between untaxed assets (household and state and local capital) and taxable business sector assets and between realized and unrealized capital gains (the "lock-in" effect), but reduces efficiency by increasing tax distortions between corporate dividends and retained earnings and between financial assets that produce capital gain income and those that produce ordinary income. Because the model treats aggregate factor supplies as fixed, however, the simulations do not capture the efficiency gain from reducing the tax distortion between current and future consumption or the loss from increasing the tax distortion between current consumption and leisure (or untaxed labor). The net estimated welfare effects depend on two parameters: the elasticity of capital gains realizations with respect to a change in the capital gains tax rate and the elasticity of the dividend-payout ratio with respect to a change in the tax cost of dividends relative to retentions. With no payout response, the net welfare effect from a 15% maximum rate on capital gains is positive for a wide range of realizations elasticities. With a high payout elasticity, the net welfare effect is slightly positive for high estimates of the realizations elasticity and slightly negative for low estimates of the realizations elasticity. The welfare changes, both positive and negative, mainly affect taxpayers with income of $50,000 and over.
Handle: RePEc:nbr:nberwo:3386
Template-Type: ReDIF-Paper 1.0
Title: Ranking, Unemployment Duration, and Wages
Author-Name: Olivier Jean Blanchard
Author-Person: pbl2
Author-Name: Peter Diamond
Author-Person: pdi24
Note: EFG
Number: 3387
Creation-Date: 1990-06
Order-URL: http://www.nber.org/papers/w3387
File-URL: http://www.nber.org/papers/w3387.pdf
File-Format: application/pdf
Publication-Status: published as Review of Economic Studies, Vol. 61-3 No. 208, July 1994, pp. 417-434.
Abstract: Firms often receive multiple acceptable applications for vacancies, requiring a choice among candidates. This paper contrasts equilibria when firms select workers at random and when firms select the worker with the shortest spell of unemployment, called ranking. With the filling of vacancies unaffected by the selection rule, both equilibria have the same aggregate dynamics, but different distributions of unemployment durations. With the threat point for the Nash bargained wage being a worker with zero unemployment duration, the wage with ranking is much more sensitive to changes in the tightness of the labor market. The same holds for efficiency wages.
Handle: RePEc:nbr:nberwo:3387
Template-Type: ReDIF-Paper 1.0
Title: Should The Fed Smooth Interest Rates? The Case of Seasonal Monetary Policy
Author-Name: N. Gregory Mankiw
Author-Name: Jeffrey A. Miron
Author-Person: pmi250
Note: EFG ME ITI PE
Number: 3388
Creation-Date: 1990-06
Order-URL: http://www.nber.org/papers/w3388
File-URL: http://www.nber.org/papers/w3388.pdf
File-Format: application/pdf
Publication-Status: published as Carnegie-Rochester Conference Series on Public Policy, Vol. 34, pp. 41-69,(Spring 1991).
Abstract: This paper examines the choice of monetary policy in response to seasonal fluctuations in the economy. It discusses the costs and benefits of smoothing interest rates over the seasons, which has been the Fed's policy since its founding in 1914, and presents simulations suggesting how the economy would behave under the alternative policy of stabilizing the money stock. Finally, it presents evidence that the smoothing of interest rates in 1914 changed the seasonal business cycle.
Handle: RePEc:nbr:nberwo:3388
Template-Type: ReDIF-Paper 1.0
Title: Hot Hands in Mutual Funds: The Persistence of Performance, 1974-87
Author-Name: Darryll Hendricks
Author-Name: Jayendu Patel
Author-Name: Richard Zeckhauser
Author-Person: pze7
Note: ME
Number: 3389
Creation-Date: 1990-06
Order-URL: http://www.nber.org/papers/w3389
File-URL: http://www.nber.org/papers/w3389.pdf
File-Format: application/pdf
Publication-Status: published as "Hot Hands in Mutual Funds: Short-Run Persistence of Performance, 1974-1988 ," Journal of Finance, vol 48, no 1, March 1993, pp 93-130.
Abstract: The net returns of no-load mutual growth funds exhibit a hot-hands phenomenon during 1974-87. When performance is measured by Jensen's alpha, mutual funds that perform well in a one year evaluation period continue to generate superior performance in the following year. Underperformers also display short-run persistence. Hot hands persists in 1988 and 1989. The success of the hot hands strategy does not derive from selecting superior funds over the sample period. The timing component -- knowing when to pick which fund -- is significant. These results are robust to alternative equity portfolio benchmarks, such as those that account for firm-size effects and mean reversion in returns. Capitilizing on the hot hands phenomenon, an investor could have generated a significant, risk-adjusted excess return of 10% per year.
Handle: RePEc:nbr:nberwo:3389
Template-Type: ReDIF-Paper 1.0
Title: How Risky is the Debt in Highly Leveraged Transactions? Evidence from Public Recapitalizations
Author-Name: Steven N. Kaplan
Author-Name: Jeremy C. Stein
Author-Person: pst43
Note: ME
Number: 3390
Creation-Date: 1990-06
Order-URL: http://www.nber.org/papers/w3390
File-URL: http://www.nber.org/papers/w3390.pdf
File-Format: application/pdf
Publication-Status: published as "How Risky is the Debt in Highly Leveraged Transactions?" From Journal of Financial Economics, Vol. 27, No. 1, pp. 215-245, (October 1990).
Abstract: This paper presents estimates of the systematic risk of the debt in public leveraged recapitalizations. We calculate the systematic risk of the debt as a function of the difference between the systematic equity risk before and after the recapitalization. The increase in equity risk is surprisingly small after a recapitalization, ranging from 28% to 52% depending on the estimation method. Under the assumption that total company risk is unchanged, the implied systematic risk of the post-recapitalization debt in twelve transactions averages 0.67. Under the alternative assumption that the entire market adjusted premium in the leveraged recapitalization represents a reduction in fixed costs, the implied systematic risk of this debt averages 0.42.
Handle: RePEc:nbr:nberwo:3390
Template-Type: ReDIF-Paper 1.0
Title: The Impact of Permanent and Temporary Import Surcharges on the U.S. Trade Deficit
Author-Name: Barry Eichengreen
Author-Person: pei2
Author-Name: Lawrence H. Goulder
Note: ITI IFM
Number: 3391
Creation-Date: 1990-06
Order-URL: http://www.nber.org/papers/w3391
File-URL: http://www.nber.org/papers/w3391.pdf
File-Format: application/pdf
Publication-Status: published as Robert E. Baldwin, editor. Empirical Studies of Commercial Policy. Chicago: The University of Chicago Press, (December 1991).
Publication-Status: published as The Impact of Permanent and Temporary Import Surcharges on the US Trade Deficit, Barry Eichengreen, Lawrence H. Goulder. in Empirical Studies of Commercial Policy, Baldwin. 1991
Abstract: This paper uses analytical and simulation models to study the impact of temporary and permanent import surcharges on the U.S. balance of trade. The analytical model of a two-country, two-commodity, two-period endowment economy brings out the intersectoral and intertemporal substitution effects generated by import surcharges. This model shows that the trade balance impact of these initiatives is ambiguous in sign even under restrictive assumptions. We therefore apply a simulation model to gauge the effects under realistic values for parameters. The simulation model differs from others that have analyzed import surcharges in combining sectoral disaggregation with an integrated treatment of current and capital account transactions. The combination is made possible by the model's attention to both intra- and intertemporal aspects of household and producer decisions. Simulations are performed under different assumptions about the sources of the U.S. trade deficits and the timing of the surcharge. In each case, surcharges strengthen the trade balance in the short run but worsen subsequently. The results highlight the usefulness of analyzing the crade balance effects of commercial policies with a dynamic framework that incorporates intertemporal balance of payments constraints.
Handle: RePEc:nbr:nberwo:3391
Template-Type: ReDIF-Paper 1.0
Title: An Empirical Model of Labor Supply in the Underground Economy
Author-Name: Bernard Fortin
Author-Person: pfo64
Author-Name: Thomas Lemieux
Author-Person: ple92
Author-Name: Pierre Frechette
Note: LS
Number: 3392
Creation-Date: 1990-06
Order-URL: http://www.nber.org/papers/w3392
File-URL: http://www.nber.org/papers/w3392.pdf
File-Format: application/pdf
Publication-Status: published as American Economic Review , vol.84, no.1, pp.231-254, March 1994.
Abstract: This paper uses micro data from a random survey carried out in the region of Quebec City, Canada, to estimate a model of labor supply in the underground economy. The model assumes that the individual's gross wage rate in the regular sector is parametric while his gross labor earnings in the underground sector are a concave function of hours of work. This distinction between the two sectors is used to generate a simple separation result between preferences and the magnitude of underground labor market activities. This result implies that the individual's labor supply in the underground economy is generally a negative function of his net wage rate in the regular sector. The separation result also implies a set of restrictions on the parameters of the reduced form of the model, which are imposed using minimum distance methods of estimation. Various generalized method of moments specification tests allow us to verify the validity of these restrictions. According to our results, the marginal tax rates embodied in the Quebec tax-transfer system are an important determinant of the decision to participate in the underground sector.
Handle: RePEc:nbr:nberwo:3392
Template-Type: ReDIF-Paper 1.0
Title: The Phillips Curve Now and Then
Author-Name: Robert J. Gordon
Author-Person: pgo50
Note: EFG
Number: 3393
Creation-Date: 1990-06
Order-URL: http://www.nber.org/papers/w3393
File-URL: http://www.nber.org/papers/w3393.pdf
File-Format: application/pdf
Publication-Status: published as "Comments: The Phillips Curve Now and Then." From Growth/Productivity/Unemployment, edited by Peter Diamond, pp. 207-217. Cambridge, MA: MIT Press , 1990.
Abstract: This paper describes the development of the "triangle" model of inflation, which holds that the rate of inflation depends on inertia, demand. and supply. This model differs from most other versions of the Phillips curve by relating inflation directly to the level and rate of change of detrended real output, and by excluding wages, the unemployment rate, and any mention of "expectations." The model identifies the ultimate source of inflation as nominal GNP growth in excess of potential real output growth and implies that a policy rule that targets excess nominal GNP growth is an essential precondition to avoiding an acceleration of inflation, Any residual instability of inflation then depends on the severity of supply shocks. The textbook and econometric versions of the triangle model were developed simultaneously in the mid-1970s. Since then there have been two empirical validations for the U. S. of the model as estimated a decade ago. First, the "sacrifice" ratio of cumulative output loss relative to the decline in inflation during the business slump of the early 1980s was predicted accurately in advance. Second, the natural unemployment rate implied by the model's estimates predicted in advance the slow acceleration of inflation that occurred in began in 1987, when the unemployment rate fell below 6 percent.
Handle: RePEc:nbr:nberwo:3393
Template-Type: ReDIF-Paper 1.0
Title: The Simplest Test of Target Zone Credibility
Author-Name: Lars E.O. Svensson
Author-Person: psv2
Note: EFG
Number: 3394
Creation-Date: 1990-06
Order-URL: http://www.nber.org/papers/w3394
File-URL: http://www.nber.org/papers/w3394.pdf
File-Format: application/pdf
Publication-Status: published as Lars E. O. Svensson, 1991. "The Simplest Test of Target Zone Credibility," IMF Staff Papers, Palgrave Macmillan, vol. 38(3), pages 655-665, September.
Abstract: A credible target zone exchange rate regime with a given exchange rate band implies bounds on the amount of depreciation and appreciation of the domestic currency. This implies, for given foreign interest rates, bounds on the domestic-currency rate of return on foreign investment: a rate-of-return band for each time to maturity. Whether domestic interest rates are outside these rate-of-return bands can be used as a simple test of exchange rate credibility, under the assumption of sufficient international capital mobility. This test is applied to the Swedish target zone during February 1986-February 1990. Under the additional assumption of uncovered interest rate parity, an equivalent test is whether expected future exchange rates are outside the exchange rate band. In addition, the expected future exchange rates are used to give an estimate of the probability of future devaluations.
Handle: RePEc:nbr:nberwo:3394
Template-Type: ReDIF-Paper 1.0
Title: Externalities, Incentives, and Economic Reforms
Author-Name: Joshua Aizenman
Author-Person: pai8
Author-Name: Peter Isard
Note: ITI IFM
Number: 3395
Creation-Date: 1990-06
Order-URL: http://www.nber.org/papers/w3395
File-URL: http://www.nber.org/papers/w3395.pdf
File-Format: application/pdf
Publication-Status: published as Bulletin of Economic Research, October 1993, pp. 305-315
Abstract: The paper emphasizes the role of institutions and incentives in the presence of externalities. An economy with multiple public decision makers is likely to experience "overspending," "undertaxing," "overborrowing," and "overinflation" unless effective institutions exist for overcoming coordination failure. External financing may weaken incentives for adjustment over the longer run unless assistance is made conditional on fundamental institutional reforms. The paper also analyses reforms that strengthen incentives to provide effort. Uncertainty regarding future taxes reduces present effort and the responsiveness of output to market signals. In addition, the paper addresses the adverse effects of bank insurance and soft budget constraints.
Handle: RePEc:nbr:nberwo:3395
Template-Type: ReDIF-Paper 1.0
Title: Interdependent Pricing and Markup Behavior: An Empirical Analysis of GM, Ford and Chrysler
Author-Name: Ernst R. Berndt
Author-Name: Ann F. Friedlaender
Author-Name: Judy Shaw-Er Wang Chiang
Note: PR
Number: 3396
Creation-Date: 1990-06
Order-URL: http://www.nber.org/papers/w3396
File-URL: http://www.nber.org/papers/w3396.pdf
File-Format: application/pdf
Abstract: Our purpose in this paper is to develop and estimate a model of the US automobile industry that can be used to analyze the secular and cyclical strategic markup behavior and market structure of its three major domestic producers - - GM, Ford and Chrysler. The principal novelty in this paper is not such much in the underlying theory (we build on what Timothy Bresnahan has called the "new empirical industrial organization" literature), but rather in the actual empirical implementation of a multi-equation model sufficiently general to permit the testing of a variety of specific behavioral postulates associated with the interdependent strategic profit-maximizing behavior of GM, Ford and Chrysler. Using firm-specific annual data from 1959-83, we find that at usual levels of statistical significance, we cannot reject Cournot quantity-setting behavior, nor can we reject leader/follower quantity-setting behavior with GM as leader and Ford and Chrysler as followers; the parameter restrictions associated with leader/follower behavior are slightly more binding than those with Cournot, although the difference is not decisive. In terms of the cyclical analysis of market behavior, our most striking result is the great diversity of behavior we find among GM, Ford and Chrysler. Depending on which firm is being analyzed, there is support for the pro-cyclical "conventional wisdom" of markups (GM and Ford), as well as for the counter-cyclical "revisionist" literature (Chrysler). Diversity, rather than constancy and homogeneity, best characterizes firms in this industry.
Handle: RePEc:nbr:nberwo:3396
Template-Type: ReDIF-Paper 1.0
Title: Why Doesn't Society Minimize Central Bank Secrecy?
Author-Name: Karen K. Lewis
Author-Person: ple1119
Note: ITI IFM
Number: 3397
Creation-Date: 1990-07
Order-URL: http://www.nber.org/papers/w3397
File-URL: http://www.nber.org/papers/w3397.pdf
File-Format: application/pdf
Publication-Status: published as Economic Inquiry, Vol. 29, (1991).pp/ 403-415
Abstract: Societies have incentives to design institutions that allow central bank secrecy. This paper illustrates these incentives in two ways. First, if society tries to constrain secrecy in one way, central bankers will try to regain lost effectiveness by building up secrecy in other ways. Therefore, we may wind up accepting types of secrecy that appear preventable because reducing them would lead to higher costs. Second, if the social trade-offs between policy objectives change over time, the public may directly prefer greater central bank secrecy so that it will be surprised with expansionary policies when it most desires them.
Handle: RePEc:nbr:nberwo:3397
Template-Type: ReDIF-Paper 1.0
Title: Occasional Interventions to Target Rates with a Foreign Exchange Application
Author-Name: Karen K. Lewis
Author-Person: ple1119
Note: ITI IFM
Number: 3398
Creation-Date: 1990-07
Order-URL: http://www.nber.org/papers/w3398
File-URL: http://www.nber.org/papers/w3398.pdf
File-Format: application/pdf
Publication-Status: published as American Economic Review, Volume 85, 1995, "Occasional Interventions to Target Rates, September, pp.691-715.
Abstract: This paper develops a framework for analyzing the effects upon rates when occasional central bank interventions try to keep rates near target levels. Interestingly, the threat of capital gains or losses induced by this stochastic intervention policy helps contain rates within implicit boundaries around the target level. More importantly, this intervention policy concentrates observations of the exchange rate around the target level and away from the implicit bands. In Monte Carlo simulations, sufficiently tight distributions for intervention around the target level imply that the bands are never reached in practice. As an application, the model is empirically evaluated using exchange rate and intervention observations following the 1987 Louvre accord. In these estimates, the probability of intervention never exceeds more than about .5 while the range of observed exchange rates remain far away from the implicit bands where the probability of intervention is one.
Handle: RePEc:nbr:nberwo:3398
Template-Type: ReDIF-Paper 1.0
Title: Sanctions
Author-Name: Jonathan Eaton
Author-Person: pea5
Author-Name: Maxim Engers
Note: ITI IFM
Number: 3399
Creation-Date: 1990-07
Order-URL: http://www.nber.org/papers/w3399
File-URL: http://www.nber.org/papers/w3399.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Political Economy Volume 100, No. 5, pp. 899-928 October 1992
Abstract: Sanctions are measures that one party (the sender) takes to influence the actions of another (the target). Sanctions, or the threat of sanctions, have been used, for example, by creditors to get a foreign sovereign to repay debt or by one government to influence the human rights, trade, or foreign policies of another government. Sanctions can harm the sender as well as the target. The credibility of such sanctions is thus at issue. We examine, in a game-theoretic framework, whether sanctions that harm both parties enable the sender to extract concessions. We find that they can, and that their thrust alone can suffice when they are contingent on the target's subsequent behavior. Even when sanctions are not used in equilibrium, however, how much compliance they can extract typically depends upon the coats that they would impose on each party.
Handle: RePEc:nbr:nberwo:3399
Template-Type: ReDIF-Paper 1.0
Title: Asymmetric Information and Financial Crises: A Historical Perspective
Author-Name: Frederic S. Mishkin
Author-Person: pmi37
Note: EFG ME
Number: 3400
Creation-Date: 1990-07
Order-URL: http://www.nber.org/papers/w3400
File-URL: http://www.nber.org/papers/w3400.pdf
File-Format: application/pdf
Publication-Status: published as Financial Markets and Financial Crises, edited by R. Glenn Hubbard, pp. 69- 108. Chicago: The University of Chicago Press, 1991.
Publication-Status: published as Asymmetric Information and Financial Crises: A Historical Perspective, Frederic S. Mishkin. in Financial Markets and Financial Crises, Hubbard. 1991
Abstract: This paper examines the nature of financial crises from a historical perspective using the new and burgeoning literature on asymmetric information and financial structure. After describing how this literature helps to understand the nature of financial crises, the paper focuses on a historical examination of a series of financial crises in the United States, beginning with the panic of 1857 and ending with the stock market crash of October 19,1987. The asymmetric information approach explains the patterns in the data and many features of these crises which are otherwise hard to explain. It also suggests why financial crises have had such important consequences for the aggregate economy over the past one hundred and fifty years.
Handle: RePEc:nbr:nberwo:3400
Template-Type: ReDIF-Paper 1.0
Title: Capital Positions of Japanese Banks
Author-Name: Edward J. Kane
Author-Person: pka853
Author-Name: Haluk Unal
Author-Person: pun48
Author-Name: Asli Demirguc-Kunt
Author-Person: pde226
Note: ME
Number: 3401
Creation-Date: 1990-07
Order-URL: http://www.nber.org/papers/w3401
File-URL: http://www.nber.org/papers/w3401.pdf
File-Format: application/pdf
Publication-Status: published as Edward J. Kane & Haluk Unal & Asli Demirgüç-Kunt, 1990. "Capital positions of Japanese banks," Proceedings, Federal Reserve Bank of Chicago, pages 509-535.
Publication-Status: published as Rhee, S.G. and R.P. Chang (eds.) Pacific-Basin Capital Markets Research, Volume II. Amsterdam: Elsevier Science Publishers B.V., 1991.
Abstract: This paper measures and analyzes two types of hidden capital at Japanese banks: (1) the net undervaluation present in accounting measures of on-balance-sheet assets and liabilities and (2) the net economic value of off-balance-sheet items. A model is constructed that explains changes in both types of capital as functions of holding that explains changes in both types of capital as functions of holding-period returns earned in Japan on stocks, bonds, yen, and real estate. The model is applied to annual data covering 1975-1989 and a four-class size/charter partition of the Japanese banking system. For each type of hidden capital and each class of bank, the model develops estimates of the stock-market, interest-rate, foreign-exchange, and real estate sensitivities of returns to bank stockholders. Only the stock-market sensitivities prove significant at five percent. This finding leads us to investigate what happens when we analyze Japanese bank stock returns by means of stationary and split-sample market models. Timeseries regressions show that very large Japanese banks have developed stockmarket betas in excess of two and that the value of a bank's beta has come to increase with measures of its size and accounting leverage. Future research will investigate the sensibility of our results to different ways of pooling data from individual banks and to more-sophisticated methods for estimating various parameters. We also plan to extend the analysis by imbedding it in a model of how variations in bank-customer contracting arrangements in Japan affect the returns that can be earned by bank stockholders.
Handle: RePEc:nbr:nberwo:3401
Template-Type: ReDIF-Paper 1.0
Title: The Consumption of Stockholders and Non-Stockholders
Author-Name: N. Gregory Mankiw
Author-Name: Stephen P. Zeldes
Note: EFG ME ITI PE
Number: 3402
Creation-Date: 1990-07
Order-URL: http://www.nber.org/papers/w3402
File-URL: http://www.nber.org/papers/w3402.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Financial Economics, Vol. 27, pp. 97-112, (1991).
Abstract: Only one-fourth of U.S. families own stock. This paper examines whether the consumption of stockholders differs from the consumption of non-stockholders and whether these differences help explain the empirical failures of the consumption-based CAPM. Household panel data are used to construct time series on the consumption of each group. The results indicate that the consumption of stockholders is more volatile than that of non-stockholders and is more highly correlated with the excess return on the stock market. These differences help explain the size of the equity premium, although they do not fully resolve the equity premium puzzle.
Handle: RePEc:nbr:nberwo:3402
Template-Type: ReDIF-Paper 1.0
Title: Precautionary Saving and the Marginal Propensity to Consume
Author-Name: Miles S. Kimball
Author-Person: pki97
Note: ME
Number: 3403
Creation-Date: 1990-07
Order-URL: http://www.nber.org/papers/w3403
File-URL: http://www.nber.org/papers/w3403.pdf
File-Format: application/pdf
Publication-Status: published as With N. Gregory Mankiw, published as "Precautionary Saving and the Timingof Taxes", JPE, Vol. 97, no. 4 (1989): 863-879.
Abstract: The marginal propensity to consume out of wealth is important for evaluating the effects of taxation on consumption, assessing the possibility of multiple equilibria due to aggregate demand spillovers, and explaining observed variations in consumption. It is also a component of the interest elasticity of consumption and the risk aversion of the value function which gives the expected present value of utility as a function of wealth. This paper analyzes the effect of uncertainty on the marginal propensity to consume within the context of the Permanent Income Hypothesis. Given plausible conditions on the utility function, income risk is found to raise the marginal propensity to consume out of wealth in a multiperiod model with many risky securities. The marginal investment portfolio for additions to wealth is also characterized.
Handle: RePEc:nbr:nberwo:3403
Template-Type: ReDIF-Paper 1.0
Title: U.S. Demographics and Saving: Predictions of Three Saving Models
Author-Name: Alan J. Auerbach
Author-Person: pau33
Author-Name: Jinyong Cai
Author-Name: Laurence J. Kotlikoff
Author-Person: pko44
Note: PE
Number: 3404
Creation-Date: 1990-07
Order-URL: http://www.nber.org/papers/w3404
File-URL: http://www.nber.org/papers/w3404.pdf
File-Format: application/pdf
Publication-Status: published as Carnegie-Rochester Conference Series on Public Policy, Vol. 34, pp. 135-156 , (Spring 1991).
Abstract: This paper compares the predictions of three different saving models with respect to the impact of projected U.S. demographic change on future U.S. saving rates. The three models are the life cycle model, the infinite horizon altruism model, and a reduced form econometric model. The findings for the different models indicate a great range of possible paths of future U.S. saving. However, the three models concur in predicting a peak in the U.S. national saving rate in the near future (within 15 years), followed by a significant decline in the saving rate thereafter. In fact, the findings suggest the strong possibility of negative U.S. saving rates beginning after 2030.
Handle: RePEc:nbr:nberwo:3404
Template-Type: ReDIF-Paper 1.0
Title: Tax Aspects of Policy Towards Aging Populations: Canada and the United States
Author-Name: Alan J. Auerbach
Author-Person: pau33
Author-Name: Laurence J. Kotlikoff
Author-Person: pko44
Note: PE
Number: 3405
Creation-Date: 1990-07
Order-URL: http://www.nber.org/papers/w3405
File-URL: http://www.nber.org/papers/w3405.pdf
File-Format: application/pdf
Publication-Status: published as Canada and US Tax Comparisons, Eds. John Shoven and Joh Whalley, UCP 1992pp. 255-273
Abstract: This paper uses the Auerbach-Kotlikoff Dynamic Simulation Model to compare the projected demographic transitions in Canada and the United States. The simulation model determines the perfect foresight transition path of an economy in which individuals live to age 75. The model's preferences are life cycle augmented to include utility from bequests. In addition to handling changes in demographics and fiscal policies, the model can be run for closed or open economies. In comparing Canada with the U.S., we first simulate the U.S. demographic transition, treating the U.S. as a closed economy. The time path of interest rates obtained from the U.S. simulations are then used in the Canadian simulations. In the Canada simulations, Canada is assumed to be an open economy which takes the U.S. interest rate as given. The simulations indicate that demographics are likely to have significant effects on rates of saving and taxation in both the U.S. and Canada. However, the more abrupt demographic transition in Canada combined with the projected maturation of Canadian social security system leads to a more severe predicted long term decline in Canadian saving rates. Despite the predicted lower saving rates, capital deepening is likely to occur in both countries, and the associated increase in real wages is likely to more than offset projected higher tax rates, leaving the growth-adjusted welfare of future generations higher than that of current generations.
Handle: RePEc:nbr:nberwo:3405
Template-Type: ReDIF-Paper 1.0
Title: P* Type Models: Evaluation and Forecasts
Author-Name: Rowena A. Pecchenino
Author-Name: Robert H. Rasche
Author-Person: pra180
Note: ME
Number: 3406
Creation-Date: 1990-08
Order-URL: http://www.nber.org/papers/w3406
File-URL: http://www.nber.org/papers/w3406.pdf
File-Format: application/pdf
Publication-Status: published as International Journal of Forecasting. Volume 6, pp. 421-440, 1990.
Abstract: This paper critically evaluates the Federal Reserve's p* model of inflation, and develops a model of national income determination implicit in the p* formulation. We use this model to forecast the future paths of key macroeconomic variables and investigate its behavior under a variety of deterministic monetary policy rules. These forecasts and policy simulations suggest a dynamic economic behavior inconsistent with stylized facts, and lead us to question the underlying structure of the p* formulation.
Handle: RePEc:nbr:nberwo:3406
Template-Type: ReDIF-Paper 1.0
Title: Views on the Likelihood of Financial Crisis
Author-Name: Benjamin M. Friedman
Note: ME
Number: 3407
Creation-Date: 1990-08
Order-URL: http://www.nber.org/papers/w3407
File-URL: http://www.nber.org/papers/w3407.pdf
File-Format: application/pdf
Publication-Status: published as The Risk of Economic Crisis, edited by Martin Feldstein, pp. 19-43. Chicago: The University of Chicago Press, 1991.
Abstract: A review of major lines of thinking about developments in the 1980s bearing on the likelihood of a financial crisis in the United States supports four principal conclusions:
First, financial crises have historically played a major role in large fluctuations in business activity. A financial crisis has occurred either just prior to, or at the inception of, each of the half dozen or so most severe recorded declines in U.S. economic activity. Second, the proclivity 6f private borrowers to take on debt since 1980 has been extraordinary by postwar standards. Among business corporations, much of the proceeds of this surge in debt issuance has gone to pay down equity (either the borrower's or another company's) rather than to put in place new earning assets. Third, the rate at which U.S. businesses have gone bankrupt and defaulted on their liabilities has also been far out of line with any prior experience since the 1930's. The business failure rate not only rose to a postwar record level during the 1981-82 recession but -- in contradiction to prior cyclical patterns -- continued to rise through the first four years of the ensuing recovery. Fourth, the largest U.S. banks' exposure to debt issued in the course of leveraged buy-outs or other transactions substituting debt for equity capitalization now exceeds their risk-adjusted capital, even with all bank assets (including loans to developing countries) counted at book value. Although this exposure is not (yet) as large as that due to banks' LDC loans, the two sets of risks are not independent.
If these trends of the 1980s together comprise an increase in the economy's financial fragility, they increase the likelihood that the government -- including, but not limited to, the Federal Reserve System -- will have to act in its capacity as lender of last resort, and also the likely magnitude of lender-of-last-resort action should such be necessary. If the exercise of this responsibility does become necessary, doing so in a fashion consistent with other Federal Reserve objectives, like maintaining price stability, will be problematic to say the least.
Handle: RePEc:nbr:nberwo:3407
Template-Type: ReDIF-Paper 1.0
Title: The Resurgence of Inventory Research: What Have We Learned?
Author-Name: Alan S. Blinder
Author-Person: pbl41
Author-Name: Louis J. Maccini
Author-Person: pma554
Note: EFG
Number: 3408
Creation-Date: 1990-08
Order-URL: http://www.nber.org/papers/w3408
File-URL: http://www.nber.org/papers/w3408.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Economic Surveys, Vol.5, No.4, 1991.
Abstract: Recent empirical and theoretical research on business inventories is surveyed and critically evaluated. While most inventory research has had macroeconomic motivations, we focus on its microtheoretic basis and on potential conflicts between theory and evidence. The paper asks two principal questions. First, how can inventories, which are allegedly used by firms to stabilize production, nonetheless be a destabilizing factor at the macroeconomic level? Second, why, if firms are following the production-smoothing model, is production more variable than sales in many industries? We suggest that the so-called (S,s) model may help answer both questions.
Handle: RePEc:nbr:nberwo:3408
Template-Type: ReDIF-Paper 1.0
Title: Jobfinding and Wages when Longrun Unemployment is Really Long: The Case of Spain
Author-Name: Alfonso Alba-Ramirez
Author-Name: Richard B. Freeman
Author-Person: pfr23
Note: LS
Number: 3409
Creation-Date: 1990-08
Order-URL: http://www.nber.org/papers/w3409
File-URL: http://www.nber.org/papers/w3409.pdf
File-Format: application/pdf
Publication-Status: Published as "Self-Employment in the Midst of Unemployment: The Case of Spain and the United States", AE, Vol. 26, no. 3 (1994): 189-204.
Abstract: This paper uses the "Encuesta de Condiciones de Vida Y Trabajo" (EGVT) -- a survey of the labor force activity of over 61,000 persons in Spain in 1985 when unemployment exceeded 20%--to examine the effect of unemployment insurance (UI) and family status on long-run joblessness. It finds that (1) duration of joblessness is some 30' longer for those eligible for UI benefits than for those ineligible for UI; (2) the long-term unemployed are disproportionately secondary workers for whom the family serves as a form of welfare; (3) hazard rates linking the chances of job finding to duration of unemployment in the 1981-85 period of massive joblessness did not decline with duration; (4) the length of unemployment spells reduces wages moderately but has huge effect on the probability that re-employed workers take secondary sector jobs; (5) the UI eligible earn more and are more likely to gain regular full-time jobs than those ineligible for UI, congruent with the additional months of job search associated with UI. The estimated effects of duration on the hazard and on earnings are consistent with the implications of labor supply and search analysis but not with the view that long unemployment spells create a class of unemployables. Our results imply a sizeable reduction in long-term unemployment with economic recovery.
Handle: RePEc:nbr:nberwo:3409
Template-Type: ReDIF-Paper 1.0
Title: Relaxing the External Constraint: Europe in the 1930s
Author-Name: Barry Eichengreen
Author-Person: pei2
Note: ITI IFM
Number: 3410
Creation-Date: 1990-08
Order-URL: http://www.nber.org/papers/w3410
File-URL: http://www.nber.org/papers/w3410.pdf
File-Format: application/pdf
Publication-Status: published as George Alogosfousis, Lucas Papademos and Richard Portes, eds., External Constrints on Macroeconomic Performance. Cambridge, 1991.
Abstract: This paper documents the effects of exchange rates and the external constraint during the interwar years. In the absence of international policy coordination, exchange rate depreciation is shown to have been a necessary precondition for the adoption of policies promoting recovery from the Great Depression. But currency depreciation was not without costs. It increased the variability of nominal exchange rates and rendered them increasingly difficult to predict. Increased variability and uncertainty about nominal exchange rates carried over to short-term changes in real exchange rates as well. Thus, exchange rate variability appears to have introduced additional noise into the operation of the price mechanism.
Handle: RePEc:nbr:nberwo:3410
Template-Type: ReDIF-Paper 1.0
Title: Trends and Cycles in Foreign Lending
Author-Name: Barry Eichengreen
Author-Person: pei2
Note: ITI IFM
Number: 3411
Creation-Date: 1990-08
Order-URL: http://www.nber.org/papers/w3411
File-URL: http://www.nber.org/papers/w3411.pdf
File-Format: application/pdf
Publication-Status: published as Capital Flows and the World Economy Horst Siebert ed., Kiel: World Institute of Economics, 1992.
Abstract: Over the past century, the world economy has passed through a succession of phases characterized by very different levels of international capital flows. This paper asks what accounts for these dramatic shifts in the extent of capital movements across national borders, Three categories of explanation are considered. The first emphasizes the policy regime, attributing the unusual extent of capital flows prior to 1914 to the operation of the international gold standard. The second focuses on the stages-of-indebtedness sometimes thought to characterize the process of economic development. The third ascribes changes in the extent of capital flows to the boom-and-bust cycles through which international capital markets are thought to pass. Though each approach contributes something to our understanding of the phenomenon, none is totally satisfactory. I therefore suggest an alternative explanation, which lays stress on the increase in the magnitude of real interest rate and reel exchange race variability char has occurred over the last 100 years.
Handle: RePEc:nbr:nberwo:3411
Template-Type: ReDIF-Paper 1.0
Title: Foreign Firms and Export Performance in Developing Countries: Lessons from the Debt Crisis
Author-Name: Magnus Blomstrom
Author-Person: pbl88
Author-Name: Robert E. Lipsey
Author-Person: pli259
Note: ITI IFM
Number: 3412
Creation-Date: 1990-08
Order-URL: http://www.nber.org/papers/w3412
File-URL: http://www.nber.org/papers/w3412.pdf
File-Format: application/pdf
Publication-Status: published as Gote Hansson, ed., Trade, Growth and Development: The Role of Politics and Institutions, London and New York, Routledge, 1993"Foreign Firms and Structural Adjustment in Latin America: Lessons from the Debt Crisis"
Abstract: This paper compares U.S.-owned affiliates with other firms in developing countries with respect to the shifts in sales from home to export markets in response to the debt crisis of the early 1980s. The U.S. affiliates in heavily indebted countries increased their exports and the share of their production exported more rapidly than other firms did after 1982, while affiliates in less indebted countries did neither. However, a large part of the shift in sales by affiliates in the heavily indebted countries involved sharp reductions in local sales, often larger than the growth in exports.
Handle: RePEc:nbr:nberwo:3412
Template-Type: ReDIF-Paper 1.0
Title: Human Capital, Product Quality, And Growth
Author-Name: Nancy L. Stokey
Note: EFG
Number: 3413
Creation-Date: 1990-08
Order-URL: http://www.nber.org/papers/w3413
File-URL: http://www.nber.org/papers/w3413.pdf
File-Format: application/pdf
Publication-Status: published as Quarterly Journal of Economics, Vol. 106, no. 2 (1991): 587-616.
Abstract: A growth model is developed in which finite-lived individuals invest in human capital, and investments have a positive external effect on the human capital of later cohorts. Heterogeneous labor is the only factor of production, and higher-quality labor produces higher-quality goods. Stationary growth paths, along which human capital and the quality of consumption goods grow at a common, constant rate, are studied. It is also shown that if a small economy is very advanced or very backward relative to the rest of the world, then its rate of investment in human capital is lower under free trade than under autarky.
Handle: RePEc:nbr:nberwo:3413
Template-Type: ReDIF-Paper 1.0
Title: Human Capital, Fertility, and Economic Growth
Author-Name: Gary S. Becker
Author-Name: Kevin M. Murphy
Author-Person: pmu108
Author-Name: Robert F. Tamura
Author-Person: pta173
Note: EFG
Number: 3414
Creation-Date: 1990-08
Order-URL: http://www.nber.org/papers/w3414
File-URL: http://www.nber.org/papers/w3414.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Political Economy, vol. 98, no. 5, pages S12-37 (October 1990).
Publication-Status: published as Human Capital, Fertility, and Economic Growth, Gary S. Becker, Kevin M. Murphy, Robert Tamura. in Human Capital: A Theoretical and Empirical Analysis with Special Reference to Education, Third Edition, Becker. 1994
Abstract: Our model of growth departs from both the Malthusian and neoclassical approaches by including investments in human capital. We assume, crucially, that rates of return on human capital investments rise, rather than, decline, as the stock of human capital increases, until the stock becomes large. This arises because the education sector uses human capital note intensively than either the capital producing sector of the goods producing sector. This produces multiple steady scares: an undeveloped steady stare with little human capital, low rates of return on human capital investments and high fertility, and a developed steady stats with higher rates of return a large, and, perhaps, growing stock of human capital and low fertility. Multiple steady states mean that history and luck are critical determinants of a country's growth experience.
Handle: RePEc:nbr:nberwo:3414
Template-Type: ReDIF-Paper 1.0
Title: The Continued Interest Rate Vulnerability of Thrifts
Author-Name: Patric H. Hendershott
Author-Name: James D. Shilling
Note: ME
Number: 3415
Creation-Date: 1990-08
Order-URL: http://www.nber.org/papers/w3415
File-URL: http://www.nber.org/papers/w3415.pdf
File-Format: application/pdf
Publication-Status: published as Financial Crises, Hubbard, editor. Chicago: University of Chicago Press, 1992,pp. 259-282.
Publication-Status: published as The Continued Interest-Rate Vulnerability of Thrifts, Patric H. Hendershott, James D. Shilling. in Financial Markets and Financial Crises, Hubbard. 1991
Abstract: The 1980s S&L debacle is generally viewed as the result of: (1) sharply rising interest rates eliminating the net worth of thrifts funding fixed-rate loans with short-term deposits and (2) thrifts responding by taking even greater interest-rate and credit risks. The question investigated in this paper is how vulnerable do thrifts remain to an interest rate experience like that which triggered the 1980s S&L debacle? The short answer is that thrifts are even more vulnerable in 1989 than they were in 1977. The dollar volume of fixed-rate mortgages funded by short-term deposits in 1989, $400 billion, is slightly greater now than it was in 1977, and thrifts have also put over $325 billion of adjustable-rate loans with rate caps on their balance sheets. A sharp rise in interest rates (the one-year Treasury rate rose by 9 percentage points between 1977 and 1981) would cause significant losses on these capped loans, as well as on the fixed-rate loans.
Handle: RePEc:nbr:nberwo:3415
Template-Type: ReDIF-Paper 1.0
Title: Can Capital Income Taxes Survive in Open Economies?
Author-Name: Roger H. Gordon
Author-Person: pgo95
Note: PE
Number: 3416
Creation-Date: 1990-08
Order-URL: http://www.nber.org/papers/w3416
File-URL: http://www.nber.org/papers/w3416.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Finance Vol. 47,. No. 3, pp. 1159-1180 July 1992
Abstract: Recent theoretical work has argued that a small open economy should use residence-based but not source-based taxes on capital income. Given the ease with which residents can evade domestic taxes on foreign earnings from capital, however, a residence-based tax may not be administratively feasible, leaving no taxes on capital income. The objective of this paper is to explore possible reasons why capital income taxes have survived in the past, in spite of the above pressures. Any bilateral approach, such as sharing of information among governments or direct coordination of tax rates, suffers from the problem that the coalition of countries is itself a small open economy, so subject to the same pressures. Capital controls, preventing capital outflows, may well be a sensible policy response and were in fact used by a number of countries. Such controls have many drawbacks, however, and a number of countries are now abandoning them. The final hypothesis explored is that the tax-crediting conventions, used to prevent the double taxation of international capital flows, served also to coordinate tax rates. The paper shows that while no Nash equilibrium in tax rates exists, given these tax-crediting conventions, a Stackelberg equilibrium does exist if there is either a dominant capital exporter or a dominant capital importer, in spite of the ease of tax evasion. While the U.S. , as the dominant capital exporter during much of the postwar period, may well have served as this Stackelberg leader, world capital markets are now more complicated. These tax-crediting conventions may no longer be sufficient to sustain capital-income taxation.
Handle: RePEc:nbr:nberwo:3416
Template-Type: ReDIF-Paper 1.0
Title: An Experimental Comparison of Dispute Rates in Alternative Arbitration Systems
Author-Name: Orley Ashenfelter
Author-Person: pas9
Author-Name: Janet Currie
Author-Person: pcu13
Author-Name: Henry S. Farber
Author-Name: Matthew Spiegel
Note: LS
Number: 3417
Creation-Date: 1990-08
Order-URL: http://www.nber.org/papers/w3417
File-URL: http://www.nber.org/papers/w3417.pdf
File-Format: application/pdf
Publication-Status: published as Econometrica, vol. 60, no. 6 (November 1992) pp. 1407-1433.
Abstract: This paper reports the results of a systematic experimental comparison of the effect of alternative arbitration systems on dispute rates. The key to our experimental design is the use of a common underlying distribution of arbitrator "fair" awards in the different arbitration systems. This allows us to compare dispute rates across different arbitration procedures where we hold fixed the amount of objective underlying uncertainty about the arbitration awards. There are three main findings. First, dispute rates are inversely related to the monetary costs of disputes. Dispute rates were much lower in cases where arbitration was not available so that the entire pie was lost in the event of dispute. Second, contrary to conventional wisdom, the dispute rate in a final-offer arbitration system is at least as high as the dispute rate in comparable conventional arbitration system. Third, dispute rates are inversely related to the uncertainty costs of disputes. Dispute rates were lower in conventional arbitration treatments where the variance of the arbitration award was higher and imposed greater costs on risk-averse negotiators. Our results can also be interpreted as providing tentative evidence that the negotiators were risk-averse on average.
Handle: RePEc:nbr:nberwo:3417
Template-Type: ReDIF-Paper 1.0
Title: Target Zones with Limited Reserves
Author-Name: Paul Krugman
Author-Person: pkr10
Author-Name: Julio Rotemberg
Author-Person: pro30
Note: ITI IFM
Number: 3418
Creation-Date: 1990-08
Order-URL: http://www.nber.org/papers/w3418
File-URL: http://www.nber.org/papers/w3418.pdf
File-Format: application/pdf
Abstract: Like a fixed exchange rate, a target zone system may be subject to speculative attacks when the reserves of the central bank are limited. This paper analyzes such speculative attacks and their implications; it shows that the recently developed "smooth pasting" model of target zones should be viewed as a special case that emerges only when reserves are sufficiently large. The paper then uses the target zone framework to resolve a seeming paradox in predicting speculative attacks on a gold standard, arguing that such a standard may best be viewed as the boundary between one-sided target zones.
Handle: RePEc:nbr:nberwo:3418
Template-Type: ReDIF-Paper 1.0
Title: Economic Growth and Convergence across The United States
Author-Name: Robert J. Barro
Author-Person: pba251
Author-Name: Xavier Sala-i-Martin
Author-Person: psa510
Note: EFG
Number: 3419
Creation-Date: 1990-08
Order-URL: http://www.nber.org/papers/w3419
File-URL: http://www.nber.org/papers/w3419.pdf
File-Format: application/pdf
Publication-Status: Published as "Unanticipated Money, Output, and the Price Level in the United States", Journal of Political Economy, Vol. 86, no. 4 (1978): 549- 580.
Abstract: A key economic issue is whether poor countries or regions tend to grow faster than rich ones: are there automatic forces that lead to convergence over time in levels of per capita income and product? After considering predictions of closed- and open-economy neoclassical growth theories, we examine data since 1840 from the U.S. states. We find clear evidence of convergence, but the findings can be reconciled quantitatively with neoclassical models only if diminishing returns to capital set in very slowly. The results from a broad sample of countries are similar if we hold constant a set of variables that proxy for differences in steady-state characteristics. Two types of existing theories seem to fit the facts: the neoclassical growth model with broadly-defined capital and a limited role for diminishing returns, and endogenous growth models with constant returns and gradual diffusion of technology across economies.
Handle: RePEc:nbr:nberwo:3419
Template-Type: ReDIF-Paper 1.0
Title: Aging and Labor Force Participation: A Review of Trends and Explanations
Author-Name: David A. Wise
Author-Person: pwi45
Author-Name: Robin L. Lumsdaine
Note: AG
Number: 3420
Creation-Date: 1990-08
Order-URL: http://www.nber.org/papers/w3420
File-URL: http://www.nber.org/papers/w3420.pdf
File-Format: application/pdf
Publication-Status: published as Aging in the United States and Japan, ed. Yukio Noguchiand David Wise, eds., University of Chicago Press, 1994.
Publication-Status: published as Aging and Labor Force Participation: A Review of Trends and Explanations, Robin L. Lumsdaine, David A. Wise. in Aging in the United States and Japan: Economic Trends, Noguchi and Wise. 1994
Abstract: The American population is aging rapidly. Persons 65 and over who now constitute about one-fifth of the population will constitute about two-fifths of the population by 2040. In addition, individuals are living longer. Yet the labor force participation of older Americans has fallen dramatically in recent years. This paper discusses this trend and the principal arguments put forth to explain it. The paper is in two parts. The first part reviews trends in labor force participation and associated trends in Social Security (SS) coverage, firm pension plan coverage, and other factors that are likely to be associated with the labor force participation trends, including demographics. The second part of the paper discusses the incentive effects of SS and retirement plans, with emphasis on firm pension plans.
Handle: RePEc:nbr:nberwo:3420
Template-Type: ReDIF-Paper 1.0
Title: Ex-Day Behavior of Japanese Stock Prices: New Insights from New Methodology
Author-Name: Fumio Hayashi
Author-Person: pha83
Author-Name: Ravi Jagannathan
Author-Person: pja91
Note: PE
Number: 3421
Creation-Date: 1990-08
Order-URL: http://www.nber.org/papers/w3421
File-URL: http://www.nber.org/papers/w3421.pdf
File-Format: application/pdf
Publication-Status: published as Journal of the Japanese and International Economies, 4(3): 401-427, December 1990.
Abstract: We study the ex-dividend day behavior of Japanese stock prices for the period 1983-87. We find that, contrary to previous findings, prices of ex-day stocks drop by nearly the full amount of the dividend. However, ex-day stocks shows an abnormal return. Also, for the many ex-dividend day stocks that also go ex-rights on the same ex-day, we find that the return is on average higher than that for stocks without rights issues. We thus conclude that the ex-day behavior of Japanese stocks are qualitatively similar to that of U. S. stocks.
Handle: RePEc:nbr:nberwo:3421
Template-Type: ReDIF-Paper 1.0
Title: Fertility Timing, Wages, and Human Capital
Author-Name: McKinley L. Blackburn
Author-Person: pbl77
Author-Name: David E. Bloom
Author-Person: pbl79
Note: LS
Number: 3422
Creation-Date: 1990-08
Order-URL: http://www.nber.org/papers/w3422
File-URL: http://www.nber.org/papers/w3422.pdf
File-Format: application/pdf
Publication-Status: published as Blackburn, McKinley L & Bloom, David E & Neumark, David, 1993. "Fertility Timing, Wages, and Human Capital," Journal of Population Economics, Springer, vol. 6(1), pages 1-30.
Abstract: Women who have first births relatively late in life earn higher wages. This paper offers an explanation of this fact based on a staple life-cycle model of human capital investment and timing of first birth. The model yields conditions (that are plausibly satisfied) under which late childbearers will tend to invest more heavily in human capital than early childbearers. The empirical analysis finds results consistent with the higher wages of late childbearers arising primarily through greater measurable human capital investment.
Handle: RePEc:nbr:nberwo:3422
Template-Type: ReDIF-Paper 1.0
Title: Immigrant Participation in the Welfare System
Author-Name: George J. Borjas
Author-Person: pbo44
Author-Name: Stephen J. Trejo
Author-Person: ptr78
Note: LS
Number: 3423
Creation-Date: 1990-08
Order-URL: http://www.nber.org/papers/w3423
File-URL: http://www.nber.org/papers/w3423.pdf
File-Format: application/pdf
Publication-Status: published as George J. Borjas & Stephen J. Trejo, 1991. "Immigrant Participation in the Welfare System," ILR Review, Cornell University, ILR School, vol. 44(2), pages 195-211, January.
Abstract: This paper presents an empirical analysis of immigrant participation in the welfare system using the 1970 and 1980 U.S. Censuses. The availability of two cross-sections allows for identification of cohort and assimilation effects. The data indicate that recent immigrant cohorts use the welfare system more intensively than earlier cohorts. In addition, the longer an immigrant household has been in the United States, the more likely it is to receive welfare. The analysis also suggests that a single factor, the changing national origin mix of the immigrant flow, accounts for much of the increase in welfare participation rates across successive immigrant waves.
Handle: RePEc:nbr:nberwo:3423
Template-Type: ReDIF-Paper 1.0
Title: Sovereign Debt, Reputation, and Credit Terms
Author-Name: Jonathan Eaton
Author-Person: pea5
Note: ITI IFM
Number: 3424
Creation-Date: 1990-08
Order-URL: http://www.nber.org/papers/w3424
File-URL: http://www.nber.org/papers/w3424.pdf
File-Format: application/pdf
Publication-Status: published as International Journal of Finance and Economics, Vol. 1, No. 1, pp.25-35 (January 1996).
Abstract: I develop a model in which sovereign debtors repay debt in order to maintain a reputation for repayment. Repayment gives creditors reason to think that the debtor will suffer adverse consequences if it defaults, so they continue to lend. I compare a situation in which competitive lenders earn a zero profit on each loan with one in which they can make long-term commitments to individual borrowers, so that the zero-profit condition applies only in the long run. In many circumstances a borrower benefits, ex ante, if lenders commit to denying credit to a borrower in default even if at that point a subsequent loan is profitable. Furthermore, a "debt overhang," while possibly altering credit terms, does not cause profitable investment opportunities to go unexploited.
Handle: RePEc:nbr:nberwo:3424
Template-Type: ReDIF-Paper 1.0
Title: Modeling American Marriage Patterns
Author-Name: David E. Bloom
Author-Person: pbl79
Author-Name: Neil G. Bennett
Number: 3425
Creation-Date: 1990-08
Order-URL: http://www.nber.org/papers/w3425
File-URL: http://www.nber.org/papers/w3425.pdf
File-Format: application/pdf
Publication-Status: published as Journal of the American Statistical Association, Vol 85, No. 412, December 1990.
Abstract: This paper investigates the application of the three-parameter, Coale-McNeil marriage model and some related hyper-parameterized specifications to data on the first marriage patterns of American women. Because the model is parametric, it can be used to estimate the parameters of the marriage process, free of censoring bias, for cohorts that have yet to complete their first marriage experience. Empirical evidence from three surveys is reported on the ability of the model to replicate and project observed marriage behavior. The results indicate that the model can be a useful tool for analyzing cohort marriage data and that recent cohorts are showing relatively strong proclivities to both delay and forego marriage. Consistent with earlier work, the results also indicate that education is a powerful covariate of the timing of first marriage and that race is a powerful covariate of its incidence.
Handle: RePEc:nbr:nberwo:3425
Template-Type: ReDIF-Paper 1.0
Title: Did J.P. Morgan's Men Add Value? A Historical Perspective on Financial Capitalism
Author-Name: J. Bradford De Long
Note: ME
Number: 3426
Creation-Date: 1990-08
Order-URL: http://www.nber.org/papers/w3426
File-URL: http://www.nber.org/papers/w3426.pdf
File-Format: application/pdf
Publication-Status: published as "Did J.P. Morgan's Men Add Value? An Economist's Perspective on Financial Capitalism." Peter Temin, editor. Inside the Business Enterprise: Historical Perspectives on the Use of Information. Chicago: The University of Chicago Press, November 1991, pp. 205-249.
Publication-Status: published as Did J. P. Morgan's Men Add Value? An Economist's Perspective on Financial Capitalism, J. Bradford DeLong. in Inside the Business Enterprise: Historical Perspectives on the Use of Information, Temin. 1991
Abstract: The pre-WWI period saw the heyday of "financial capitalism" in the United States: the concentration of securities issues in the hands of a few investment bankers which had substantial representation on corporate boards of directors. This form of organization had costs: it created a conflict of interest that allowed investment bankers to heavily tax operating corporations. It also had benefits: investment banker representation on boards allowed bankers to monitor the performance of firm managers, quickly replace mangers whose performance was unsatisfactory, and signal to ultimate investors that a company was well managed and fundamentally sound. The presence on one's board of directors of a partner in J.P Morgan and Co. was associated with a rise of perhaps 30 percent in common stock equity value. Some share of the increase in value almost surely arose because investment banker representation on the boards of competing companies aided the formation of oligopoly. But the development of similar institutions in other countries that like the Gilded Age U.S. experienced exceptionally rapid economic growth-Germany and Japan are the most prominent examples-suggests that a substantial share of value added may have arisen because "financial capitalism" improved the functioning of financial markets as social capital allocation mechanisms.
Handle: RePEc:nbr:nberwo:3426
Template-Type: ReDIF-Paper 1.0
Title: Univariate vs. Multivariate Forecasts of GNP Growth and Stock Returns: Evidence and Implications for the Persistence of Shocks, Detrending Methods
Author-Name: John H. Cochrane
Author-Person: pco57
Note: EFG
Number: 3427
Creation-Date: 1990-09
Order-URL: http://www.nber.org/papers/w3427
File-URL: http://www.nber.org/papers/w3427.pdf
File-Format: application/pdf
Publication-Status: published as "Permanent and Transitory Components of GNP and Stock Prices," Quarterly Journal of Economics, pp. 241-265 (February 1994).
Abstract: Lagged GNP growth rates are poor forecasts of future GNP growth rates in postwar US data, leading to the impression that GNP is nearly a random walk. However, other variables, and especially the lagged consumption/GNP ratio, do forecast long-horizon GNP growth, and show that GNP has temporary components. Labor income and stock prices (using the dividend/price ratio) display the same behavior. This paper documents these facts and examines their implications for the persistence of shocks to GNP and time-variation in expected stock returns. I find that GNP has an almost entirely transitory response to a GNP shock that holds consumption constant. This is intuitive: if consumption does not change, permanent income did not change, so the change in GNP should be transitory. Similarly, a stock price shock that holds dividends constant suggests a discount rate change, and prices display a large transitory movement in response to this shock. The paper also examines implications of transitory variations in GNP and labor income for methods of extracting stochastic trends or "cyclically adjusting" GNP, and for explaining "excess smoothness" violations of the permanent income hypothesis.
Handle: RePEc:nbr:nberwo:3427
Template-Type: ReDIF-Paper 1.0
Title: Medical Malpractice: An Empirical Examination of the Litigation Process
Author-Name: Henry S. Farber
Author-Name: Michelle J. White
Author-Person: pwh52
Note: LS
Number: 3428
Creation-Date: 1990-09
Order-URL: http://www.nber.org/papers/w3428
File-URL: http://www.nber.org/papers/w3428.pdf
File-Format: application/pdf
Publication-Status: published as Rand Journal of Economics, Vol. 22, Summer 1991, pp. 199-217.
Abstract: New data on medical malpractice claims against a single hospital where a direct measure of the quality of medical care is available are used to address 1) the specific question of the role of the negligence rule in the dispute settlement process in medical malpractice, and 2) the general question of how the process of negotiation and dispute resolution in medical malpractice operates with regard to both the behavior of the parties and the outcome of the process. We find that the quality of medical care is an extremely important determinant of deferdants' medical malpractice liability. More generally, we find that the data are consistent with a model where 1) the plaintiff is not well informed ex ante about the likelinood of negligence and 2) the ex ante expected value to the plaintiff of a suit is high relative to the costs of filing a suit and getting more information. Thus, suits are filed even where there is no concrete reason to believe there has been negligence, and virtually all suits are either dropped or settled based on the information gained after filing. We conclude that the filing of suits that appear, ex post, to be nuisance suits can be rational eguilibrium behavior, ex ante, where there is incomplete information about care quality.
Handle: RePEc:nbr:nberwo:3428
Template-Type: ReDIF-Paper 1.0
Title: Enforcement Costs and the Optimal Magnitude and Probability of Fines
Author-Name: A. Mitchell Polinsky
Author-Person: ppo94
Author-Name: Steven Shavell
Author-Person: psh42
Note: LS
Number: 3429
Creation-Date: 1990-09
Order-URL: http://www.nber.org/papers/w3429
File-URL: http://www.nber.org/papers/w3429.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Law and Economics, Vol. 35, No. 1, (April 1992), pp.133-148
Abstract: Some of the costs of enforcing laws are fixed" - - in the sense that they do not depend on the number of individuals who commit harmful acts- -while other costs are "variable"- - they rise with the number of such individuals. This article analyzes the effects of fixed and variable enforcement costs on the optimal fine and the optimal probability of detection. It is shown that the optimal fine rises to reflect variable enforcement costs; that the optimal fine is not directly affected by fixed enforcement costs; and that the optimal probability depends on both types of enforcement costs.
Handle: RePEc:nbr:nberwo:3429
Template-Type: ReDIF-Paper 1.0
Title: Measuring Ignorance in the Market: A New Method with an Application to Physician Services
Author-Name: Martin Gaynor
Author-Person: pga1
Author-Name: Solomon Polachek
Note: EH
Number: 3430
Creation-Date: 1990-09
Order-URL: http://www.nber.org/papers/w3430
File-URL: http://www.nber.org/papers/w3430.pdf
File-Format: application/pdf
Publication-Status: published as Southern Economic Journal, Volume 60(4), April 1994, pp. 815-831
Abstract: Ever since Stigler's seminal piece on the economics of information, a great deal of research has been done investigating equilibrium in markets with imperfect information. While most of this research has been concerned with theoretically establishing the conditions under which there exists a distribution of prices in equilibrium, there is a small, but growing, body of empirical research in this area. This work has followed the suggestion of Stigler and utilized the dispersion of prices (usually the variance) as a measure of ignorance about price. There are two disadvantages to using the variance (or another measure of dispersion, such as the range) of prices as a measure of ignorance about price. The first reason, recognized by Stigler and others, is that price can vary for many reasons other than ignorance. Thus dispersion is not a pure measure of ignorance about prices. The second reason, which has not been commonly considered in the empirical literature, is that price dispersion can due to ignorance on the part of both buyers and of sellers. In this paper we propose a method for measuring ignorance about price in a market which builds on Stigler's original suggestion to use dispersion as a measure of ignorance. The innovation is to use a new frontier estimation technique containing a three component error term to separate observed price dispersion into purely random variation, variation due to buyer ignorance, and variation due to seller ignorance . We apply the technique to the physicians' service market. This supplies us with quantitative indices of price ignorance for different services and how the level of ignorance varies by buyer, seller, and market area characteristics. The results are striking. Buyer ignorance exceeds seller ignorance by roughly a factor of two in his market, and this gap is greater for services which are less frequently purchased, more heavily insured, or accompanied by greater severity of illness, as predicted by search theory.
Handle: RePEc:nbr:nberwo:3430
Template-Type: ReDIF-Paper 1.0
Title: A Theory of Corporate Financial Structure Based on the Seniority of Claims
Author-Name: Oliver Hart
Author-Person: pha222
Author-Name: John Moore
Author-Person: pmo265
Note: EFG
Number: 3431
Creation-Date: 1990-09
Order-URL: http://www.nber.org/papers/w3431
File-URL: http://www.nber.org/papers/w3431.pdf
File-Format: application/pdf
Publication-Status: published as (New Title) Debt and Senority: An Analysis of the Role of Hard Claims in Constraining Management. American Economic Review, Vol. 85, no. 3 (June 1995): 567-585.
Abstract: We develop a theory of optimal capital structure based on the idea that debt and equity differ in their priority status relative to future corporate cash pants. A company with high (dispersed) debt will find it hard to raise new capital since new security-holders will have low priority relative to existing senior creditors. Conversely for a company with low debt. We show that there is an optimal debt-equity ratio and mix of senior and junior debt for a corporation whose management may undertake unprofitable as well as profitable investments. Among other things, our theory can explain the observation that profitable firms have low debt. In addition, it predicts that (long-term) debt will be high if new investment is risky and on average profitable, or if assets in place are risky an new investment is on average unprofitable.
Handle: RePEc:nbr:nberwo:3431
Template-Type: ReDIF-Paper 1.0
Title: Real Business Cycle Theory: Wisdom or Whimsy?
Author-Name: Martin Eichenbaum
Author-Person: pei4
Note: EFG
Number: 3432
Creation-Date: 1990-09
Order-URL: http://www.nber.org/papers/w3432
File-URL: http://www.nber.org/papers/w3432.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Economic Dynamics and Control Vol. 15, No. 4, pp. 607-626, October 1991
Abstract: This paper assesses the empirical plausibility of the view that aggregate productivity shocks account for most of the variability in post World War II US output. We argue that the type of evidence forwarded by proponents of this proposition is too fragile to be believable. First, our confidence in the evidence is fundamentally affected once we abandon the fiction that we actually know the true values of the structural parameters of standard Real Business Cycle (RBC) models. What the data are telling us is that, while productivity shocks play some role in generating the business cycle, there is simply an enormous amount of uncertainty about just what percent of aggregate fluctuations they actually do account for. The answer could be 70% as Kydland and Prescott (1989) claim, but the data contain almost no evidence against either the view that the answer is really 5% or that the answer is really 200%. Second, we show that point estimates of the importance of technology shocks are extremely sensitive to small perturbations in the theory. Allowing for labor hoarding behavior in an otherwise standard RBC model reduces the ability of technology shocks to account for aggregate fluctuations by 50%. This finding provides some support for the view that many of the movements in the Solow residual which are labelled as productivity shocks may be an artifact of labor hoarding type phenomena.
Handle: RePEc:nbr:nberwo:3432
Template-Type: ReDIF-Paper 1.0
Title: Technological Change and the Careers of Older Workers
Author-Name: Ann P. Bartel
Author-Name: Nachum Sicherman
Note: LS
Number: 3433
Creation-Date: 1990-09
Order-URL: http://www.nber.org/papers/w3433
File-URL: http://www.nber.org/papers/w3433.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Labor Economics, Vol. 11, No. 1, Part 1, pp. 162-183 (1993).
Abstract: Recent research has shown that technological change has important labor market implications and in this paper we demonstrate one on the avenues through which this occurs. According to the theory of human capital, technological chanqe will influence the retirement decisions of older workers in two ways. First, workers in industries that are characterized by high rates of technological chanqe will have later retirement ages because these industries require larger amounts of on-the-job training. Second, an unexpected change in the industry's rate of technological change will induce older workers to retire sooner because the required amount of retraining will be an unattractive investment. We matched time-series data on rates of technological change and required amounts of training in 35 industrial sectors with data from the NLS Older Men Survey to test these hypotheses. Our results strongly support both hypotheses.
Handle: RePEc:nbr:nberwo:3433
Template-Type: ReDIF-Paper 1.0
Title: Tax Policy and the Dividend Puzzle
Author-Name: B. Douglas Bernheim
Author-Person: pbe81
Note: PE
Number: 3434
Creation-Date: 1990-09
Order-URL: http://www.nber.org/papers/w3434
File-URL: http://www.nber.org/papers/w3434.pdf
File-Format: application/pdf
Publication-Status: published as Rand Journal of Economics, Volume 22, No. 4, pp. 455-476, Winter 1991.
Abstract: This paper offers a new explanation of the dividend puzzle, based upon a model in which firms attempt to signal profitability by distrubuting cash to shareholders. I assume that dividends and repurchases are identical, except that dividends are taxed more heavily. Nevertheless, I demonstrate that, under certain plausible conditions, corporations will pay dividends. Indeed, some firms will actually pay dividends, and then retrieve a portion of these payments by issuing new equity (perhaps through a dividend reinvestment plan), despite the fact that this appears to create gratuitous tax liabilities. In addition to providing an explanation for the dividend puzzle, I also derive a number of strong results concerning corporate payout decisions and government tax policy. Some of these results are surprising. For example, the relationship between repurchases and firm quality is hump-shaped. Moreover, despite the fact that a higher dividend tax rate depresses dividend payments, it does not affect either government revenue or welfare.
Handle: RePEc:nbr:nberwo:3434
Template-Type: ReDIF-Paper 1.0
Title: The Role of Banks in Reducing the Costs of Financial Distress in Japan
Author-Name: Takeo Hoshi
Author-Person: pho107
Author-Name: Anil Kashyap
Author-Person: pka35
Author-Name: David Scharfstein
Author-Person: psc177
Note: ME
Number: 3435
Creation-Date: 1990-09
Order-URL: http://www.nber.org/papers/w3435
File-URL: http://www.nber.org/papers/w3435.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Financial Economics Volume 27 1990, pp. 67-88 September 1990
Abstract: This paper explores the idea that financial distress is costly because free-rider problems and information asymmetries make it difficult for firms to renegotiate with their creditors in times of distress. We present evidence consistent with this view by showing Japanese firms with financial structures in which free-rider and information problems are likely to be small perform better than other firms in industrial groups-those with close financial relationships to their banks, suppliers, and customers-invest more and sell more after the onset of distress than non-qroup firms. Moreover, firms that are not group members, but nevertheless have strong ties to a main bank also invest and sell more than firms without strong bank ties.
Handle: RePEc:nbr:nberwo:3435
Template-Type: ReDIF-Paper 1.0
Title: Patterns of Aging in Thailand and Cote D'Ivoire
Author-Name: Angus Deaton
Author-Person: pde30
Author-Name: Christina H. Paxson
Author-Person: ppa335
Note: AG
Number: 3436
Creation-Date: 1990-09
Order-URL: http://www.nber.org/papers/w3436
File-URL: http://www.nber.org/papers/w3436.pdf
File-Format: application/pdf
Publication-Status: published as David A. Wise, editor. Topics in the Economics of Aging. Chicago: The University of Chicago Press, pp. 163-206, April 1992.
Publication-Status: published as Patterns of Aging in Thailand and Cote d'Ivoire, Angus S. Deaton, Christina Paxson. in Topics in the Economics of Aging, Wise. 1992
Abstract: This paper is broadly concerned with the living standards of older people in two contrasting developing countries, Cote d'Ivoire and Thailand. We use a series of household surveys from these two countries to present evidence on factors affecting the living standards of the elderly: living arrangements, labor force participation, illness, urbanization, income and consumption. One of the issues we examine is whether life-cycle patterns of income aid consumption can be detected in the data. The fact that few of the elderly live alone makes it difficult to accurately measure the welfare levels of the elderly, or to make statements about the life-cycle patterns of income aid consumption of individuals. We find that labor force participation and individual income patterns follow the standard life-cycle hump shapes in both countries, but that avenge living standards within households are quite flat over the life-cycle. The data presented suggest that changes in family composition aid living arrangements of the elderly are likely to be more important sources of old-age insurance than asset accumulation.
Handle: RePEc:nbr:nberwo:3436
Template-Type: ReDIF-Paper 1.0
Title: Disability Transfers and the Labor Force Attachment of Older Men: Evidence from the Historical Record
Author-Name: John Bound
Author-Person: pbo406
Note: AG LS
Number: 3437
Creation-Date: 1990-09
Order-URL: http://www.nber.org/papers/w3437
File-URL: http://www.nber.org/papers/w3437.pdf
File-Format: application/pdf
Publication-Status: published as Quarterly Journal of Economics, 107: 1395-1419, November 1992
Abstract: In this paper we use trends in self-reported disability from the late forties through the late eighties to gauge the impact of the growth of income maintenance for the disabled on the labor force attachment of older working-aged men. Under the assumption that the actual health of these men has not changed, we can use the trends in self-reported disability to make inferences about the disincentive effects of disability transfers. Our tabulations suggest that, for the post World War II period, earlier accommodation of health problems accounts for between two and three-fifths of the 4.9 percentage point drop in the labor force participation of men aged 45-54 and between one-quarter and one-third of the 19.9 percentage point drop among men aged 55-64. since not all of this earlier accommodation can necessarily be causally attributed to the expansion of disability programs, these figures should be interpreted as upper bounds on the impact of such programs on the work force attachment of older men.
Handle: RePEc:nbr:nberwo:3437
Template-Type: ReDIF-Paper 1.0
Title: Participation Dynamics: Sunspots and Cycles
Author-Name: Satyajit Chatterjee
Author-Person: pch34
Author-Name: Russell Cooper
Author-Name: B. Ravikumar
Note: EFG
Number: 3438
Creation-Date: 1990-09
Order-URL: http://www.nber.org/papers/w3438
File-URL: http://www.nber.org/papers/w3438.pdf
File-Format: application/pdf
Publication-Status: published as "Strategic Complementarity in Business Formation: Aggregate Fluctuations and Sunspot Equilibria" Review of Economic Studies, Vol. 60, pp. 795-811 (1993).
Abstract: This paper investigates the possibility of sunspots equilibria and endogenous cycles in an overlapping generations model with strategic interactions. We consider an economy with imperfectly competitive product markets. There is a participation decision on the part of prospective firms and a strategic complementarity emerges from the interaction of firms in their entry decisions both over time and across sectors. When these complementarities are sufficiently strong, multiple steady state equilibria will exist. Sunspot equilibria can then be constructed as randomizations in the neighborhood of these steady states. We relate the properties of our sunspot equilibria to aggregate fluctuations, with particular emphasis on the dynamics of entry and exit. We also show that if intratemporal strategic interactions are sufficiently strong, then cycles may exist. Additional sunspot equilibria can be found in the neighborhood of these cycles. Finally, we show that if inter temporal linkages are sufficiently strong, cycles will not exist.
Handle: RePEc:nbr:nberwo:3438
Template-Type: ReDIF-Paper 1.0
Title: On The Behavior of Commodity Prices
Author-Name: Angus Deaton
Author-Person: pde30
Author-Name: Guy Laroque
Author-Person: pla208
Note: EFG
Number: 3439
Creation-Date: 1990-09
Order-URL: http://www.nber.org/papers/w3439
File-URL: http://www.nber.org/papers/w3439.pdf
File-Format: application/pdf
Publication-Status: published as Review of Economic Studies, vol. 59, pp. 1-23 (1992)
Abstract: The classical theory of commodity price determination integrates myopic supply and demand on the one hand with competitive storage (speculation) under rational expectations on the other. Taking into account the fact that inventories mist; be non-negative, this paper derives from the theory testable implications on the behavior of prices, and makes a first attempt to confront these implications with the empirical evidence. The nonlinearities turn out to be a crucial ingredient in matching the stylized facts, particularity the asymmetries and the sharp upward flares that characterize many commodity prices. The model, simple as it is, goes a long way in reproducing the main features of the data for a range of commodities.
Handle: RePEc:nbr:nberwo:3439
Template-Type: ReDIF-Paper 1.0
Title: Monetary Contracting Between Central Banks and the Design of SustainableExchange-Rate Zones
Author-Name: Francisco Delgado
Author-Name: Bernard Dumas
Author-Person: pdu519
Note: LS
Number: 3440
Creation-Date: 1990-09
Order-URL: http://www.nber.org/papers/w3440
File-URL: http://www.nber.org/papers/w3440.pdf
File-Format: application/pdf
Publication-Status: published as Journal of International Economics, Vol. 34, pp. 201-224 (1993).
Abstract: An exchange-rate system is a set of contracts which commits central banks to intervene in the foreign-exchange market. The design features of the system include: the rules of intervention, the limits placed on exchange rates and the "crisis scenario" which describes possible transitions to new regimes in case one central bank runs out of reserves or borrowing capacity. This paper considers the various trade-offs one faces in designing an exchange-rate system. Svensson (1989) has already analyzed the degree of variability in the exchange rate, the interest rate and the fundamentals. But the tradeoff also pertains to the amount of reserves which the central banks must have on hand in order to forestall a speculative attack and make the system sustainable. The amount of reserves needed depends crucially on the assured crisis scenario.
Handle: RePEc:nbr:nberwo:3440
Template-Type: ReDIF-Paper 1.0
Title: Does Competition Between Currencies Lead to Price Level and Exchange Rate Stability?
Author-Name: Michael Woodford
Author-Person: pwo3
Note: ITI IFM
Number: 3441
Creation-Date: 1990-09
Order-URL: http://www.nber.org/papers/w3441
File-URL: http://www.nber.org/papers/w3441.pdf
File-Format: application/pdf
Publication-Status: published as A. Giovannini and C. Mayer, eds., European Financial Integration, Cambridge Cambridge University Press, 1991
Abstract: Over the past century, the world economy has passed through a succession of phases characterized by very different levels of international capital flows. This paper asks what accounts for these dramatic shifts in the extent of capital movements across national borders, three categories of explanation are considered. The first emphasizes the policy regime - attributing the unusual extent of capital flows prior to 1914 to the operation of the international gold standard, The second focuses on the stages-of-indebtedness sometimes thought to characterize the process of economic development. The third ascribes changes in the extent of capital flows to the boom-and-bust cycles through which international capital markets are thought to pass. Though each approach contributes something to our understanding of the phenomenon, none is totally satisfactory. I therefore suggest an alternative explanation, which lays stress on the increase in the magnitude of real interest rate and reel exchange race variability that has occurred over the last 100 years.
Handle: RePEc:nbr:nberwo:3441
Template-Type: ReDIF-Paper 1.0
Title: Measures of Prices and Price Competitiveness in International Trade in Manufactured Goods
Author-Name: Robert E. Lipsey
Author-Person: pli259
Author-Name: Linda Molinari
Author-Name: Irving B. Kravis
Note: ITI IFM
Number: 3442
Creation-Date: 1990-09
Order-URL: http://www.nber.org/papers/w3442
File-URL: http://www.nber.org/papers/w3442.pdf
File-Format: application/pdf
Publication-Status: published as International Economic Transactions: Issues in Measurement and Empirical Research, edited by Peter Hooper and J. David Richardson, pp. 144-195. Chicago: The University of Chicago Press, 1991.
Publication-Status: published as Measures of Prices and Price Competitiveness in International Trade in Manufactured Goods, Robert E. Lipsey, Linda Molinari, Irving B. Kravis. in International Economic Transactions: Issues in Measurement and Empirical Research, Hooper and Richardson. 1991
Abstract: The purpose of this paper is to present, and to explain the construction of, a set of price indexes relating to international trade in manufactured goods. These include: 1. Indexes of export prices for the U.S., Germany, and Japan, based on their weights, and indexes of competitors' prices for each of those countries based on the sane set of weights; 2. Indexes of domestic prices for the U. S., Germany, and Japan based on export weights; 3. Indexes for developed country exports of manufactures based on weights of developed country exports of manufactures to developing countries and of total developed country exports of manufactures, and indexes for exports of the U.S., Germany, and Japan on the sane sets of weights. The indexes for developed country exports make use of a method for estimating missing prices that takes account not only of contemporaneous price changes in the same country within the sane community groups, but also of price changes for the particular commodity in other countries. Comparisons are made between movements of domestic and export prices and between price indexes based on weights of early and late base years. In addition, an attempt is made to correct the price indexes for changes in the quality of some manufactured goods not usually taken account of in measures of export or import prices.
Handle: RePEc:nbr:nberwo:3442
Template-Type: ReDIF-Paper 1.0
Title: Capital Controls, Collection Costs, and Domestic Public Debt
Author-Name: Joshua Aizenman
Author-Person: pai8
Author-Name: Pablo E. Guidotti
Note: ITI IFM
Number: 3443
Creation-Date: 1990-09
Order-URL: http://www.nber.org/papers/w3443
File-URL: http://www.nber.org/papers/w3443.pdf
File-Format: application/pdf
Publication-Status: published as Journal of International Money and Finance, Vol. 13, no. 1, pp. 41-54, (February 1994).
Abstract: The implications of a large public debt for the implementation of capital controls for an economy where tax revenue collection is costly are examined. Conditions are analyzed under which policymakers will resort to capital controls to reduce the cost of recycling domestic public debt. The linkages between a costly tax collection mechanism, capital controls, am domestic government debt are explored in terms of a two-period m:x1el of optimal taxation. Numerical simulations are provided to illustrate haw capital controls are linked to different domestic public debt levels am to different degrees of efficiency in tax-revenue collection.
Handle: RePEc:nbr:nberwo:3443
Template-Type: ReDIF-Paper 1.0
Title: Employment and Earnings of Disadvantaged Young Men in a Labor Shortage Economy
Author-Name: Richard B. Freeman
Author-Person: pfr23
Note: LS
Number: 3444
Creation-Date: 1990-09
Order-URL: http://www.nber.org/papers/w3444
File-URL: http://www.nber.org/papers/w3444.pdf
File-Format: application/pdf
Publication-Status: published as Jencks, Christopher and Paul E. Peterson (eds.) The Urban Underclass. Washington DC: Brookings Institution, 1991.
Abstract: This study contrasts the economic position of youths across local labor markets that differ in their rates of unemployment using the annual merged files of the Current Population Survey and the National Longitudinal Survey of Youth. The paper finds: (1) Local labor market shortages raise the employment-population rate arid reduce the unemployment rate of disadvantaged youths by substantial amounts. (2) Shortages also raise the hourly earnings of disadvantaged youths. In the 19805 the earnings gains for youths in tight labor markets offset the deterioration in the real and relative earnings of the less skilled that marked this decade. (3) Youths in labor shortage areas had greeter increases in earnings as they aged than youths in other areas, implying that improved labor market conditions raise the longitudinal earnings profiles as well as the starting prospects of youths. These findings show that despite the social pathologies that plague disadvantaged youths, particularly less educated black youths, arid the 1980s twist in the American labor market against the less skilled, tight labor markets still operated to substantially improve their economic position.
Handle: RePEc:nbr:nberwo:3444
Template-Type: ReDIF-Paper 1.0
Title: Career Plans and Expectations of Young Women and Men: The Earnings Gap and Labor Force Participation
Author-Name: Francine D. Blau
Author-Person: pbl16
Note: LS
Number: 3445
Creation-Date: 1990-09
Order-URL: http://www.nber.org/papers/w3445
File-URL: http://www.nber.org/papers/w3445.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Human Resources, Fall 1991.
Abstract: Using detailed information on the career plans and earnings expectations of college business school seniors, we test the hypothesis that women who plan to work intermittently choose jobs with lower rewards to work experience in return for lower penalties for labor force interruptions. We find that while men and women expect similar starting salaries, women anticipate considerably lower earnings in subsequent years, even under the assumption of continuous employment after leaving school. While it is also true that women in the sample plan to work fewer years than men, these differences do not explain the observed gender differences in expected earnings profiles. We also find no evidence that gender differences in expected earnings have any effect on the number of years these women plan to be in the labor market.
Handle: RePEc:nbr:nberwo:3445
Template-Type: ReDIF-Paper 1.0
Title: Assuming The Can Opener: Hedonic Wage Estimates and the Value of Life
Author-Name: William T. Dickens
Note: LS
Number: 3446
Creation-Date: 1990-09
Order-URL: http://www.nber.org/papers/w3446
File-URL: http://www.nber.org/papers/w3446.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Forensic Economics, Vol. III, No. 3, pp. 51-60, Fall, 1990.
Abstract: Although intuitively appealing, the use of hedonic wage estimates to determine people's willingness to pay to avoid the risk of fatal hazards is fraught with problems. The theoretical basis for such estimates are flawed in a number of important ways. The underlying behavioral model is wrong, there is imperfect information about job hazards, and labor markets do not look like the perfectly competitive model on which the theory depends for its conclusions. Further, there are many serious problems with the techniques used to estimate hedonic wage equations. This paper describes these problems. Not surprisingly, these problems result in a wide range of results with respect to willingness to pay to avoid fatal hazards. It is argued that this wide range of results is not fully apparent in the literature because of the bias in publication towards positive as opposed to negative findings. The paper concludes that it is unlikely that economics has much to contribute to the public policy debate over the value of a life.
Handle: RePEc:nbr:nberwo:3446
Template-Type: ReDIF-Paper 1.0
Title: Women's Work, Women's Lives: A Comparative Economic Perspective
Author-Name: Francine D. Blau
Author-Person: pbl16
Author-Name: Marianne A. Ferber
Note: LS
Number: 3447
Creation-Date: 1990-09
Order-URL: http://www.nber.org/papers/w3447
File-URL: http://www.nber.org/papers/w3447.pdf
File-Format: application/pdf
Publication-Status: published as Hilda Kahne and Janet Giele, editors. Continuing Struggle: Women's Lives and Women's Work in Modernizing and Industrial Countries. Boulder, CO: Westview Press, 1992, 28-46.
Abstract: This chapter provides a broad overview of women's economic status in all parts of the world, with special emphasis on their position relative to men. Large differences are found among countries and regions in the size of the gender gap with respect to such measures as labor force participation, occupational segregation, earnings, education, and to a some what lesser degree the amount of time spent on housework. Two generalizations, however, hold. Women have not achieved full equality anywhere, but particularly in the advanced industrialized countries for which data on the relevant variables are more readily available, there is evidence of a reduction of gender differences in economic roles and outcomes.
Handle: RePEc:nbr:nberwo:3447
Template-Type: ReDIF-Paper 1.0
Title: A Sorting Model of Labor Contracts: Implications for Layoffs and Wage-Tenure Profiles
Author-Name: Andrew Weiss
Author-Name: Ruqu Wang
Note: LS
Number: 3448
Creation-Date: 1990-09
Order-URL: http://www.nber.org/papers/w3448
File-URL: http://www.nber.org/papers/w3448.pdf
File-Format: application/pdf
Publication-Status: Published as "Probation, Layoffs, and Wage-Tenure Profiles: A Sorting Explanation", LABECON, Vol. 5, no. 5 (September 1998): 359-383.
Abstract: This paper analyzes a sorting model of labor contracts when workers have private information about their own productivities, and firms can test (monitor) workers. We show that sorting considerations alone generate steep wage-tenure profiles, high turnover rates of newly hired workers, and mandatory retirement rules. We find that if test results are only informative to the testing firm, and hiring is costless, then all workers that fail the test are fired. When hiring is costly, we derive conditions under which the firm retains sane (or all) workers that fail its test. We also derive conditions under which the firm tests sane, but not all, of its workers. In the second part of this paper, we consider the case when there are no hiring costs and there are many identical firms competing for the good type workers. we characterize the optimal contracts am show that competition for workers can lower total output. This is because competition can induce firms to increase the proportion of their workers that they test, rot it the test is costly, this lowers output. Finally, we show that because a mandated minimum wage affects the probability of a firm testing its worker's, an increase in the minimum wage can increase (or decrease) aggregate output.
Handle: RePEc:nbr:nberwo:3448
Template-Type: ReDIF-Paper 1.0
Title: Human Resource Management Systems and the Performance of U.S. Manufacturing Businesses
Author-Name: Casey Ichniowski
Note: LS
Number: 3449
Creation-Date: 1990-09
Order-URL: http://www.nber.org/papers/w3449
File-URL: http://www.nber.org/papers/w3449.pdf
File-Format: application/pdf
Publication-Status: published as With Kathryn Shaw and Giovanna Prennushi, published as "The Effects of Human Resource Management Practices on Productivity: A Study of Steel Finishing Lines", AER (1997).
Abstract: This paper estimates the effects of systems of human resource management policies on the performance of U.S. manufacturing businesses. OLS results for labor productivity and Tobin's q models both reveal that nonunion businesses that employ a human resource management system with flexible job design, formal training, and workplace communication mechanisms have the highest levels of economic performance. Nonunion businesses with ''Union-style" human resource management systems involving grievance procedures, seniority-based promotions, and no flexible job design exhibit significantly lower levels of performance statistical models are unable to determine whether the more "progressive" human resource management system stimulates economic performance or whether this system is the appropriate choice for better performing businesses. Still, the positive :relationship between performance and this human resource management system suggests that this system will be more common in the future. In contrast, the "union-style" system appears to be a thing of the past. It is confined to unionized businesses in declining industries and very old nonunion businesses with low levels of economic performance.
Handle: RePEc:nbr:nberwo:3449
Template-Type: ReDIF-Paper 1.0
Title: The Seasonal Cycle in U.S. Manufacturing
Author-Name: J. Joseph Beaulieu
Author-Name: Jeffrey A. Miron
Author-Person: pmi250
Note: EFG
Number: 3450
Creation-Date: 1990-09
Order-URL: http://www.nber.org/papers/w3450
File-URL: http://www.nber.org/papers/w3450.pdf
File-Format: application/pdf
Publication-Status: published as Economics Letters, vol. 37, no. 2, p. 115-118 (October 1991).
Abstract: This paper examines the seasonal cycle in the manufacturing sector of the U.S. economy. we present estimates of the seasonal patterns in monthly data for 2-digit industries, and we demonstrate the similarity of the seasonal cycle and the business cycle in manufacturing with respect to several key stylized facts about business cycles. The results are an important addition to those in Barsky and Miron (1989) because the monthly data for manufacturing display interesting seasonal fluctuations that are hidden in the quarterly data examined by Barsky and Miron. The most significant is a sharp slowdown in July followed by a significant rebound in August. We argue that this event is not easily explained by technology or preference shifts but instead results from synergies across economic agents.
Handle: RePEc:nbr:nberwo:3450
Template-Type: ReDIF-Paper 1.0
Title: Do Stationary Risk Premia Explain It All? Evidence from the Term Struct
Author-Name: Martin D. Evans
Author-Person: pev5
Author-Name: Karen K. Lewis
Author-Person: ple1119
Note: ME
Number: 3451
Creation-Date: 1990-09
Order-URL: http://www.nber.org/papers/w3451
File-URL: http://www.nber.org/papers/w3451.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Monetary Economics, vol.33, 1994 April
Abstract: Most studies of the expectations theory of the term structure reject the model. However, the significance of the rejections depend strongly upon the form of the test. In this paper, we use the pattern of rejection across maturities to back out the implied behavior of time-varying risk premia and/or market forecasts. We then use a new technique to test whether stationary risk premia alone can be responsible for these rejections. Surprisirj1y, this test is rejected for short maturities up to 6 months, suggesting that time-varying risk premia do not explain it all. We also describe hew this method can be used to test other asset pricing relationships.
Handle: RePEc:nbr:nberwo:3451
Template-Type: ReDIF-Paper 1.0
Title: Fundamental Value and Market Value
Author-Name: William C. Brainard
Author-Name: Matthew D. Shapiro
Author-Person: psh144
Author-Name: John B. Shoven
Note: ME
Number: 3452
Creation-Date: 1990-09
Order-URL: http://www.nber.org/papers/w3452
File-URL: http://www.nber.org/papers/w3452.pdf
File-Format: application/pdf
Publication-Status: published as Money, Macroeconomics, and Economics Policy: Essays in Honor of James Tobin , W.C. Brainard, W.D. Nordhaus, and H.W. Watts, eds. Cambridge, M.I.T. Press, 1991.
Abstract: Much of James Tobin's professional life has been devoted to studying the interrelationship between the goods and financial markets. His general equilibrium approaches stresses the interaction of the demand for financial assets with the decision to accumulate productive capital. His emphasis on q, the ratio of market value of assets to their replacement cost, has shaped how students of the aggregate economy understand the link between the stock market and fixed investment. This paper examines the empirical linkage between fundamental returns on physical corporate assets and market return on financial claims on those assets. It defines the fundamental return as real cash flow divided by replacement cost. It examines whether the market return on individual firms respond more to aggregate shocks to the fundamental return or to the market return itself. It then examines whether aggregate market risk or aggregate fundamental risk is priced. Although market risk is priced, the paper does find that fundamental risk is an important factor in explaining risk premia.
Handle: RePEc:nbr:nberwo:3452
Template-Type: ReDIF-Paper 1.0
Title: Popular Attitudes Towards Free Markets: The Soviet Union and the United States Compared
Author-Name: Robert J. Shiller
Author-Person: psh69
Author-Name: Maxim Boycko
Author-Name: Vladimir Korobov
Note: ME
Number: 3453
Creation-Date: 1990-09
Order-URL: http://www.nber.org/papers/w3453
File-URL: http://www.nber.org/papers/w3453.pdf
File-Format: application/pdf
Publication-Status: published as The American Economic Review, Vol. 81, No. 3, pp. 385-400, (June 1991).
Abstract: Random samples of the Moscow' and New York populations were compared in their attitudes towards free markets by administering identical telephone interviews in the two countries in May, 1990. Although the Soviet respondents were somewhat less likely to accept exchange of money as a solution to personal problems, and their attitudes towards business were less warm, we found that the Soviet and American respondents were basically similar in most dimensions. Soviets showed no difference from Americans on their feelings that price increases may be unfair. There appears to be little difference between the Soviets and Americans in their concern with income inequality, in their belief in the importance of providing material incentives for hard work, and in their understanding of the workings of markets.
Handle: RePEc:nbr:nberwo:3453
Template-Type: ReDIF-Paper 1.0
Title: The Dynamic Efficiency Cost of Not taxing Housing
Author-Name: Jonathan Skinner
Author-Person: psk23
Note: PE
Number: 3454
Creation-Date: 1990-09
Order-URL: http://www.nber.org/papers/w3454
File-URL: http://www.nber.org/papers/w3454.pdf
File-Format: application/pdf
Publication-Status: published as The Journal of Public Economics, 59 (1996) 397-417.
Abstract: Housing assets comprise nearly one-third of household wealth rot effectively escape income taxation. When housing is included in the life cycle model, the capital income tax is shown to be far more distortionary than previously thought. The reason is that capital income taxation stimulates the price of (untaxed) housing capital and thereby crowds out nonhousing wealth in the long-run. Even when aggregate saving is unaffected by the after-tax rate of return, the crowding out of nonhousing wealth erodes the tax base end generates very high measures of marginal excess burden. Movements in U.S. aggregate wealth are consistent with the predictions of the model. Overall household wealth as a ratio of national income in 1989 is nearly identical to the ratio in 1955, but the ratio of housing assets to nonhousing wealth has grown by 30 percent since 1970. In short, capital income taxation may attenuate capital accumulation through its impact on housing prices rather than through traditional incentive effects.
Handle: RePEc:nbr:nberwo:3454
Template-Type: ReDIF-Paper 1.0
Title: Taxes, Fringe Benefits and Faculty
Author-Name: Daniel S. Hamermesh
Author-Person: pha78
Author-Name: Stephen A. Woodbury
Author-Person: pwo85
Note: LS PE
Number: 3455
Creation-Date: 1990-09
Order-URL: http://www.nber.org/papers/w3455
File-URL: http://www.nber.org/papers/w3455.pdf
File-Format: application/pdf
Publication-Status: published as Review of Economic and Statistics, Vol.74, No.2, pp.287-296, May 1992.
Publication-Status: published as Woodbury, Stephen A & Hamermesh, Daniel S, 1992. "Taxes, Fringe Benefits and Faculty," The Review of Economics and Statistics, MIT Press, vol. 74(2), pages 287-96, May.
Abstract: The growth of employee benefits in academe has closely paralleled their economy-wide growth. This study estimates a complete system describing the demand for benefits and wages using panel data on nearly 1500 institutions of higher learning. The demand for benefits is quite responsive both to changes in real income and to variations in the tax price of benefits. These conclusions are robust with respect to varying definitions of the sample aid of the tax price. They are not altered by estimates that account for unmeasured individual effects on demand. Simulations using the estimates suggest that the Tax Reform Act of 1986 sharply reduced the demand for benefits. Extrapolating the impact to the entire economy suggests that the annual flow of compensation shifted away from benefits by at least $9 billion.
Handle: RePEc:nbr:nberwo:3455
Template-Type: ReDIF-Paper 1.0
Title: Monetary Overhang and Reforms in the 1940s
Author-Name: Rudiger Dornbusch
Author-Name: Holger Wolf
Note: ITI IFM
Number: 3456
Creation-Date: 1990-10
Order-URL: http://www.nber.org/papers/w3456
File-URL: http://www.nber.org/papers/w3456.pdf
File-Format: application/pdf
Abstract: Post-1945 Europe had many of the traits observed today in Eastern Europe and the Soviet Union: price controls, shortages, black markets and a monetary overhang. The policy response in most countries was monetary reform - - the deliberate immobilization of liquid assets and in many instances an outright write-off of deposits. The paper reviews the historical experience, notably the German reform of 1948, identifies the policy issues involved and draws lessons for today.
Handle: RePEc:nbr:nberwo:3456
Template-Type: ReDIF-Paper 1.0
Title: International Trade and Investment under Different Rates of Time Preference
Author-Name: Kyoji Fukao
Author-Person: pfu14
Author-Name: Koichi Hamada
Note: ITI IFM
Number: 3457
Creation-Date: 1990-10
Order-URL: http://www.nber.org/papers/w3457
File-URL: http://www.nber.org/papers/w3457.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Japanese and International Economies, Vol. 8, no. 1 (March 1994): 22-52.
Publication-Status: published as Fukao Kyoji & Hamada Koichi, 1994. "International Trade and Investment under Different Rates of Time Preference," Journal of the Japanese and International Economies, Elsevier, vol. 8(1), pages 22-52, March.
Abstract: This paper attempts to integrate the theory of trade with that of capital movements, and to study the two country world where each nation has a different rate of time preference. It resolves the indeterminacy problem intrinsic in the Heckscher-Ohlin model where trade and factor movements coexist by assuming that capital movements are infinitesimally more costly than trade in goods. Under certain assumptions, one can dichotomize the behavior of asset accumulation from the dynamic pattern of trade specialization. Complete specialization will take place most; likely in the country with a higher rate of time preference, which specializes into the more labor intensive sector. It is shown that a single-commodity model does exaggerate the amount of capital movements, but that the qualitative nature of asset accumulation patterns obtained in a single-commodity model of capital movements holds intact in the model that incorporates trade. This paper offers another explanation to the Feldstein-Horioka paradox that domestic investment responds more closely to increasing savings than capital outflows do. If an economy is imperfectly specialized, increased savings will be absorbed in capital deepening rather than in capital outflow.
Handle: RePEc:nbr:nberwo:3457
Template-Type: ReDIF-Paper 1.0
Title: Pensions and Wages: An Hedonic Price Theory Approach
Author-Name: Edward B. Montgomery
Author-Name: Kathryn Shaw
Author-Person: psh162
Author-Name: Mary Ellen Benedict
Note: LS
Number: 3458
Creation-Date: 1990-10
Order-URL: http://www.nber.org/papers/w3458
File-URL: http://www.nber.org/papers/w3458.pdf
File-Format: application/pdf
Publication-Status: published as International Economic Review Volume 33, no. 1, pp.111-128 February 1992
Abstract: This paper examines whether a tradeoff exists between the level of pension benefits and wages for comparably skilled workers. The 1983 survey of Consumer Finances is used to match detailed information on pension plans to detailed personal characteristics of a random sample of the population. The pension wage tradeoff is estimated using both a life-tine or contractual model of the labor market and the spot market model used in previous studies. The results indicate a large negative tradeoff in the contractual model but only a negligible tradeoff in the spot market model. Results from estimating the underlying structural supply and demand equation for pensions are also presented.
Handle: RePEc:nbr:nberwo:3458
Template-Type: ReDIF-Paper 1.0
Title: A Cross Country Comparison of Seasonal Cycles and Business Cycles
Author-Name: J. Joseph Beaulieu
Author-Name: Jeffrey A. Miron
Author-Person: pmi250
Note: EFG ME
Number: 3459
Creation-Date: 1990-10
Order-URL: http://www.nber.org/papers/w3459
File-URL: http://www.nber.org/papers/w3459.pdf
File-Format: application/pdf
Publication-Status: published as The Economic Journal, vol. 102, no. 413, p. 772-788, (July 1992).
Abstract: In a recent paper Barsky and Miron (1989) examine the seasonal fluctuations in the U. S. economy. They show that the key stylized facts about the business cycle characterize the seasonal cycle as well, and they suggest that the interpretation of many of these stylized facts over the seasonal cycle is easier than interpretation over the business cycle. The reason is that the ultimate sources of seasonal cycles are more readily identifiable than those of business cycles. This paper uses the cross country variation in seasonal patterns to pin down the ultimate sources of seasonal variation more precisely than is possible from examination of U.S. data alone. We conclude that a Christmas shift in preferences and synergies across agents are the key determinants of the seasonal patterns around the world. The paper also establishes that, across developed countries, the key observations about aggregate variables that characterize the business cycle also characterize the seasonal cycle. Thus, the similarity of the seasonal cycle and the business cycle demonstrated by Barsky and Miron (1989) for the united states is a robust stylized fact.
Handle: RePEc:nbr:nberwo:3459
Template-Type: ReDIF-Paper 1.0
Title: The Politics of 1992: Fiscal Policy and European Integration
Author-Name: Torsten Persson
Author-Person: ppe28
Author-Name: Guido Tabellini
Author-Person: pta37
Note: ITI IFM
Number: 3460
Creation-Date: 1990-10
Order-URL: http://www.nber.org/papers/w3460
File-URL: http://www.nber.org/papers/w3460.pdf
File-Format: application/pdf
Publication-Status: published as Review of Economic Studies, Vol. 59 (1992): 689-702.
Abstract: The internal market in Europe will greatly increase the international mobility of resources. How will this affect fiscal policy in different countries? The first part of the paper considers taxation of capital in a two country model, where a democratically chosen government in each country chooses tax policy. Higher capital mobility changes the politico-economic equilibrium in two ways. On the one hand, it leads to more tax competition between the countries: this "economic effect" tends to lower both countries' tax rates. On the other hand, it alters voters' preferences and make them elect a different government: this "political effect" offsets the increased tax competition, although not completely so. The second part of the paper considers taxation of labor, in a model where labor is internationally immobile. Eliminating the remaining barriers' to trade in goals, changes the distribution of labor earnings in the economy, which again has a political, as well as an economic effect. And again the economic and political effects push the tax rates in different directions, but here the political effect can prevail. The tendency for an adapting political equilibrium to preserve the status quo, thus emerges as a general result of the paper.
Handle: RePEc:nbr:nberwo:3460
Template-Type: ReDIF-Paper 1.0
Title: The Special Education Costs of Low Birthweight
Author-Name: Stephen Chaikind
Author-Name: Hope Corman
Note: EH
Number: 3461
Creation-Date: 1990-10
Order-URL: http://www.nber.org/papers/w3461
File-URL: http://www.nber.org/papers/w3461.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Health Economics, Vol 10, No. 3, pp. 291-311, September 1991.
Abstract: This paper investigates the relationship between low birthweight, enrollment in special education and special education costs in the united states. we use the Child Health Supplement to the 1988 National Health Interview Survey, obtaining a sample of approximately 8,000 children aged 6 to 15 who are in school. For these children, we calculate the probability of attending special education, holding constant, individual, family and regional variables. We find that children who weighed less than 2500 grams at birth are almost; fifty percent more likely to be enrolled in any type of special education than children who were of normal weight at birth. Since previous studies have found the incremental cost, of special education (1989-1990) to be $4,350 per student, this results in an incremental cost; of special education of $370.8 million (1989-1990) per year due to low birth weight, holding other characteristics constant, these costs, which were conservatively estimated, imply that previous studies, which considered only medical expenditures, substantially underestimate the full cost; of low birthweight.
Handle: RePEc:nbr:nberwo:3461
Template-Type: ReDIF-Paper 1.0
Title: Down and Out in North America: Recent Trends in Poverty Rates in the U.S. and Canada
Author-Name: Maria J. Hanratty
Author-Name: Rebecca M. Blank
Author-Person: pbl56
Note: LS
Number: 3462
Creation-Date: 1990-10
Order-URL: http://www.nber.org/papers/w3462
File-URL: http://www.nber.org/papers/w3462.pdf
File-Format: application/pdf
Publication-Status: published as Quarterly Journal of Economics, Vol. 107, No.1, pp. 233-254, Feb 1992
Abstract: This paper documents the striking difference in U. S. and Canadian poverty trends from 1970 to 1986. While U.S. poverty has shown no consistent trend since 1970, Canadian poverty decreased by 60%. This paper examines why U. S. and Canadian poverty trends differed during two periods: 1970-1979 and 1979-1986. During the 1970s, we find that the principle reason for declining Canadian poverty rates is higher economic growth. During the 1980s, we find that differences in government transfers are the main cause of relative poverty change in the two countries. Virtually all of the 3.5 difference in U.S. and Canadian poverty changes from 1979 to 1986 can be attributed to differences in the proportion of families moved out of poverty by transfers. This may reflect both the expansion in social assistance levels in Canada, and the retrenchment in assistance levels in the U. S.
Handle: RePEc:nbr:nberwo:3462
Template-Type: ReDIF-Paper 1.0
Title: Scale and Scope Effects on Advertising Agency Costs
Author-Name: Alvin J. Silk
Author-Name: Ernst R. Berndt
Note: PR
Number: 3463
Creation-Date: 1990-10
Order-URL: http://www.nber.org/papers/w3463
File-URL: http://www.nber.org/papers/w3463.pdf
File-Format: application/pdf
Publication-Status: published as Marketing Science, vol. 12, No. 1, Winter 1993, pp. 53-72
Abstract: How important are economies of scale and scope in advertising agency operations? This paper reports an econometric study undertaken to address this question. Cost models are formulated which represent how the principal component of agency costs, employment level, varies according to the mix of media and services an agency provides and the total volume of advertising it produces. These models are estimated and tested cross-sectionally utilizing data pertaining to the domestic operations of 401 US agencies for 1987. The empirical evidence reported here indicates that both scale and scope economies are highly significant in the operations of US advertising agencies. We find that of the 12,000 establishments comprising the industry in 1987, approximately 200-250 had domestic gross incomes of $3.4 million or more (or equivalently, billings of $20-27 million) and therefore had service mixes and operating levels sufficiently large to take full advantage of all available size-related efficiencies. Furthermore, the overall structure of the industry is one where these large, fully efficient firms created and produced more than half of all the national advertising utilized in the US during 1987. At the same time, vast numbers of very small agencies appear to operate with substantial cost disadvantages compared to large firms as a consequence of these scale and scope economies. These findings carry important implications concerning possible future changes in the industry structure. It seems highly doubtful that scale economies could motivate further mergers among the largest 200-250 agencies. On the other hand, for small agencies, mergers and acquisitions might be attractive as means of mitigating their size-related cost disadvantages. Finally, our findings demonstrating the existence of scale and scope economies are consistent with the diminishing reliance on fixed rates of media commissions as the principal basis of agency compensation. They also cast strong doubts on size-related economies in operating costs as a viable explanation for the limited degree of vertical integration of agency services by large advertisers.
Handle: RePEc:nbr:nberwo:3463
Template-Type: ReDIF-Paper 1.0
Title: Stock Prices and Bond Yields: Can Their Comovements Be Explained in Terms of Present Value Models?
Author-Name: Robert J. Shiller
Author-Person: psh69
Author-Name: Andrea E. Beltratti
Note: ME
Number: 3464
Creation-Date: 1990-10
Order-URL: http://www.nber.org/papers/w3464
File-URL: http://www.nber.org/papers/w3464.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Monetary Economics 30, pp. 25-46 (1992).
Abstract: Real stock prices seem to overreact to changes in long-term interest rates. That is, real stock prices drop when long-term interest rates rise (and rise when they fall) more than would be implied by a rational expectations present value model where expectations are based on a vector autoregression. This overreaction is not associated with any overreaction to changes in the short-run inflation rate. Over the last century real stock prices have shown little reaction to changes in inflation rates, and according to the model they should show little reaction. These conclusions were reached from an analysis of annual data in the united states 1871 to 1989 and the united Kingdom 1918 to 1989.
Handle: RePEc:nbr:nberwo:3464
Template-Type: ReDIF-Paper 1.0
Title: Investor Sentiment and the Closed-End Fund Puzzle
Author-Name: Charles Lee
Author-Name: Andrei Shleifer
Author-Person: psh93
Author-Name: Richard Thaler
Note: ME
Number: 3465
Creation-Date: 1990-10
Order-URL: http://www.nber.org/papers/w3465
File-URL: http://www.nber.org/papers/w3465.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Finance, March 1991. Reprinted in R. Thaler, ed., Quasi-Rational Econmics, Russell Sage Foudation 1991.
Abstract: This paper examines the proposition that fluctuations in discounts on closed end funds are driven by changes in individual investor sentiment toward closed end funds and other securities. The theory implies that discounts on various funds must move together, that new funds get started when seasoned funds sell at a premium or a small discount, and that discounts on the funds fluctuate together with prices of securities affected by the same investor sentiment. The evidence supports these predictions. In particular, we find that discounts on closed end funds narrow when small stocks do well, as would be expected if closed end funds were subject to the same sentiment as small stocks, whim tern. also to be held by individual investors. The evidence thus suggests that investor sentiment affects security returns.
Handle: RePEc:nbr:nberwo:3465
Template-Type: ReDIF-Paper 1.0
Title: The Foreign Exchange Risk Premium in a Target Zone with Devaluation Risk
Author-Name: Lars E.O. Svensson
Author-Person: psv2
Note: ITI IFM
Number: 3466
Creation-Date: 1990-10
Order-URL: http://www.nber.org/papers/w3466
File-URL: http://www.nber.org/papers/w3466.pdf
File-Format: application/pdf
Publication-Status: published as Journal of International Economics, Vol 33, 1992. pp. 21-40
Abstract: The foreign exchange risk premium in an exchange rate target zone regime with devaluation/realignment risks is derived. In contrast to previous literature, the exchange rate's heteroscedasticity within the bard, as well as a separate devaluation/realignment risk, is taken into account. The risk premium is then the sum of two separate risk premia, arising from stochastic exchange rate movements within the bard and from stochastic devaluations/realignments when the band is shifted. Both real and nominal exchange rate premia are considered. The real and nominal risk premia from movements within the band are very small for narrow target zones and can therefore be disregarded. The real and nominal risk premia from devaluations/realignments are larger but still relatively small proportions of the expected rate of devaluation/realignment.
Handle: RePEc:nbr:nberwo:3466
Template-Type: ReDIF-Paper 1.0
Title: Rational Speculative Bubbles in an Exchange Rate Target Zone
Author-Name: Willem H. Buiter
Author-Person: pbu137
Author-Name: Paolo A. Pesenti
Author-Person: ppe152
Note: ITI IFM
Number: 3467
Creation-Date: 1990-10
Order-URL: http://www.nber.org/papers/w3467
File-URL: http://www.nber.org/papers/w3467.pdf
File-Format: application/pdf
Abstract: The recent theory of exchange rate dynamics within a target zone holds that exchange rates under a currency bard are less responsive to fundamental shocks than exchange rates under a free float, provided that the intervention rules of the Central Bank(s) are common knowledge. These results are derived after having assumed a priori that excess volatility due to rational bubbles does not occur in the foreign exchange market. In this paper we consider instead a setup in which the existence of speculative behavior is a datum the Central Bank has to deal with. We show that the defense of the target zone in the presence of bubbles is viable if the Central Bank accommodates speculative attacks when the latter are consistent with the survival of the target zone itself and expectations are self-fulfilling. These results hold for a large class of exogenous and fundamental-dependent bubble processes. We show that the instantaneous volatility of exchange rates within a bard is not necessarily less than the volatility under free float and analyze the implications for interest rate differential dynamics.
Handle: RePEc:nbr:nberwo:3467
Template-Type: ReDIF-Paper 1.0
Title: The Predictability of Real Exchange Rate Changes in the Short and Long Run
Author-Name: Robert E. Cumby
Author-Person: pcu115
Author-Name: John Huizinga
Note: ITI IFM
Number: 3468
Creation-Date: 1990-10
Order-URL: http://www.nber.org/papers/w3468
File-URL: http://www.nber.org/papers/w3468.pdf
File-Format: application/pdf
Publication-Status: published as Japan and the World Economy, Volume 3, pp. 17-38, 1991
Abstract: Nominal exchange rates do not move to offset differences in inflation rates on a month to month, quarter to quarter, or even year to year basis, resulting in sizable real exchange rate changes. Are these changes predictable? We address this question in three ways. First, we describe a variety of tests of predictability and explain how the different tests are related. Next, we implement the tests for the U.S. dollar relative to four currencies and find statistically significant evidence that real exchange rate changes are predictable. Finally, we examine whether the predictability is of an economically interesting magnitude.
Handle: RePEc:nbr:nberwo:3468
Template-Type: ReDIF-Paper 1.0
Title: Finite Lifetimes and Growth
Author-Name: Larry E. Jones
Author-Person: pjo88
Author-Name: Rodolfo E. Manuelli
Note: EFG
Number: 3469
Creation-Date: 1990-10
Order-URL: http://www.nber.org/papers/w3469
File-URL: http://www.nber.org/papers/w3469.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Economic Theory Volume 58 December 1992
Abstract: The recent literature an endogenous growth models has emphasized the effect that the rate of return has an the capital accumulation decisions and, consequently, on the growth rate of the economy. In most cases the basic model is a variant of the representative agent growth model. The key feature of the infinitely lived agent model is that "substitution effects" dominate, that is, in order to induce individuals to accumulate capital all that is required is a sufficiently high rate of return. In this paper we explore the long run behavior in a model with finite lifetimes -- a version of Diamond's overlapping generations model. Because individuals do not live forever (although the economy does) their level of income as well as the rate of return determine the rate of accumulation. Specifically, we show that for all one sector convex technologies the equilibrium limiting growth rate of the economy is zero. In this setting capital income taxation can have paradoxical effects; it is shown that if the proceeds are used to redistribute income to the young it is possible to have a positive long run growth rate. The effect of the tax rate on the growth rate is not monotonic: for small tax rates the effect is positive, while for sufficiently high rates it is negative. Additionally, income redistribution to the young will normally have positive effects upon the long run growth rate. We then study a two sector growth model and show conditions under which the laissez faire equilibrium displays long run growth. Intuitively, the key property is that the existence of a sector producing investment goods makes it possible that, along a growth path, the relative price of capital decreases sufficiently fast and allows the young to purchase ever increasing quantities of capital. Finally, we show that in an overlawing generations setting, a one sector model can generate growth if the technology displays a nonconvexity, as this is similar to the effect of a decrease in the price of capital: it prevents the ratio of the value of capital am the level of wealth of the young from exceeding one.
Handle: RePEc:nbr:nberwo:3469
Template-Type: ReDIF-Paper 1.0
Title: Exchange Rate Forecasting Techniques, Survey Data, and Implications for the Foreign Exchange Market
Author-Name: Jeffrey A. Frankel
Author-Person: pfr12
Author-Name: Kenneth Froot
Author-Person: pfr60
Note: ME ITI IFM
Number: 3470
Creation-Date: 1990-10
Order-URL: http://www.nber.org/papers/w3470
File-URL: http://www.nber.org/papers/w3470.pdf
File-Format: application/pdf
Publication-Status: Published as "Chartists, Fundamentalists, and Trading in the Foreign Exchange Market" , American Economic Review, Vol. 80, no. 2 (1990): 181-185.
Abstract: The paper presents new empirical results that elucidate the dynamics of the foreign exchange market. The first half of the paper is an updated study of the exchange rate expectations held by market participants, as reflected in responses to surveys, and contains the following conclusions. First, the bias observed in the forward discount as a predictor of the future spot rate is not attributable to an exchange risk premium, as is conventionally believed. Second, at short horizons forecasters tend to extrapolate recent trends, while at long horizons they tend to forecast a reversal. Third, the bias in expectations is robust in the samples, based on eight years of data across five currencies. The second half of the paper abandons the framework in which all market participants share the same forecast, to focus on the importance of heterogeneous expectations. Tests suggest that dispersion of opinion, as reflected in the standard deviation across respondents in the survey, affects the volume of trading in the market, and, in turn, the degree of volatility of the exchange rate. An example of how conflicting forecasts can lead to swings in the exchange rate is the model of "chartists and fundamentalists." The market weights assigned to the two models fluctuate over time in response to recent developments, leading to fluctuations in the demand for foreign currency. The paper ends with one piece of evidence to support the model: the fraction of foreign exchange forecasting services that use "technical analysis" did indeed increase sharply during 1983-85, but declined subsequently.
Handle: RePEc:nbr:nberwo:3470
Template-Type: ReDIF-Paper 1.0
Title: Temporal Variation in the Interest-Rate Response to Money Announcements
Author-Name: V. Vance Roley
Author-Name: Simon M. Wheatley
Note: ME
Number: 3471
Creation-Date: 1990-10
Order-URL: http://www.nber.org/papers/w3471
File-URL: http://www.nber.org/papers/w3471.pdf
File-Format: application/pdf
Publication-Status: published as Roley, V. Vance and Simon M. Wheatley. "Shifts In The Interest-Rate Response To Money Announcements: What Can We Say About When They Occur?," Journal of Business and Economic Statistics, 1996, v14(1,Jan), 135-138.
Abstract: A number of studies find significant temporal variation in the interest-rate response to money announcement surprises. An unresolved question, however, is whether the response changes immediately as different policy regimes are adopted, or whether the change is gradual reflecting the establishment of Federal Reserve credibility. This paper conducts tests that allow for both discrete shifts in the interest-rate response to money announcements and a gradual evolution in this response. The evidence is consistent with the hypothesis that temporal variation in the interest-rate response is limited to discrete shifts in October 1979, October 1982, arid February 1984.
Handle: RePEc:nbr:nberwo:3471
Template-Type: ReDIF-Paper 1.0
Title: Wealth Depletion and Life Cycle Consumption by the Elderly
Author-Name: Michael D. Hurd
Author-Person: phu137
Note: AG
Number: 3472
Creation-Date: 1990-10
Order-URL: http://www.nber.org/papers/w3472
File-URL: http://www.nber.org/papers/w3472.pdf
File-Format: application/pdf
Publication-Status: published as David A. Wise, editor. Topics in the Economics of Aging. Chicago: The University of Chicago Press, pp. 135-162, April 1992.
Publication-Status: published as Wealth Depletion and Life-Cycle Consumption by the Elderly, Michael D. Hurd. in Topics in the Economics of Aging, Wise. 1992
Abstract: The objective of the work reported in this paper is to find if the consumption data from the six waves of the Retirement History Survey are consistent with the life cycle hypothesis of consumption and to test the importance of a bequest motive for saving. The 12 data items which are used cover an estimated 36% of total consumption; the most important datum is food consumption. The findings support the life cycle hypothesis: as required, measured consumption among the elderly declines with age. A test of the bequest motive for saving based on the variation by extended family stricture in consumption paths provides no support for a bequest motive.
Handle: RePEc:nbr:nberwo:3472
Template-Type: ReDIF-Paper 1.0
Title: Marriage, Motherhood, and Wages
Author-Name: Sanders Korenman
Author-Name: David Neumark
Author-Person: pne16
Note: LS
Number: 3473
Creation-Date: 1990-10
Order-URL: http://www.nber.org/papers/w3473
File-URL: http://www.nber.org/papers/w3473.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Human Resources, 27(2):233-255, 1992
Abstract: We explore several problems in drawing causal inferences from cross-sectional relationships between marriage, motherhood, and wages. We find that heterogeneity leads to biased estimates of the "direct" effects of marriage and motherhood on wages (i.e., effects net of experience and tenure); first-difference estimates reveal no direct effect of marriage or motherhood on women's wages. We also find statistical evidence that experience and tenure nay be endogenous variables in wage equations; IV estimates suggest that both OLS cross-sectional and first-difference estimates understate the direct (negative) effect of children on wages.
Handle: RePEc:nbr:nberwo:3473
Template-Type: ReDIF-Paper 1.0
Title: Labor Supply, Hours Constraints and Job Mobility
Author-Name: Joseph G. Altonji
Author-Person: pal266
Author-Name: Christina H. Paxson
Author-Person: ppa335
Note: LS
Number: 3474
Creation-Date: 1990-10
Order-URL: http://www.nber.org/papers/w3474
File-URL: http://www.nber.org/papers/w3474.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Labor Economics, vol. 6, no. 2, April 1988, pp. 254-276 Journal of Human Resources, 27, no. 2 (Spring 1992): . p 256-278
Abstract: If hours can be freely varied within jobs, the effect on hours of changes in preferences for those who do change jobs should be similar to the effect on hours for those who do not change jobs. Conversely, if employers restrict hours choices, then changes in preferences should affect hours more strongly when the job changes than when it does not change. For a sample of married women we find that changes in many of the labor supply preference variables produce much larger effects on hours when the job changes.
Handle: RePEc:nbr:nberwo:3474
Template-Type: ReDIF-Paper 1.0
Title: Monopoly and Trade Policy
Author-Name: Carsten Kowalczyk
Note: ITI IFM
Number: 3475
Creation-Date: 1990-10
Order-URL: http://www.nber.org/papers/w3475
File-URL: http://www.nber.org/papers/w3475.pdf
File-Format: application/pdf
Publication-Status: published as Journal of International Economics, vol. 36, no. 1/2, pp. 177-186, February 1994
Abstract: This paper presents a general equilibrium technique for the problem of ranking policies of a nation that trades with a foreign monopoly firm by presenting a generalization of the offer curve. The paper demonstrates the existence of a partial welfare ranking between ad valorem rates and specific rates, and it shows that a minimum import requirement welfare dominates other quantitative policies. The paper proves that a recent policy, the voluntary import expansion, has strongly adverse consequences: when trading with a foreign monopoly firm a nation implementing such a policy will achieve only its autarky level of welfare.
Handle: RePEc:nbr:nberwo:3475
Template-Type: ReDIF-Paper 1.0
Title: Welfare and Customs Unions
Author-Name: Carsten Kowalczyk
Note: ITI IFM
Number: 3476
Creation-Date: 1990-10
Order-URL: http://www.nber.org/papers/w3476
File-URL: http://www.nber.org/papers/w3476.pdf
File-Format: application/pdf
Abstract: This paper proposes that Viner's celebrated trade diversion and trade creation terminology for the customs union problem be abandoned. As the alternative is offered a welfare calculus based upon the terms-of-trade and volume-of-trade taxonomy from the theory of tariffs. The paper discusses, by application of this calculus, the two outstanding controversies in the theory of customs unions.
Handle: RePEc:nbr:nberwo:3476
Template-Type: ReDIF-Paper 1.0
Title: Fiscal Paradise: Foreign Tax Havens and American Business
Author-Name: James R. Hines, Jr.
Author-Person: phi111
Author-Name: Eric M. Rice
Note: PE
Number: 3477
Creation-Date: 1990-10
Order-URL: http://www.nber.org/papers/w3477
File-URL: http://www.nber.org/papers/w3477.pdf
File-Format: application/pdf
Publication-Status: published as Quarterly Journal of Economics, vol 109, February 1994, pp 149-182
Abstract: The offshore tax haven affiliates of American corporations account for more than a quarter of US foreign investment, an nearly a third of the foreign profits of US firms. This paper analyzes the origins of this tax haven activity and its implications for the US and foreign governments. Based on the behavior of US fins in 1982, it appears that American companies report extraordinarily high profit rates on both their real and their financial investments in tax havens. We calculate from this behavior that the tax rate that maximizes tax revenue for a typical haven is around 6%. The revenue implications for the US are more complicated, since tax havens may ultimately enhance the ability of the US government to tax the foreign earnings of American companies.
Handle: RePEc:nbr:nberwo:3477
Template-Type: ReDIF-Paper 1.0
Title: Political Cycles in OECD Economies
Author-Name: Alberto Alesina
Author-Person: pal207
Author-Name: Nouriel Roubini
Author-Person: pro145
Note: ITI IFM
Number: 3478
Creation-Date: 1990-10
Order-URL: http://www.nber.org/papers/w3478
File-URL: http://www.nber.org/papers/w3478.pdf
File-Format: application/pdf
Publication-Status: published as Review of Economic Studies, 59, pp.663-688, October 1992.
Publication-Status: published as Alesina, Alberto & Roubini, Nouriel, 1992. "Political Cycles in OECD Economies," Review of Economic Studies, Blackwell Publishing, vol. 59(4), pages 663-88, October.
Abstract: This paper studies whether the dynamic behavior of GNP growth, unemployment and inflation is systematically affected by the timing of elections and of changes of governments. The sample includes the last three decades in 18 OECD economies. We explicitly test the implication of several models of political cycles, both of the "opportunistic" and of the "partisan" type. Also, we confront the implication of recent "rational" models with more traditional approaches. Our results can be summarized as follows: a) The "political business cycle" hypothesis, as formulated in Nordhaus (1975) on output and unemployment is generally rejected by the data. With the exception of Japan, we also reject by the extension of the "political business cycle" model, with endogenous timing of elections; b) inflation tends to increase immediately after elections, perhaps as a result of preelectoral expansionary monetary and fiscal policies; (c) we fire evidence of temporary partisan differences in output and unemployment and of long-run partisan differences in the inflation rate as implied by the "rational partisan theory" by Alesina (1987); (d) we find virtually no evidence of permanent partisan differences in output and unemployment.
Handle: RePEc:nbr:nberwo:3478
Template-Type: ReDIF-Paper 1.0
Title: Recursive Linear Models of Dynamic Economies
Author-Name: Lars Peter Hansen
Author-Person: pha303
Author-Name: Thomas J. Sargent
Author-Person: psa83
Note: EFG
Number: 3479
Creation-Date: 1990-10
Order-URL: http://www.nber.org/papers/w3479
File-URL: http://www.nber.org/papers/w3479.pdf
File-Format: application/pdf
Publication-Status: published as Hansen, Lars Peter, and Ravi Jagannathan, published as "Implications of Security Market Data for Models of Dynamic Economies," Journal of Political Economy, Vol. 99, no. 2 (1991): p. 225-262.
Publication-Status: published as Lars Peter Hansen & Thomas J. Sargent, 1993. "Recursive linear models of dynamic economies," Proceedings, Federal Reserve Bank of San Francisco, issue Mar.
Abstract: This paper describes a class of dynamic stochastic linear quadratic equilibrium models. A model is specified by naming lists of matrices that determine preferences, technology, and the information structure. Aggregate equilibrium allocations and prices are computed by solving a social planning problem in the form of an optimal linear regulator. Heterogeneity among agents is permitted. Several examples are computed.
Handle: RePEc:nbr:nberwo:3479
Template-Type: ReDIF-Paper 1.0
Title: Learning and the Value of the Firm
Author-Name: Nobuhiro Kiyotaki
Note: ME
Number: 3480
Creation-Date: 1990-10
Order-URL: http://www.nber.org/papers/w3480
File-URL: http://www.nber.org/papers/w3480.pdf
File-Format: application/pdf
Abstract: The paper studies under what conditions the value of the firm occasionally increases for a while before it suddenly drops, like a "bubble". We consider the environment where the trend of net cash flow from a firm's production depends on uncertain quality of a manager, and the manager is occasionally replaced by a new manager. People know whether the manager is replaced, but they do not know the exact quality of the manager so that they gradually learn about it. We show that, if the current manager is good, the value of the firm tends to increase more rapidly than the net cash flow because people become more and more optimistic about the current manager, until the optimism disappears with sudden retire of the manager. The value of the firms appears to contain a bubble because the value gradually deviates from the present value of the current net cash flow until the deviation disappears. We extend the basic model to allow the firm to replace unsuccessful managers endogenously, and show that the value of the firm more frequently deviates upward from the present value of the current net cash flow than downward.
Handle: RePEc:nbr:nberwo:3480
Template-Type: ReDIF-Paper 1.0
Title: Asset Returns with Transactions Cost and Uninsured Risk: A Stage III Exercise
Author-Name: S. Rao Aiyagari
Author-Name: Mark Gertler
Author-Person: pge11
Note: ME
Number: 3481
Creation-Date: 1990-10
Order-URL: http://www.nber.org/papers/w3481
File-URL: http://www.nber.org/papers/w3481.pdf
File-Format: application/pdf
Publication-Status: published as "Asset Returns with Transactions Costs and Uninsurable Individual Risk." Journal of Monetary Economics 27(3):311-331, June 1991.
Abstract: (iii) Transaction velocities are much higher for liquid assets than for stocks, specifically, we explore the extent to which incorporating an explicit motive for holding liquid assets can explain the above observations. We introduce a demand for liquid assets by adding uninsured individual risk together with differential costs of trading securities. We then parameterize a class of such models and compute the stationary equilibria. The simulations indicate that attempting to match the return data generates a ratio of liquid assets to income considerably be low observed levels. We then explore some possible reasons for this discrepancy.
Handle: RePEc:nbr:nberwo:3481
Template-Type: ReDIF-Paper 1.0
Title: Search for a Theory of Money
Author-Name: Nobuhiro Kiyotaki
Author-Name: Randall Wright
Author-Person: pwr2
Note: ME
Number: 3482
Creation-Date: 1990-10
Order-URL: http://www.nber.org/papers/w3482
File-URL: http://www.nber.org/papers/w3482.pdf
File-Format: application/pdf
Publication-Status: published as "A Search-Theoretic Approach to Monetary Economics" American Economic Review, March 1993, pp. 63-77.
Abstract: The classical and early neoclassical economists knew that the essential function of money was its role as a medium of exchange; Recently, this idea has been formalized using search-theoretic noncooperative equilibrium models of the exchange process. The goal of this paper is to use a simple model of this class to analyze four substantive issues in monetary economics: the interaction between specialization and exchange, dual fiat currency regimes, the welfare improving role of money, and the susceptibility of monetary economies to extrinsic uncertainty.
Handle: RePEc:nbr:nberwo:3482
Template-Type: ReDIF-Paper 1.0
Title: Auctions with Endogenous Valuations, The Snowball Effect Revisited
Author-Name: Kala Krishna
Author-Person: pkr26
Note: ITI IFM
Number: 3483
Creation-Date: 1990-10
Order-URL: http://www.nber.org/papers/w3483
File-URL: http://www.nber.org/papers/w3483.pdf
File-Format: application/pdf
Publication-Status: published as Economic Theory, Vol.13, no.2 (1999): 377-391.
Abstract: In most of the literature on auctions the valuations of agents are exogenously specified. This assumption may be inappropriate in a number of cases where valuations are better derived endogenously. Endogenous valuations are appropriate when there are many units being auctioned and their value is determined in a secondary market which is imperfectly competitive. The model is thus appropriate for studying the sale of quota licenses and scarce resources used in production when product markets are imperfectly competitive. A series of examples are developed to show how these models work. Particular models are developed which cast light on a number of issues in applied micro-economics. These issues include the evolution of market structure, in particular, the "snowball effect", the effect an market structure of selling quota licenses, and the relationship between increasing returns to scale and the monopolization of markets. The models also provide another resolution of the "transponder puzzle".
Handle: RePEc:nbr:nberwo:3483
Template-Type: ReDIF-Paper 1.0
Title: The Success of Acquisitions: Evidence From Disvestitures
Author-Name: Steven Kaplan
Author-Name: Michael S. Weisbach
Note: ME
Number: 3484
Creation-Date: 1990-10
Order-URL: http://www.nber.org/papers/w3484
File-URL: http://www.nber.org/papers/w3484.pdf
File-Format: application/pdf
Publication-Status: published as The Journal of Finance, Vol. XLVII, No. 1, pp. 107-138, (March 1992).
Abstract: This paper studies a sample of large acquisitions completed between 1971 arid 1982. By the end of 1989, acquirers have divested almost 44% of the target companies. Using the accounting gain or loss recognized by the acquirer, press reports, and the sale price, we characterize the ex post success of the divested acquisitions and consider only 34% to 50% of classified divestitures as unsuccessful. Acquirer returns and total (acquirer arid target) returns at the acquisition announcement are significantly lower for unsuccessful acquisitions than for divestitures not classified as unsuccessful arid for acquisitions not divested. These results suggest that market reactions to acquisition announcements reflect expectations of future profits and that unprofitable acquisitions are recognized as such when initiated. Diversifying acquisitions are almost four times more likely to be divested than related acquisitions. However, we do not find strong evidence that diversifying acquisitions were less successful than related ones.
Handle: RePEc:nbr:nberwo:3484
Template-Type: ReDIF-Paper 1.0
Title: Trade, Knowledge Spillovers, and Growth
Author-Name: Gene M. Grossman
Author-Person: pgr21
Author-Name: Elhanan Helpman
Author-Person: phe205
Note: EFG
Number: 3485
Creation-Date: 1990-10
Order-URL: http://www.nber.org/papers/w3485
File-URL: http://www.nber.org/papers/w3485.pdf
File-Format: application/pdf
Publication-Status: published as European Economic Review, Vol. 35, pp. 517-526, (1991).
Abstract: In this paper, we examine one channel through which the trade regime might affect growth in the long run. We model endogenous technological progress that results from profit maximizing investments by far-sighted entrepreneurs. Productivity in the research lab depends upon the "stock of knowledge capital", a variable reflecting the state of scientific, engineering and industrial know-how in the local economy. We argue that local knowledge capital is likely to vary positively with the extent of contact between domestic agents and their counterparts in the international research and business communities, and that the number of such contacts increases with the level of commercial exchange. We derive the implications of this for the relationship between trade and growth.
Handle: RePEc:nbr:nberwo:3485
Template-Type: ReDIF-Paper 1.0
Title: On the Predictive Power of Interest Rates and Interest Rate Spreads
Author-Name: Ben Bernanke
Author-Person: pbe55
Note: EFG ME
Number: 3486
Creation-Date: 1990-10
Order-URL: http://www.nber.org/papers/w3486
File-URL: http://www.nber.org/papers/w3486.pdf
File-Format: application/pdf
Publication-Status: published as New England Economic Review (Federal Reserve Bank of Boston) November-December 1990, pp. 51-68.
Abstract: A number of interest rates and interest rate spreads have been found to be useful in prediction the course of the economy. We compare the predictive power of some of these suggested interest rate variables for nine indicators of real activity and the inflation rate. Our results are consistent with those of Stock and Watson (1989) and Friedman and Kuttner (1989), who found that the spread between the commercial paper rate and the Treasury bill rate has been a particularly good predictor. We present evidence that this spread is informative not so much because it is a measure of default risk (which has been the usual presumption), but because it is an indicator of the stance of monetary policy; for example, during the "credit crunches" of the l960s aid the 1970s, the commercial paper -- Treasury bill spread typically rose significantly. We also show that, possibly because of charges in monetary policy operating procedures aid in financial markets, this spread appears r to be a less reliable predictor than it used to be.
Handle: RePEc:nbr:nberwo:3486
Template-Type: ReDIF-Paper 1.0
Title: The Federal Funds Rate and the Channels of Monetary Transnission
Author-Name: Ben Bernanke
Author-Person: pbe55
Note: EFG ME
Number: 3487
Creation-Date: 1990-10
Order-URL: http://www.nber.org/papers/w3487
File-URL: http://www.nber.org/papers/w3487.pdf
File-Format: application/pdf
Publication-Status: published as American Economic Review Volume 84, No. 4, pp. 901-921 September 1992
Abstract: First, we show that the interest rate on Federal funds is extremely informative about future movements of real macroeconomic variables, more so than monetary aggregates or other interest rates. Next, we argue that the reason for this forecasting is that the funds rate sensitively records shocks to the supply of (not the demand for) bank reserves, i.e. the funds rate is a good indicator of monetary policy actions. Finally, using innovations to the fuels rate as a measure of changes in monetary policy, we present evidence consistent with the view that monetary policy works at least in part through "credit" (that is, bank loans) as well as through "money" (that is, bank deposits) - even though bank loans fail to Granger-cause real variables.
Handle: RePEc:nbr:nberwo:3487
Template-Type: ReDIF-Paper 1.0
Title: The Gold Standard, Deflation, and Financial Crisis in the Great Depression: An International Comparison
Author-Name: Ben Bernanke
Author-Person: pbe55
Author-Name: Harold James
Author-Person: pja546
Note: EFG ME
Number: 3488
Creation-Date: 1990-10
Order-URL: http://www.nber.org/papers/w3488
File-URL: http://www.nber.org/papers/w3488.pdf
File-Format: application/pdf
Publication-Status: published as Financial Markets and Financial Crisis, Hubbard, editor. Chicago: University of Chicago Press, 1991.
Publication-Status: published as The Gold Standard, Deflation, and Financial Crisis in the Great Depression: An International Comparison, Ben Bemanke, Harold James. in Financial Markets and Financial Crises, Hubbard. 1991
Abstract: Recent research has provided strong circumstantial evidence for the proposition that sustained deflation -- the result of a mismanaged international gold standard -- was a major cause of the Great Depression of the 1930s. Less clear is the mechanism by which deflation led to depression. In this paper we consider several channels, including effects operating through real wages and through interest rates. Our focus, however, is on the disruptive effect of deflation on the financial system, particularly the banking system. Theory suggests that falling prices, by reducing the net worth of banks and borrowers, can affect flows of credit and thus real activity. Using annual data for twenty-four countries, we confirm that countries which (for historical or institutional reasons) were more vulnerable to severe banking panics also suffered much worse depressions, as did countries which remained on the gold standard. We also find that there may have been a feedback loop through which banking panics, particularly those in the United States, intensified the worldwide deflation.
Handle: RePEc:nbr:nberwo:3488
Template-Type: ReDIF-Paper 1.0
Title: Fiscal Policy, Capital Accumulation, and Debt in an Open Economy
Author-Name: Stephen J. Turnovsky
Author-Person: ptu5
Author-Name: Partha Sen
Note: ITI IFM
Number: 3489
Creation-Date: 1990-10
Order-URL: http://www.nber.org/papers/w3489
File-URL: http://www.nber.org/papers/w3489.pdf
File-Format: application/pdf
Publication-Status: published as Oxford Economic Papers, Vol. 43, No. 1, pp. 1-24, March 1991.
Abstract: This paper analyzes the effects of changes in government expenditures on both a domestically produced and an imported good in an open economy based on intertemporal optimizing behavior. The dynamic adjustment is characterized in detail and the critical role played by the accumulating capital stock is highlighted. The evolution of the current account is seen to mirror that of capital. The welfare of such policies is also assessed in tans of the intertemporal utility of the representative agent. Both permanent and temporary policy changes are considered, with the latter being shown to have a permanent effect on the economy.
Handle: RePEc:nbr:nberwo:3489
Template-Type: ReDIF-Paper 1.0
Title: On the Accuracy of Producer Price Indexes for Pharmaceutical Preparations: An Audit Based on Detailed Firm-Specific Data
Author-Name: Ernst R. Berndt
Author-Name: Zvi Griliches
Author-Name: Joshua G. Rosett
Note: PR
Number: 3490
Creation-Date: 1990-10
Order-URL: http://www.nber.org/papers/w3490
File-URL: http://www.nber.org/papers/w3490.pdf
File-Format: application/pdf
Abstract: This paper reports preliminary results of a detailed audit of one component of the Producer Price Index (PPI), using data from a large muiltproduct company. We compare price indexes constructed in a variety of ways from the universe of products of a large pharmaceutical manufacturer in the US, with price indexes constructed from the particular products of this firm sampled by the BIS, using BIS and alternative index number procedures. A principal finding is that price indexes based on the BIB sample of this firm grew similarly to the published PPI's for SIC 28341, but in contrast, price indexes computed using the universe of products manufactured by the firm grew much more slowly. Although some variations emerge depending on how one undertakes the calculations, our typical finding is that, employing monthly data from January 1984 through December 1989, the BIB sample price index rises at nearly the same rate as the PPI, bet at roughly twice the rate of indexes based on the universe of products shipped by this pharmaceutical firm. We also report results of a preliminary attempt to uncover the source of this disparity, we provide some evidence on the "new goods" problem, and we implement a procedure to mitigate the problem of "drift" associated with the Tornqvist approximation to the Divisia chained index.
Handle: RePEc:nbr:nberwo:3490
Template-Type: ReDIF-Paper 1.0
Title: Sectoral Shifts and Cyclical Unemployment Reconsidered
Author-Name: S. Lael Brainard
Author-Name: David M. Cutler
Author-Person: pcu64
Note: LS
Number: 3491
Creation-Date: 1990-10
Order-URL: http://www.nber.org/papers/w3491
File-URL: http://www.nber.org/papers/w3491.pdf
File-Format: application/pdf
Publication-Status: published as Quarterly Journal of Economics, February 1993, pp.219-243.
Abstract: This paper examines the importance of sectoral reallocation and cyclical unemployment; in the postwar US economy. It develops a new measure of reallocation shocks based on the variance of industry stock market excess returns over time, termed cross section volatility. Data on unemployment and vacancies is used to establish that the cross section volatility series is effective in isolating reallocation shocks. The series is then used to measure the contribution of reallocation shocks to aggregate unemployment and to unemployment; of varying durations. On average, about 40 percent of aggregate unemployment is explained by reallocation, but much of the variance of unemployment through time is better explained by cyclical shocks. Reallocation shocks account; for a relatively larger share of long duration unemployment.
Handle: RePEc:nbr:nberwo:3491
Template-Type: ReDIF-Paper 1.0
Title: The Effect of Veterans Benefits on Veterans' Education and Earnings
Author-Name: Joshua D. Angrist
Author-Person: pan29
Note: LS
Number: 3492
Creation-Date: 1990-10
Order-URL: http://www.nber.org/papers/w3492
File-URL: http://www.nber.org/papers/w3492.pdf
File-Format: application/pdf
Publication-Status: published as Industrial and Labor Relations, July 1993
Abstract: The majority of armed forces veterans make use of the subsidized training and educational benefits provided by the Department of Veterans Affairs. The effect of veterans benefits on educational attainment am civilian earnings is estimated here using the Census Bureau's 1987 Survey of Veterans. Two identification strategies are employed to control for unobserved characteristics that are correlated with educational attainment and benefit usage. First, a fixed effects strategy is implemented by exploiting information on educational attainment at the time of entry to service. Second, instrumental variables estimates are computed, where the excluded instruments are interactions between period of service am educational attainment at entry to service. The effect of veterans benefits on earnings is estimated by decomposing the return to education into a return to the grade completed at entry to service and a return to the post-entry grade increment. Veterans benefits are estimated to increase schooling by roughly 1.4 years and the grade increment is worth roughly 4.3 percent, so that veterans benefits raise annual earnings by approximately 6 percent. This premium appears to accrue primarily to the 77 percent of benefit users who attended college or graduate school.
Handle: RePEc:nbr:nberwo:3492
Template-Type: ReDIF-Paper 1.0
Title: Explaining Fiscal Policies and Inflation in Developing Countries
Author-Name: Sebastian Edwards
Author-Person: ped3
Author-Name: Guido Tabellini
Author-Person: pta37
Note: ITI IFM
Number: 3493
Creation-Date: 1990-10
Order-URL: http://www.nber.org/papers/w3493
File-URL: http://www.nber.org/papers/w3493.pdf
File-Format: application/pdf
Publication-Status: published as Journal of International Money and Finance, Vol. 10, pp. S16-S48, (1991).
Abstract: In this paper we investigate erririca1ly the determinants of inflation, seigniorage an fiscal deficits in developing countries. We first test the optimal taxation theory of inflation for a grip of 21 LDCs. We find that the implications of this theory is rejected for all the countries. We then proceed to implement a number of tests based on the new political economy approach to macroeconomic policies: we deal with some of the implications of a credibility and reputation model, and of a strategic government behavior model. We find that the data supports the most important predictions of the political economy view of fiscal policy. Our measures of political instability and political polarization play an important role in explaining cross country differences in seigniorage, inflation, government borrowing and fiscal deficits. We end by discussing directions for future research.
Handle: RePEc:nbr:nberwo:3493
Template-Type: ReDIF-Paper 1.0
Title: Workers' Compensation and Injury Duration: Evidence from a Natural Experiment
Author-Name: Bruce D. Meyer
Author-Person: pme273
Author-Name: W. Kip Viscusi
Author-Person: pvi69
Author-Name: David L. Durbin
Note: LS
Number: 3494
Creation-Date: 1990-10
Order-URL: http://www.nber.org/papers/w3494
File-URL: http://www.nber.org/papers/w3494.pdf
File-Format: application/pdf
Publication-Status: published as American Economic Review, 85, June 1995, pp 322-340.
Abstract: This paper examines the effect of workers' compensation on the time until an injured worker returns to work. Two large increases in the maximum weekly benefit amount in Kentucky am Michigan are examined. The increases raised the benefit amount for high earnings individuals by over sixty percent, while low earnings individuals, who did not earn enough to be eligible for the old maximum, did not experience a change in their incentives. A comparison of the behavior of pecp1e injured the year before the benefit increases to those injured the year after provides an estimate of the effect of higher benefits on injury duration. This use of a "natural experiment" allows us to separate the effect of the level of the benefits from the effect of previous earnings, which is a common difficulty in the analysis of social insurance programs. The analysis uses individual records from a large number of insurance companies. Time out of work increases dramatically for those groups eligible for the higher benefits, while those whose benefits do not change do not experience a change in duration. The estimates suggest large moral hazard effects of higher benefits, with the estimated elasticity of spell duration with respect to benefits of approximately .3 to .4.
Handle: RePEc:nbr:nberwo:3494
Template-Type: ReDIF-Paper 1.0
Title: Interest Rate Spreads, Credit Constraints, and Investment Fluctuations: An Empirical Investigation
Author-Name: Mark Gertler
Author-Person: pge11
Author-Name: R. Glenn Hubbard
Author-Person: phu97
Author-Name: Anil Kashyap
Author-Person: pka35
Note: EFG ME
Number: 3495
Creation-Date: 1990-10
Order-URL: http://www.nber.org/papers/w3495
File-URL: http://www.nber.org/papers/w3495.pdf
File-Format: application/pdf
Publication-Status: published as Financial Markets and Financial Crises, ed. R. Glenn Hubbard, University of Chicago Press, 1991.
Publication-Status: published as Interest Rate Spreads, Credit Constraints, and Investment Fluctuations: An Empirical Investigation, Mark Gertler, R. Glenn Hubbard, Anil Kashyap. in Financial Markets and Financial Crises, Hubbard. 1991
Abstract: We present a simple framework that incorporates a role for "interest rate spreads" in models of investment fluctuations. Formally, we develop a simple model of investment and financial contracting under asymmetric information that can he used to generate an Euler equation describing firms' intertemporal decisions about investment. The Euler equation is than estimated using data on U.S. producers' durable equipment investment. We find that during certain periods -- owing to agency-cost problems -- the basic Euler equation is violated, and shifts in interest rate differentials help predict investment. Thus, the empirical results lend support to models emphasizing how: (i) movements in agency costs of external finance can amplify investment fluctuation, and (ii) changes in the interest rate spread may signal movements in these agency costs.
Handle: RePEc:nbr:nberwo:3495
Template-Type: ReDIF-Paper 1.0
Title: The Globalization of Information and Capital Mobility
Author-Name: William H. Branson
Author-Name: Dwight M. Jaffee
Note: ITI IFM
Number: 3496
Creation-Date: 1990-10
Order-URL: http://www.nber.org/papers/w3496
File-URL: http://www.nber.org/papers/w3496.pdf
File-Format: application/pdf
Publication-Status: published as Accounting and Financial Globalization, edited by Joshua Ronen and Joshua Livnat, pp. 33-62. Westport, CT: Quorum Books, 1991.
Abstract: This paper provides a framework for analyzing the effects of symmetric and asymmetric changes in information about risk on equilibrium real interest rate spreads across countries. Following the literature on parameter uncertainty, improvements in information are modeled as reductions in estimated variances. The equilibrium interest differential is determined in a two country setting. The effects of changes in information on the differential are shown in cases where (a) all investors have the same information, (b) home investors have superior information about home assets, and (c) all investors experience an improvement in information about one asset. An improvement in information on European assets in "Europe 1992" will raise the interest differential on U.S. assets relative to European as investors shift toward European assets.
Handle: RePEc:nbr:nberwo:3496
Template-Type: ReDIF-Paper 1.0
Title: Capital Flows, Foreign Direct Investment, and Debt-Equity Swaps in Developing Countries
Author-Name: Sebastian Edwards
Author-Person: ped3
Note: ITI IFM
Number: 3497
Creation-Date: 1990-10
Order-URL: http://www.nber.org/papers/w3497
File-URL: http://www.nber.org/papers/w3497.pdf
File-Format: application/pdf
Publication-Status: published as Capital Flows in the World Economy, edited by Horst Siebert, pp. 255-281. Tubingen: J.C.B. Mohr, 1991.
Abstract: One of the nest serious consequences of the debt crisis of 1982 has been the reduction in the accessibility to the world capital market for most developing countries. This situation has proved to be particularly serious for Latin American nations. At this juncture, a key question is how to improve the LLCs attractiveness for foreign capital flows. In this paper I explore the role of two potential sour of additional private capital inflows: increased direct foreign investment, and the debt-conversion mechanisms. The paper presents the results from an economic analysis of the determinants of the cross-country distribution of the OECD direct foreign investment (DFI) into the LDCs. Particular emphasis is given to assessing the relative importance of political variables of the recipient countries. The role of the debt-equity swaps as investments for reducing the extreme debt burden is also investigated, using the recent Chilean experience with these mechanisms as a case-study.
Handle: RePEc:nbr:nberwo:3497
Template-Type: ReDIF-Paper 1.0
Title: New Trading Practices and Short-run Market Efficiency
Author-Name: Kenneth A. Froot
Author-Person: pfr60
Author-Name: Andre F. Perold
Note: ME
Number: 3498
Creation-Date: 1990-10
Order-URL: http://www.nber.org/papers/w3498
File-URL: http://www.nber.org/papers/w3498.pdf
File-Format: application/pdf
Publication-Status: published as Revised in Journal of Futures Markets, vol 15, Oct 1995, pp 731-766.
Abstract: We document a large decrease in autocorrelation and increase in variance of recent short-run returns on several broad stock market indexes, over the 1983-89 period, 15-minute returns went from being highly positively serially correlated to practically uncorrelated. Over the past twenty years, daily and weekly autocorrelations have also fallen, we use transactions data to decompose short-run index autocorrelation into three components: bid-ask bounce, nontrading effects, and noncomtemporaneous cross-stock correlations in specialists' quotes. The first two factors do not explain the autocorrelation's decline. We argue that new trading practices have improved the processing of market-wide information, and that the recent decreases in autocorrelation and increases in volatility simply reflect these improvements.
Handle: RePEc:nbr:nberwo:3498
Template-Type: ReDIF-Paper 1.0
Title: International Impacts on Domestic Political Economy: A Case of Japanese General Elections
Author-Name: Takatoshi Ito
Note: ME
Number: 3499
Creation-Date: 1990-10
Order-URL: http://www.nber.org/papers/w3499
File-URL: http://www.nber.org/papers/w3499.pdf
File-Format: application/pdf
Publication-Status: published as Journal of International Money and Finance, Vol. 10, pp. S73-S89, (1991).
Abstract: The objective of this paper is twofold. First, this paper emphasizes that in a parliamentary system, such as in Japan, election timings become endogenous, in that good economic performances tend to trigger elections. Second, impacts of international factors, such as foreign exchange reserves and elections of the United States, on domestic economic performances will be examined in the context of political business cycles. This paper finds only a limited link between economic performances and international variables, except one that upcoming elections in the United States tend to cause a higher rate of growth in Japan. Evidence suggests that although blatant policies, such as a beggar-thy-neighbor policy, were not adopted, a more subtle international cooperation, in the form of Japanese expansion to pill up the United States economy, have been used.
Handle: RePEc:nbr:nberwo:3499
Template-Type: ReDIF-Paper 1.0
Title: Taxes, Tariffs, and The Global Corporation
Author-Name: James Levinsohn
Author-Person: ple386
Author-Name: Joel Slemrod
Author-Person: psl10
Note: PE
Number: 3500
Creation-Date: 1990-10
Order-URL: http://www.nber.org/papers/w3500
File-URL: http://www.nber.org/papers/w3500.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Public Economics, Vol. 51, May 1993, pp. 97-116.
Abstract: In this paper we develop some simple models of optimal tax and tariff policy in the presence of global corporations that operate in an imperfectly competitive environment. The models emphasize two important differences in the practical application of tax and tariff policy - tax, but not tariff, policy can apply to offshore output and tariff, but not tax, policy can be industry-specific. Recognizing the multinationals' production decisions are endogenous to the tax and tariff policies they face, we investigate optimal tax or subsidy policies for domestically owned firms and optimal trade policy.
Handle: RePEc:nbr:nberwo:3500
Template-Type: ReDIF-Paper 1.0
Title: Taxation and the Cost of Capital: The "Old" View, the "New" View and Another View
Author-Name: Hans-Werner Sinn
Author-Person: psi146
Note: PE
Number: 3501
Creation-Date: 1990-10
Order-URL: http://www.nber.org/papers/w3501
File-URL: http://www.nber.org/papers/w3501.pdf
File-Format: application/pdf
Publication-Status: published as Taxation and the Cost of Capital: The "Old" View, the "New" View, and Another View, Hans-Werner Sinn. in Tax Policy and the Economy, Volume 5, Bradford. 1991
Abstract: This paper is a critical survey of the recent literature on the tax effects on corporate finance and investment decisions. It corrects a common misinterpretation of the "new" view, emphasizes the cushion effect of financial optimization, dismisses the view that optimizing firms behave as if they maximized their cost of finance, studies the role of immature firms, questions the alleged support of the old view by the occurrence of share repurchases, comments on a potential US budget compromise, and suggests the idea of a Political Miller Equilibrium.
Handle: RePEc:nbr:nberwo:3501
Template-Type: ReDIF-Paper 1.0
Title: Efficient Contracting and Market Power: Evidence from the U.S. Natural Gas Industry
Author-Name: R. Glenn Hubbard
Author-Person: phu97
Author-Name: Robert J. Weiner
Note: PR
Number: 3502
Creation-Date: 1990-10
Order-URL: http://www.nber.org/papers/w3502
File-URL: http://www.nber.org/papers/w3502.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Law and Economics, Vol.34, No.1, pp.25-67, April 1991.
Abstract: It is well recognized by economists that long-term contracting under an array of price and non-price provisions may be an efficient response to small-numbers bargaining problems. Empirical work to distinguish such issues from predictions of models of market power and bargaining has been sparse, principally because the necessary data on individual transactions are seldom publicly available. The U.S. natural gas industry is well suited for such tests both because of the small number of buyers (pipelines) and sellers (producers) in each market and the large capital commitments required of transacting parties at the inning of the contract. We present a model of the bilateral bargaining process is natural gas field markets under uncertainty. We identify the 'initial price' as the outcome of the bargaining aver a fixed payment for pipeline to producer, and describe "price-escalator provisions" as a means of making the contract responsive at the margin to changes in the valuation of gas over the term of the agreement. Our econometric work rakes use of a large, detailed data set on during the l950s. Empirical evidence from models of price determination and the use of most-favored-nation clauses is supportive of the theoretical model.
Handle: RePEc:nbr:nberwo:3502
Template-Type: ReDIF-Paper 1.0
Title: Procyclical Labor Productivity and Competing Theories of the Business Cycle: Some Evidence from Interwar U.S. Manufacturing Industries
Author-Name: Ben S. Bernanke
Author-Person: pbe55
Author-Name: Martin L. Parkinson
Note: EFG
Number: 3503
Creation-Date: 1990-10
Order-URL: http://www.nber.org/papers/w3503
File-URL: http://www.nber.org/papers/w3503.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Political Economy 99(3): 439-59, June 1991.
Abstract: Each of the main explanations of procyclical labor productivity, or short-run increasing returns to labor (SRIRL), is closely associated with a competing theory of the business cycle: Real business cycle theorists attribute SRIRL to procyclical technological shocks, proponents of recent theories based on non-convexities believe that SRIRL reflects true increasing returns, and Keynesians favor a labor hoarding explanation. Thus evidence on the sources of SRIRL may be important for discriminating among alternative theories of the cycle. This paper studies the sources of SRIRL in a sample of ten interwar U.S. manufacturing industries. Our main findings are that SRIRL was common in the interwar period and that the pattern of SRIRL across industries was similar to that observed in the postwar period. we argue that, under the presumption that the Depression was not caused by large negative technological shocks, these findings are inconsistent with the technological shocks hypothesis and provide evidence against real business cycle theory in general. we propose tests for discriminating between the increasing returns and labor hoarding explanations but find that our conclusions differ by industry.
Handle: RePEc:nbr:nberwo:3503
Template-Type: ReDIF-Paper 1.0
Title: Where Does the Meteor Shower Come From? The Role of Stochastic Policy Coordination
Author-Name: Takatoshi Ito
Author-Name: Robert F. Engle
Author-Name: Wen-Ling Lin
Note: ME ITI IFM
Number: 3504
Creation-Date: 1990-10
Order-URL: http://www.nber.org/papers/w3504
File-URL: http://www.nber.org/papers/w3504.pdf
File-Format: application/pdf
Publication-Status: published as Journal of International Economics, Vol. 32, pp. 221-240 (1992).
Abstract: The purpose of this paper is to examine the intra-daily volatility of the yen/dollar exchange rate over three different regimes from 1979 to 1988 which correspond to different degrees of international policy coordination. In each regime we test for heat wave vs. meteor shower effects. The heat wave hypothesis assumes that volatility has only country specific autocorrelations, while the meteor shower hypothesis allows volatility spillovers from one market to the next. Meteor showers can be caused by stochastic policy coordination, by gradual release of private information, or by market failures such as fads, bubbles or bandwagons. The rejection of the heat wave model over the first half of the 1980s discredits the stochastic policy coordination interpretation because there was little policy coordination among industrial countries prior to the Plaza Agreement in 1985.
Handle: RePEc:nbr:nberwo:3504
Template-Type: ReDIF-Paper 1.0
Title: A General Equilibrium Model of Housing, Taxes, and Portfolio Choice
Author-Name: James Berkovec
Author-Name: Don Fullerton
Author-Person: pfu10
Note: PE
Number: 3505
Creation-Date: 1990-11
Order-URL: http://www.nber.org/papers/w3505
File-URL: http://www.nber.org/papers/w3505.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Political Economy, Vol. 100, No. 2, pp. 390-429, (1992)
Abstract: We describe a model in which rental and owner housing are risky assets, tenure choice is endogenous, and each household is constrained to consume the same amount of owner housing as it has in its investment portfolio. At each iteration in the search for an equilibrium, we determine the new taxable income for each of 3,578 households (from the Survey of Consumer Finances), and we use statutory schedules to find the marginal rate and tax paid. Equilibrium net rates of return are major determinants of the amount of owner housing, but a logit model indicates that demographic factors are the main determinants of ownership rates. A simulation of taxes on owner housing raises welfare not only by re-allocating capital, but also because government takes part of the risk from individual properties and diversifies it away. Measures to disallow property tax or mortgage interest deductions do not help share this risk. Simulations of actual tax reform indicate a small shift from rental to owner housing, and welfare gains from re-allocating risk.
Handle: RePEc:nbr:nberwo:3505
Template-Type: ReDIF-Paper 1.0
Title: Distortionary Taxes and the Provision of Public Goods
Author-Name: Charles L. Ballard
Author-Person: pba431
Author-Name: Don Fullerton
Author-Person: pfu10
Note: PE
Number: 3506
Creation-Date: 1990-11
Order-URL: http://www.nber.org/papers/w3506
File-URL: http://www.nber.org/papers/w3506.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Economic Perspectives, Vol. 6, No. 3, pp. 117-131 (Summer 1992).
Abstract: When comparing marginal costs and benefits of a public project, most economists think in terms of adding together the marginal costs of production plus marginal costs of additional distortionary taxation. This paper clarifies how the "revenue effect" offsets the "distortionary effect." For Cobb-Douglas utility with a marginal increase in a proportional wage tax, they exactly offset each other and the Samuelson rule is unaffected. Also, with a preexisting wage tax, an incremental lump-sum tax has only this "revenue effect:" it increases labor supply, increases tax revenue from the preexisting wage tax, and thus makes the project easier to fund. In our numerical example, the incremental lump-sum tax costs taxpayers only $.77 per dollar raised.
Handle: RePEc:nbr:nberwo:3506
Template-Type: ReDIF-Paper 1.0
Title: Inputs to Tax Policymaking: The Supply Side, the Deficit, and the Level Playing Field
Author-Name: Don Fullerton
Author-Person: pfu10
Note: PE
Number: 3507
Creation-Date: 1990-11
Order-URL: http://www.nber.org/papers/w3507
File-URL: http://www.nber.org/papers/w3507.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: Although supply side theory may have been obvious to economists, it instigated a major change in the nature of tax policymaking through marginal rate cuts in both the Economic Recovery Tax Act of 1981 and the Tax Reform Act of 1986. Also, the 1981 bill was the culmination of an era in which policymakers could use expected revenue increases to enact rate cuts as well as special tax provisions. The deficit became a force in tax policymaking not only because of revenue losses from the 1981 bill, but because the indexation of rate brackets turned projected future surpluses into projected future deficits. Finally, starting in 1982, the legacy of special tax provisions led to cries for a level playing field that would treat similar taxpayers more equally and improve efficiency in the allocation of resources.
Handle: RePEc:nbr:nberwo:3507
Template-Type: ReDIF-Paper 1.0
Title: Public Sector Dynamics
Author-Name: Alan J. Auerbach
Author-Person: pau33
Note: PE
Number: 3508
Creation-Date: 1990-11
Order-URL: http://www.nber.org/papers/w3508
File-URL: http://www.nber.org/papers/w3508.pdf
File-Format: application/pdf
Publication-Status: published as J. Quigley and E. Smolensky, eds. Modern Public Finance. Cambridge, MA: Harvard University Press, 1994, pp. 58-84.
Abstract: Using Musgrave's The Theory of Public Finance as a starting point, this paper reviews the scholarly developments in Public Sector Dynamics during the past three decades, placing emphasis not only on accomplishments but also areas in need of additional research. The review is organized into sections covering research on the public debt, its measurement and impact; the fiscal determinants of savings and the choice of tax base; the effects of taxation on investment and risk-taking; dynamic tax incidence; and dynamic inconsistency and public choice. Among the specific research topics considered are the Ricardian equivalence proposition, the incidence of the corporation income tax, the choice between income and consumption taxes, and political business cycles.
Handle: RePEc:nbr:nberwo:3508
Template-Type: ReDIF-Paper 1.0
Title: Immigration and the Family
Author-Name: George J. Borjas
Author-Person: pbo44
Author-Name: Stephen G. Bronars
Author-Person: pbr432
Note: LS
Number: 3509
Creation-Date: 1990-11
Order-URL: http://www.nber.org/papers/w3509
File-URL: http://www.nber.org/papers/w3509.pdf
File-Format: application/pdf
Publication-Status: published as Borjas, George J & Bronars, Stephen G. "Immigration and the Family," Journal of Labor Economics, University of Chicago Press, vol. 9(2), pages 123-48, April 1991.
Abstract: This paper studies the role of the family in determining the skill composition and labor market experiences of immigrants in the United States. Our theoretical framework, based on the assumption that family migration decisions maximize household income, shows that the family attenuates the selection characterizing the skills of the immigrant population. The empirical analysis uses the 1970 and 1980 Public Use Samples of the U.S. Census, and reveals that an immigrant's skills and labor market performance are greatly influenced by the composition of the household at the time of migration, and by his placement in the immigration chain.
Handle: RePEc:nbr:nberwo:3509
Template-Type: ReDIF-Paper 1.0
Title: Recursive and Sequential Tests of the Unit Root and Trend Break Hypothesis: Theory and International Evidence
Author-Name: Anindya Banerjee
Author-Person: pba894
Author-Name: Robin L. Lumsdaine
Author-Name: James H. Stock
Author-Person: pst148
Note: EFG
Number: 3510
Creation-Date: 1990-11
Order-URL: http://www.nber.org/papers/w3510
File-URL: http://www.nber.org/papers/w3510.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Business and Economic Statistics Volume 10, No. 3, pp. 271-287 July 1992
Abstract: This paper investigates the possibility, raised by Perron (1989, 1990a), that aggregate economic time series can be characterized as being stationary around broken trend lines. Unlike Perron, we treat the break date as unknown a priori. Asymptotic distributions are developed for recursive, rolling, and sequential tests for unit roots and/or changing coefficients in time series regressions. The recursive and rolling tests are based on a time series of recursively estimated coefficients, computed using increasing subsamples of the data. The sequential statistics are computed using the full data set and a sequence of regressors indexed by a "break" date. When applied to data on real postwar output from seven DECO countries, these techniques fail to reject the unit root hypothesis for five countries (including the U.S.), but suggest stationarity around a shifted trend for Japan.
Handle: RePEc:nbr:nberwo:3510
Template-Type: ReDIF-Paper 1.0
Title: Riding the Yield Curve: Reprise
Author-Name: Robin Grieves
Author-Name: Alan J. Marcus
Author-Person: pma1156
Note: ME
Number: 3511
Creation-Date: 1990-11
Order-URL: http://www.nber.org/papers/w3511
File-URL: http://www.nber.org/papers/w3511.pdf
File-Format: application/pdf
Publication-Status: published as Robin Grieves & Alan J. Marcus, 1992. "Riding the Yield Curve," The Journal of Portfolio Management, vol 18(4), pages 67-76.
Abstract: We investigate the efficacy of riding the yield curve. This strategy dictates holding longer-term treasury bills when the yield curve is upwardsloping. We find that the strategy is surprisingly effective. it stochastically dominates buying and holding shorter-term bills for large subperiods, and nearly dominates for the entire sample period, 1949-1988. Our empirical results suggest that abnormal profit opportunities are available from selectively increasing the maturity of a short-term portfolio.
Handle: RePEc:nbr:nberwo:3511
Template-Type: ReDIF-Paper 1.0
Title: Comparative Advantage, Geographic Advantage, and the Volume of Trade
Author-Name: James E. Rauch
Author-Person: pra166
Note: ITI IFM
Number: 3512
Creation-Date: 1990-11
Order-URL: http://www.nber.org/papers/w3512
File-URL: http://www.nber.org/papers/w3512.pdf
File-Format: application/pdf
Publication-Status: published as Economic Journal, Vol. 101, pp. 1230-1244, (September 1991).
Abstract: A functional relationship between the degree of a country?s comparative advantage in any good and the volume of its net exports of that good to its trading partner is established using a model with per-unit-distance transportation costs between countries' coasts and their interiors. The greater a country's comparative advantage, the greater the transportation cost it can overcome and hence the deeper its exports can penetrate geographically into its trading partner. The internal spatial structure of a country is modeled using cities as the basic spatial units. It is shown that the city closest to the coast will be the largest and have the highest wage rate and residential rental rates, and that population sizes, wage rates, and residential rental rates of cities all fall as one moves inland.
Handle: RePEc:nbr:nberwo:3512
Template-Type: ReDIF-Paper 1.0
Title: A Simple Model of Useless Speculation
Author-Name: Murray C. Kemp
Author-Name: Hans-Werner Sinn
Author-Person: psi146
Note: ITI IFM
Number: 3513
Creation-Date: 1990-11
Order-URL: http://www.nber.org/papers/w3513
File-URL: http://www.nber.org/papers/w3513.pdf
File-Format: application/pdf
Publication-Status: published as C and S working Paper , December 1995, Japanese Economic Review 51, (2000), pp. 85-95.
Abstract: The paper presents a general equilibrium model of a pure exchange economy with stochastic endowment in which speculation is profitable and stabilizes prices, but is useless from a welfare point of view. Reconciling the Siegel paradox with the theory of incomplete markets we show that banning speculation by closing the forward exchange market may increase social welfare.
Handle: RePEc:nbr:nberwo:3513
Template-Type: ReDIF-Paper 1.0
Title: The Draft Lottery and Voluntary Enlistment in the Vietnam Era
Author-Name: Joshua D. Angrist
Author-Person: pan29
Note: LS
Number: 3514
Creation-Date: 1990-11
Order-URL: http://www.nber.org/papers/w3514
File-URL: http://www.nber.org/papers/w3514.pdf
File-Format: application/pdf
Publication-Status: published as Journal of the American Statistical Association, (September 1991).
Abstract: A combination of voluntary enlistment, armed forces eligibility criteria, and the failure of draftees to avoid conscription jointly determined the racial composition of the Vietnam-era armed forces. Administrative data show that men with draft lottery numbers that put them at high risk of conscription are overrepresented among men who voluntarily enlisted in the military, but that the effect of the lottery on enlistment is stronger for whites than for nonwhites. Minimum Chi-Square estimates of enlistment models for the 1971 draft lottery suggest that nonwhites were more likely than whites to prefer enlistment to a civilian career. This finding appears to explain racial differences in the effect of the lottery on enlistment. Contrary to the findings of a recent congressional study, the Vietnam-era estimates presented here suggest that conscription of a relatively small number of whites and nonwhites in a manner proportional to their prevalence in the population might substantially reduce nonwhite representation in the armed forces.
Handle: RePEc:nbr:nberwo:3514
Template-Type: ReDIF-Paper 1.0
Title: Equipment Investment and Economic Growth
Author-Name: J. Bradford De Long
Author-Name: Lawrence H. Summers
Author-Person: psu137
Note: EFG
Number: 3515
Creation-Date: 1990-11
Order-URL: http://www.nber.org/papers/w3515
File-URL: http://www.nber.org/papers/w3515.pdf
File-Format: application/pdf
Publication-Status: published as Quarterly Journal of Economics, Vol.106, No.2,(May 1991),pp. 445-502.
Abstract: Using data from the United Nations Comparison Project and the Penn World Table, we find that machinery and equipment investment has a strong association with growth: over l9&)?l95 each percent of GDP invested in equipment is associated with an increase in GDP growth of 1/3 a percentage point per year. This is a much stronger association than found between growth and any of the other components of investment. A variety of considerations suggest that this association is causal, that higher equipment investment drives faster growth, and that the social return to equipment investment in well functioning market economies is on the order of 30 percent per year.
Handle: RePEc:nbr:nberwo:3515
Template-Type: ReDIF-Paper 1.0
Title: Municipal Labor Demand in the Presence of Uncertainty: An Econometric Approach
Author-Name: Douglas Holtz-Eakin
Author-Name: Harvey S. Rosen
Author-Person: pro55
Note: PE
Number: 3516
Creation-Date: 1990-11
Order-URL: http://www.nber.org/papers/w3516
File-URL: http://www.nber.org/papers/w3516.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Labor Economics, Vol. 9, No. 3, pp. 276-293, (July 1991).
Abstract: We specify a modem of municipal labor demand when resource flows available to the municipality are not known with certainty. The model allows us to test the hypothesis that employment decisions are rational in the sense that they incorporate all available information at the time that the decisions are made. We find that for our sample of communities, on the whole one cannot reject the hypothesis that labor demand is consistent with intertemporal utility maximization under uncertainty. However, small and large communities exhibit different behavior. The employment decisions of small communities are consistent with the model, while those of large communities are not.
Handle: RePEc:nbr:nberwo:3516
Template-Type: ReDIF-Paper 1.0
Title: British and French Finance During the Napoleonic Wars
Author-Name: Michael D. Bordo
Author-Person: pbo243
Author-Name: Eugene N. White
Author-Person: pwh5
Note: AG ME
Number: 3517
Creation-Date: 1990-11
Order-URL: http://www.nber.org/papers/w3517
File-URL: http://www.nber.org/papers/w3517.pdf
File-Format: application/pdf
Publication-Status: published as "A Tale of Two Currencies: British and French Finance During the Napoleonic Wars." Journal of Economic History, Vol. 51, No. 2, pp. 303-316, (June 1991).
Abstract: The Napoleonic Wars offer an experiment unique in the history of wartime finance. While Britain was forced off the gold standard and endured a sustained inflation, France remained on a bimetallic standard for the war's duration. For wars of comparable length and intensity in the nineteenth and twentieth centuries, Napoleonic war finance stands out. This apparent paradox may be explained by drawing upon the literatures on tax smoothing, time consistency, and credibility in macroeconomics. We argue that these contrasting war finance regimes were the consequence of each nation's credibility as a debtor. Given its long record of fiscal probity, coupled with its open budgetary process in Parliament, Great Britain could continue to borrow a substantial fraction of its war expenditures at what were relatively low interest rates. British tax rates did not vary much over most of the eighteenth century as peacetime surpluses offset wartime deficits to payoff the accumulated war debts. In addition, because of its longstanding record of maintaining specie convertibility, Britain had access to the inflation tax although in practice it was not a major source of wartime finance. France, on the other hand, had squandered her reputation in the last decade of the ancient regime and the Revolution. Her dependency on taxation did not reflect any superior fiscal virtues but rather the opposite. Borrowing would have been exceedingly costly and the public very skeptical of the Empire's fidelity. Moreover, the recent experience of assignat hyperinflation ruled out the inflation tax as a source of revenue. Inherited credibility resolves this paradoxical pairing of fiscal regimes.
Handle: RePEc:nbr:nberwo:3517
Template-Type: ReDIF-Paper 1.0
Title: High Inflation and the Nominal Anchors of an Open Economy
Author-Name: Michael Bruno
Note: ITI IFM
Number: 3518
Creation-Date: 1990-11
Order-URL: http://www.nber.org/papers/w3518
File-URL: http://www.nber.org/papers/w3518.pdf
File-Format: application/pdf
Abstract: A high inflation process is usually due to a real imbalance and cannot be cured without a correction of real furamenta1s. Yet it can be characterized as a quasi-stable nominal process which gets divorced from the real system in what Patinkin could call a valid classical dichotomy. This paper extends the existing seignorage model approach to multiple inflationary equilibria by rationalizing a high inflation equilibrium as well as its stability as the outcomes of sub-optimization by a 'soft' government. It considers the advantages as well as the weaknesses of using the exchange rate as the key nominal anchor in the various stages of stabilization to low (or zero) inflation. Finally the rationale for using multiple nominal anchors is also discussed. Applications of the theoretical arguments are illustrated from recent high inflation and stabilization experience.
Handle: RePEc:nbr:nberwo:3518
Template-Type: ReDIF-Paper 1.0
Title: Taxation and the Birth of Foreign Subsidiaries
Author-Name: Hans-Werner Sinn
Author-Person: psi146
Note: PE
Number: 3519
Creation-Date: 1990-11
Order-URL: http://www.nber.org/papers/w3519
File-URL: http://www.nber.org/papers/w3519.pdf
File-Format: application/pdf
Publication-Status: published as Herberg, Horst and Ngo Van Long (eds.) Trade, welfare, and economic policies: Papers in Honour of Murray C . Kemp. Ann Arbor: Michigan University Press, 1993.
Abstract: The paper studies the influence of tax policy on foreign direct investment with a particular emphasis on immature subsidiaries. Among other things it shows that taxes on repatriations reduce the subsidiary's "birth weight", that lump sum taxes reduce its cost of capital, and that the possibility of deferral increases this cost. The paper rejects the popular weighted average specification of the subsidiary's cost of capital.
Handle: RePEc:nbr:nberwo:3519
Template-Type: ReDIF-Paper 1.0
Title: Stock Prices, News, and Business Conditions
Author-Name: Grant McQueen
Author-Name: V. Vance Roley
Note: ME
Number: 3520
Creation-Date: 1990-11
Order-URL: http://www.nber.org/papers/w3520
File-URL: http://www.nber.org/papers/w3520.pdf
File-Format: application/pdf
Publication-Status: published as Review of Financial Studies, Vol. 6, no. 3 (1993): 683-707.
Abstract: Previous research finds that fundamental macroeconomic news has little effect on stock prices. This study shows that after allowing for different stages of the business cycle, a stronger relationship between stock prices and news is evident. In particular, the empirical results suggest that the effect of news about real economic activity depends on the varying responses of expected cash flows relative to equity discount rates. When the economy is strong, for example, the stock market responds negatively to good news about real economic activity, reflecting the larger effect on discount rates relative to expected cash flows.
Handle: RePEc:nbr:nberwo:3520
Template-Type: ReDIF-Paper 1.0
Title: Post-War Economic Growth in the Group-of-Five Countries: A New Analysis
Author-Name: Michael J. Boskin
Author-Name: Lawrence J. Lau
Note: EFG
Number: 3521
Creation-Date: 1990-11
Order-URL: http://www.nber.org/papers/w3521
File-URL: http://www.nber.org/papers/w3521.pdf
File-Format: application/pdf
Abstract: An inter-country aggregate production function is estimated using annual data for the post-war period drawn from the Group-of-Five (G-5) countries: France, West Germany, Japan, United Kingdom and United states. It is assumed that all countries have the same underlying production function, not in terms of the measured outputs and inputs, but in terms of efficiency equivalent units of outputs and inputs. The measured quantities of outputs and inputs of each country may be converted into efficiency-equivalent quantities of outputs and inputs by the multiplication of country and commodity-specific and time-varying augmentation factors. These augmentation factors are estimated simultaneously with the parameters of the aggregate production function. Within this framework, the traditional assumptions for the measurement of productivity--constant returns to scale, neutrality of technical progress and profit maximization--are tested and all are rejected. Additional hypotheses about the nature of technical progress are also tested. It is found that technical progress may be represented as purely capital augmenting. In particular, the rate of augmentation is estimated at between 14 and 16 percent per annum for France, West Germany and Japan, and between 8 and 10 percent per annum for the U.K. and the U.S. for the period under study. It is also found that technical progress is capital-saving rather than labor-saving and is therefore unlikely to be a cause of structural unemployment. Using the estimated production function parameters, a growth-accounting exercise is carried out and the results are compared with those obtained from the conventional approach. Technical progress is found to be the most important source of growth, accounting for more than 50 percent, followed by the growth of capital input. Together they account for more than 75 percent of the growth of real output in the Group-of-Five (G-5) countries in the period under study. An international and intertemporal comparison of the productive efficiencies is also undertaken. It is found that the United States had the highest level of overall productive efficiency for the whole period under study. However, the productive efficiencies of France, West Germany and Japan rose rapidly from less than 40 percent of the U.S. level in 1949 to two-thirds of the U.S. level in 1985. There is thus some evidence of convergence.
Handle: RePEc:nbr:nberwo:3521
Template-Type: ReDIF-Paper 1.0
Title: The Economics of Seasonal Cycles
Author-Name: Jeffrey A. Miron
Author-Person: pmi250
Note: EFG
Number: 3522
Creation-Date: 1990-11
Order-URL: http://www.nber.org/papers/w3522
File-URL: http://www.nber.org/papers/w3522.pdf
File-Format: application/pdf
Publication-Status: published as With J. Joseph Beaulieu, published as "What Have Macroeconomists Learned About Business Cycles from the Study of Seasonal Cycles?", Review of Economics and Statistics, Vol. 78, no. 1 (February 1996): 54-66.
Publication-Status: published as Jeffrey A. Miron, 1996. "The Economics of Seasonal Cycles," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262133237, December.
Abstract: Since macroeconomists first began the systematic study of aggregate data, they have grappled with the fact that most economic time series exhibit substantial seasonal variation. In general, macroeconomists abstract from this seasonal variation, both in their models of cyclical behavior and in their empirical testing of these models. This standard practice is a useful simplification if two key conditions hold. The first is that there are no interactions between seasonal cycles and business cycles: they result from different exogenous factors and different economic propagation mechanisms. The second is that there are no important welfare issues attached to seasonal fluctuations per se: optimal government policy toward seasonals is simply to leave them alone. The purpose of this essay is twofold. It first summarizes recent work demonstrating that seasonal cycles and business cycles are intimately related, displaying similar stylized facts and being driven by similar economic propogation mechanisms. The essay then discusses the possible welfare implications of seasonal cycles, suggesting there is no reasonable presumption they are uninteresting from a welfare or policy perspective. Taken together, these results imply the need for a significant re-orientation in economists' treatment of seasonal fluctuations. Rather than a component of the data to be adjusted away and treated as noise, seasonal fluctuations represent a key topic of economic analysis. They contain significant information about the nature of business cycles, and they require analysis in their own right because they may induce significant welfare losses.
Handle: RePEc:nbr:nberwo:3522
Template-Type: ReDIF-Paper 1.0
Title: The Bubble of 1929: Evidence from Closed-End Funds
Author-Name: J. Bradford De Long
Author-Name: Andrei Shleifer
Author-Person: psh93
Note: ME
Number: 3523
Creation-Date: 1990-11
Order-URL: http://www.nber.org/papers/w3523
File-URL: http://www.nber.org/papers/w3523.pdf
File-Format: application/pdf
Publication-Status: published as Reprinted in Eugene N. White, ed., "Stock Market Crashes and Speculative Manias," The International Library of Macroeconomic and Financial History, vol. 13, An Elger Reference Collection, 1996.
Abstract: Closed-end mutual funds provide one of the few cases in which economists can observe "fundamental" values directly, and compare them to market values: the fundamental value of a closed-end fund is simply the net asset value of its portfolio. We use the difference between prices and asset values of closed-end funds at the end of the 1920s as a measure of investment sentiment. In the late l920s closed-end funds sold at large premia: at the peak, they appear willing to pay 60 percent more for closed-end funds than the post-WWII norm. Such substantial overpricing of closed-end funds -- where fundamentals are known and observed -- suggests that other assets were selling at prices above fundamentals as well. The association between movements in the medium closed-end fund discount and movements in broad stock price indices leads us to conclude that the stocks making up the S & P composite were priced at least 30 percent above fundamentals in the summer of 1929.
Handle: RePEc:nbr:nberwo:3523
Template-Type: ReDIF-Paper 1.0
Title: Job Vacancy Rates in the Firm: An Empirical Analysis
Author-Name: Harry J. Holzer
Author-Person: pho162
Note: LS
Number: 3524
Creation-Date: 1990-12
Order-URL: http://www.nber.org/papers/w3524
File-URL: http://www.nber.org/papers/w3524.pdf
File-Format: application/pdf
Publication-Status: published as Economica, Vol. 61, no. 241 (1994): 17-36.
Abstract: In this paper I present some evidence on the magnitudes and determinants of job vacancy rates at the firm level. The data are from a survey of firms in 1980 and 1982, as well as from 1980 Census data on industry and local area characteristics. The results show that overall job vacancy rates are low but there is substantial variation across firms, occupations, industries, and local areas. Unemployment rates, either local or aggregate, have negative effects on vacancy rates while average industry skill levels have positive effects, thus indicating the importance of the firm's demand for skills. Large and/or unionized firms have relatively low vacancy rates, which also account for the low vacancy rates of high-wage firms; and firms with high turnover and recent sales growth have higher vacancy rates. Thus, a variety of market conditions and firm characteristics influence vacancy rates at the firm level.
Handle: RePEc:nbr:nberwo:3524
Template-Type: ReDIF-Paper 1.0
Title: Pension Portability and Labor Mobility: Evidence From the Survey of Income and Program Participation
Author-Name: Alan Gustman
Author-Person: pgu327
Author-Name: Thomas Steinmeier
Note: LS
Number: 3525
Creation-Date: 1990-12
Order-URL: http://www.nber.org/papers/w3525
File-URL: http://www.nber.org/papers/w3525.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Public Economics, vol 50, 1993, pp. 299-323
Abstract: The evidence presented in this paper casts doubt on the proposition that pension backloading is responsible for the low job mobility rates observed for pension covered workers. It corroborates earlier findings by the authors, based on different data, that pension covered jobs offer higher levels of compensation than workers can obtain elsewhere, and it is this compensation premium, rather than non-portability, that accounts for lower turnover among pension covered workers. This evidence is further bolstered by the finding that defined contribution plans, which are not backloaded, and defined benefit plans, bear similar negative relations to mobility.
Handle: RePEc:nbr:nberwo:3525
Template-Type: ReDIF-Paper 1.0
Title: Hysteresis in the Trade Pattern
Author-Name: Gene M. Grossman
Author-Person: pgr21
Author-Name: Elhanan Helpman
Author-Person: phe205
Note: ITI IFM
Number: 3526
Creation-Date: 1990-12
Order-URL: http://www.nber.org/papers/w3526
File-URL: http://www.nber.org/papers/w3526.pdf
File-Format: application/pdf
Publication-Status: published as Theory, Policy and Dynamics in International Trade, W.J. Ether et al.,(eds.), (Cambridge, Cambridge University Press, 1993). pp. 268-290
Abstract: We study a world economy comprising two countries that may differ only in their prior experience in the research lab. Entrepreneurs in each country develop new technologies for varieties of a differentiated product whenever expected profits justify up-front research costs. Research productivity depends upon national stocks of knowledge capital, which accumulate in proportion to local research activity. The countries produce and trade their unique varieties of the differentiated good, as well as a homogeneous, "traditional" product. In this context, we ask whether a country can overcome a late start in research to develop a comparative advantage in the high-technology sector. We also examine the welfare properties of the equilibrium trajectory and of policies that might be used to reverse a country's fate.
Handle: RePEc:nbr:nberwo:3526
Template-Type: ReDIF-Paper 1.0
Title: The Benefits of Crises for Economic Reforms
Author-Name: Allan Drazen
Author-Person: pdr25
Author-Name: Vittorio Grilli
Note: ITI IFM
Number: 3527
Creation-Date: 1990-12
Order-URL: http://www.nber.org/papers/w3527
File-URL: http://www.nber.org/papers/w3527.pdf
File-Format: application/pdf
Publication-Status: published as American Economic Review, vol.83, no.3, June1993.
Abstract: This paper presents a model in which economic crises have positive effects on welfare. Periods of very high inflation create the incentive for the resolution of social conflict and thus facilitate the introduction of economic reforms and the achievement of higher levels of welfare. Policies to reduce the cost of inflation, such as indexation, raise inflation and delay the adoption of reforms, but have no effect on expected social welfare.
Handle: RePEc:nbr:nberwo:3527
Template-Type: ReDIF-Paper 1.0
Title: Economic Integration and Endogenous Growth
Author-Name: Luis A. Rivera-Batiz
Author-Name: Paul M. Romer
Author-Person: pro45
Note: EFG ITI IFM
Number: 3528
Creation-Date: 1990-12
Order-URL: http://www.nber.org/papers/w3528
File-URL: http://www.nber.org/papers/w3528.pdf
File-Format: application/pdf
Publication-Status: published as Quarterly Journal of Economics, Vol. CVI, No. 425, pp. 531-555, May 1991.
Abstract: In a world with two similar, developed economies, economic integration can cause a permanent increase in the worldwide rate of growth. Starting from a position of isolation, closer integration can be achieved by increasing trade in goods or by increasing flows of ideas. We consider two models with different specifications of the research and development sector that is the source of growth. Either form of integration can increase the long-run rate of growth if it encourages the worldwide exploitation of increasing returns to scale in the research and development sector.
Handle: RePEc:nbr:nberwo:3528
Template-Type: ReDIF-Paper 1.0
Title: Time-Consistent Policy and Persistent Changes in Inflation
Author-Name: Laurence M. Ball
Author-Person: pba605
Note: EFG ME
Number: 3529
Creation-Date: 1990-12
Order-URL: http://www.nber.org/papers/w3529
File-URL: http://www.nber.org/papers/w3529.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Monetary Economics, Vol. 36, no. 2 (November 1995): 329-350.
Abstract: This paper presents a model of dynamically consistent monetary policy that explains changes in inflation over time. In the model -- as in the postwar United States -- adverse supply shocks trigger persistent increases in inflation, and disinflation occurs when a tough policymaker creates a recession. The paper also proposes an approach to selecting a unique, plausible equilibrium in infinite-horizon models of monetary policy.
Handle: RePEc:nbr:nberwo:3529
Template-Type: ReDIF-Paper 1.0
Title: The Allocation of Talent: Implications for Growth
Author-Name: Kevin M. Murphy
Author-Person: pmu108
Author-Name: Andrei Shleifer
Author-Person: psh93
Author-Name: Robert W. Vishny
Author-Person: pvi218
Note: EFG
Number: 3530
Creation-Date: 1990-12
Order-URL: http://www.nber.org/papers/w3530
File-URL: http://www.nber.org/papers/w3530.pdf
File-Format: application/pdf
Publication-Status: published as The Quarterly Journal of Economics, Vol. CVI, pp. 503-530, May 1991.
Abstract: A country's most talented people typically organize production by others, so they can spread their ability advantage over a larger scale. When they start firms, they innovate and foster growth, but when they become rent seekers, they only redistribute wealth and reduce growth. Occupational choice depends on returns to ability and to scale in each sector, on market size, and on compensation contracts. In most countries, rent seeking rewards talent more than entrepreneurship does, leading to stagnation. Our evidence shows that countries with a higher proportion of engineering college majors grow faster; whereas countries with a higher proportion of law concentrators grow slower.
Handle: RePEc:nbr:nberwo:3530
Template-Type: ReDIF-Paper 1.0
Title: Tax Policy, Investments in Human and Physical Capital, and Productivity
Author-Name: Marc Nerlove
Author-Name: Assaf Razin
Author-Person: pra388
Author-Name: Efraim Sadka
Author-Person: psa492
Author-Name: Robert K. von Weizsacker
Note: PE
Number: 3531
Creation-Date: 1990-12
Order-URL: http://www.nber.org/papers/w3531
File-URL: http://www.nber.org/papers/w3531.pdf
File-Format: application/pdf
Publication-Status: published as "Comprehensive Income Taxation, Investments in Human Capital, and Productivity." Journal of Public Economics 50, pp. 397-406 (1993).
Abstract: This paper analyzes the implications of tax policy for the accumulation of human and physical capital and for the overall productivity level of the economy. A comprehensive income tax, applying to both labour income and capital income. discriminates against investments in human capital relative to investments in physical capital. Hence. it has an adverse impact on human capital accumulation. Taking into account a positive external effect of investments in human capital on overall productivity, the adverse effect of income taxation on human capital investments is significantly magnified.
Handle: RePEc:nbr:nberwo:3531
Template-Type: ReDIF-Paper 1.0
Title: American Economic Policy and the International Debt Crisis
Author-Name: Hans-Werner Sinn
Author-Person: psi146
Note: PE
Number: 3532
Creation-Date: 1990-12
Order-URL: http://www.nber.org/papers/w3532
File-URL: http://www.nber.org/papers/w3532.pdf
File-Format: application/pdf
Publication-Status: published as JOICE 2, ed. G. Gandolfo, 1993, pp. 207-226.
Abstract: This paper advances the hypothesis that the world debt crisis was mainly induced by the dramatic rise of US interest rates in the first half of the eighties. It sees this rise in interest rates primarily as a result of a tight US monetary policy and excessively large investment incentives provided by the 1981 Us tax reform. A welfare analysis shows that the policies could have increased the US advantage from lending its capital abroad, had they been more moderately designed. The actual policies, however, were by far too strong to produce this result.
Handle: RePEc:nbr:nberwo:3532
Template-Type: ReDIF-Paper 1.0
Title: Macroeconomic Models with Equity and Credit Rationing
Author-Name: Bruce C. Greenwald
Author-Name: Joseph E. Stiglitz
Note: EFG
Number: 3533
Creation-Date: 1990-12
Order-URL: http://www.nber.org/papers/w3533
File-URL: http://www.nber.org/papers/w3533.pdf
File-Format: application/pdf
Publication-Status: published as Bruce C. Greenwald & Joseph E. Stiglitz & Andrew Weiss, 1989. "Macroeconomic models with equity and credit rationing," Proceedings, Federal Reserve Bank of San Francisco.
Publication-Status: published as Assymetric Information, Corporate Finance, and Investment, edited by R. Glenn Hubbard, pp. 15-42. Chicago, IL: University of Chicago Press, 1990.
Publication-Status: published as Macroeconomic Models with Equity and Credit Rationing, Bruce C. Greenwald, Joseph E. Stiglitz. in Asymmetric Information, Corporate Finance, and Investment, Hubbard. 1990
Abstract: This paper presents a simple, general equilibrium macroeconomic model incorporating financial constraints, both credit and equity rationing, as well as other informational imperfections in labor and product markets, such as efficiency wage effects. A formulation somewhat analogous to the standard IS-LM model, but not suffering from the well known defects of that model, is derived. The mechanisms by which monetary policy affects the economy are described. Dynamics, including implications for long run growth, are investigated.
Handle: RePEc:nbr:nberwo:3533
Template-Type: ReDIF-Paper 1.0
Title: Cyclical Markups: Theories and Evidence
Author-Name: Julio J. Rotemberg
Author-Person: pro30
Author-Name: Michael Woodford
Author-Person: pwo3
Note: EFG
Number: 3534
Creation-Date: 1990-12
Order-URL: http://www.nber.org/papers/w3534
File-URL: http://www.nber.org/papers/w3534.pdf
File-Format: application/pdf
Publication-Status: published as Blanchard, O.J. and S. Fischer (eds.) NBER Macroeconomics Annual 1991. Cambridge: MIT Press, 1991.
Abstract: If changes in aggregate demand were an important source of macroeconomic fluctuations, real wages would be countercyclical unless markups of price over marginal cost were themselves countercyclical. We thus examine three theories of markup variation at cyclical frequencies. The first assumes only that the elasticity of demand is a function of the level of output. In the second, firma face a tradeoff between exploiting their existing customers and attracting new customers. Markups then depend also on rates of return and future sales expectations; a high rate of return or expectations of low sales growth lead firms to assign a lower value to future revenues from new customers. Firma thus raise prices and markups. In the third theory, markups are chosen to ensure that no one deviates from an (implicitly) collusive understanding. Increases in rates of return or pessimistic expectations then lead firms to be less concerned with future punishments so that markups fall. Aggregate post-war data from the U.S. are moat consistent with the predictions of the implicit collusion model.
Handle: RePEc:nbr:nberwo:3534
Template-Type: ReDIF-Paper 1.0
Title: The Effect of Illicit Drug Use on the Wages of Young Adults
Author-Name: Robert Kaestner
Author-Person: pka42
Note: EH
Number: 3535
Creation-Date: 1990-12
Order-URL: http://www.nber.org/papers/w3535
File-URL: http://www.nber.org/papers/w3535.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Labor Economics, vol. 9, no. 4, (October 1991), p. 381-412.
Publication-Status: published as "New Estimates of the Effect of Marijuana and Cocaine Use on Wages", Industrial and Labor Relations Review, April 1994, V47(3), 454-470
Abstract: This paper examines the effects of cocaine and marijuana use on the wages of a sample of young adults drawn from the NLS Youth Cohort. The endogeneity of drug use in a wage equation is considered and a 2SLS procedure is implemented. The rather surprising results suggest that for this sample, increased use of marijuana or cocaine is associated with higher wages. The positive relationship between drug use and the wage does not diminish with age, but remains substantially positive. We also investigate whether systematic differences in the return to measures of human capital investments can explain the observed positive relationship between drug use and wages. The results from this analysis do not support such a hypothesis.
Handle: RePEc:nbr:nberwo:3535
Template-Type: ReDIF-Paper 1.0
Title: Maternal Labor Supply and Children's Cognitive Development
Author-Name: Francine D. Blau
Author-Person: pbl16
Author-Name: Adam J. Grossberg
Author-Person: pgr119
Note: LS
Number: 3536
Creation-Date: 1990-12
Order-URL: http://www.nber.org/papers/w3536
File-URL: http://www.nber.org/papers/w3536.pdf
File-Format: application/pdf
Publication-Status: published as Review of Economics and Statistics, August 1992
Abstract: This paper analyzes the relationship between maternal labor supply and children's cognitive development, using a sample of three- and four-year-old children of female respondents from the 1986 National Longitudinal Surveys Youth Cohort (NLSY). Respondents in the NLSY were aged 21 to 29 in 1986; thus our sample consists of children of relatively young mothers. We show that for this group the impact of maternal labor supply depends upon when it occurs. Maternal employment is found to have a negative impact when it occurs during the first year of the child's life and a potentially offsetting positive effect when it occurs during the second and subsequent years. We find some evidence that boys are more sensitive to maternal labor supply than girls though the gender difference is not significant. The negative first-year effect is not mitigated to any great extent by the increased maternal income that accompanies it, though the increase in maternal income does appears to play an important role in producing the positive effect in the second and later years.
Handle: RePEc:nbr:nberwo:3536
Template-Type: ReDIF-Paper 1.0
Title: Why Are There So Few Black Entrepreneurs?
Author-Name: Bruce D. Meyer
Author-Person: pme273
Note: LS
Number: 3537
Creation-Date: 1990-12
Order-URL: http://www.nber.org/papers/w3537
File-URL: http://www.nber.org/papers/w3537.pdf
File-Format: application/pdf
Abstract: Black entrepreneurship has been unsuccessful in the U.S. The fraction of employed blacks that work in their own businesses is about one-third that of whites. Other measures of success such as net income, number of employees, and form of organization show large differences between blacks and whites. This paper examines explanations for these differences, particularly focusing on the frequently cited economic explanations of liquidity constraints and consumer discrimination. Liquidity constraints are examined by estimating logit equations for who is self-employed in a cross-section and who becomes self-employed in a panel. These estimates suggest that net worth is not an important determinant of the racial differences in self-employment. An examination of small business starting capital indicates that little capital is needed to start most business and beginning entrepreneurs do not usually borrow. Examining the industrial distribution of black and white businesses, I do not find a greater relative representation of blacks in industries requiring less starting capital. I also examine if black businesses are relatively more common in industries where white customers more frequently patronize black businesses. Little support is found for this hypothesis. I conclude that cultural differences may explain black/white differences in self-employment, but this explanation requires further study.
Handle: RePEc:nbr:nberwo:3537
Template-Type: ReDIF-Paper 1.0
Title: The Transfer Pricing Problem: Where the Profits Are
Author-Name: James R. Hines, Jr.
Author-Person: phi111
Note: PE
Number: 3538
Creation-Date: 1990-12
Order-URL: http://www.nber.org/papers/w3538
File-URL: http://www.nber.org/papers/w3538.pdf
File-Format: application/pdf
Abstract: Section 1 introduces the material. Section 2 of this paper describes the transfer pricing problem and some solutions that have been proposed in the past. Section 3 offers a different solution and demonstrates that it supports an efficient allocation of resources. Section 4 briefly discusses some of the complications that arise in practice, analyzes methods governments have employed to address this problem, and argues that the solution corresponds to concepts of income division that governments have tried to employ in broader contexts.
Handle: RePEc:nbr:nberwo:3538
Template-Type: ReDIF-Paper 1.0
Title: The Making of Exchange Rate Policy in the 1980s
Author-Name: Jeffrey A. Frankel
Author-Person: pfr12
Note: ITI IFM
Number: 3539
Creation-Date: 1990-12
Order-URL: http://www.nber.org/papers/w3539
File-URL: http://www.nber.org/papers/w3539.pdf
File-Format: application/pdf
Publication-Status: published as Feldstein, Martin (ed.) American Economic Policy in the 1980s. Chicago: University of Chicago Press, 1994.
Publication-Status: published as Exchange Rate Policy, Jeffrey A. Frankel, C. Fred Bergsten, Michael L. Mussa. in American Economic Policy in the 1980s, Feldstein. 1994
Abstract: This paper, written for an NBER conference on "American Economic Policy in the 1980s," discusses the dollar from the standpoint, not of what moved the exchange rate or what policies might have been better, but rather of why the political system adopted the policies that it did. The first half is a chronology of major exchange rate developments during the decade. The second half analyzes the actors and interest groups involved, their views on exchange rate policy, and the system within which they interacted. The strong dollar policy of the first Reagan Administration was less the result of the power of a particular economic ideology or interest group, than it was the result of Treasury Secretary Donald Regan's tenacious defense of the desirability of the side-effects of the President's economic program. The more pragmatic response of his successor, James Baker, to the problems of the trade deficit was to sanction the depreciation of the dollar from 1985 to 1987. But here again, the success of the Plaza strategy was less the result of a skillful and deliberate manipulation of policy tools to satisfy important interest groups, than it was the outcome of a mutually-reinforcing convoy of three bandwagons: bandwagons of the markets, the media, and the makers of policy.
Handle: RePEc:nbr:nberwo:3539
Template-Type: ReDIF-Paper 1.0
Title: Basic Concepts of International Taxation
Author-Name: Jacob Frenkel
Author-Name: Assaf Razin
Author-Person: pra388
Author-Name: Efraim Sadka
Author-Person: psa492
Note: ITI IFM
Number: 3540
Creation-Date: 1990-12
Order-URL: http://www.nber.org/papers/w3540
File-URL: http://www.nber.org/papers/w3540.pdf
File-Format: application/pdf
Publication-Status: published as International Taxation, Cambridge: MIT Press, 1993, chapter 2.
Abstract: Free movements of goods and capital across national borders have important implications for both direct and indirect taxation. The paper discusses the following issues: (a) The implications of different treatments of resident capital income originating abroad and nonresident capital income originating at home; (b) The implications of different treatments of exports and imports under the indirect tax system (VAT); (c) What is the economically efficient international tax structure.
Handle: RePEc:nbr:nberwo:3540
Template-Type: ReDIF-Paper 1.0
Title: A Contribution to the Empirics of Economic Growth
Author-Name: N. Gregory Mankiw
Author-Name: David Romer
Author-Person: pro406
Author-Name: David N. Weil
Author-Person: pwe24
Note: EFG
Number: 3541
Creation-Date: 1990-12
Order-URL: http://www.nber.org/papers/w3541
File-URL: http://www.nber.org/papers/w3541.pdf
File-Format: application/pdf
Publication-Status: published as The Quarterly Journal of Economics, pp. 407-437, (May 1992).
Abstract: This paper examines whether the Solow growth model is consistent with the international variation in the standard of living. It shows that an augmented Solow model that includes accumulation of human as well as physical capital provides an excellent description of the cross-country data. The model explains about 80 percent of the international variation in income per capita, and the estimated influences of physical-capital accumulation, human-capital accumulation, and population growth confirm the model's predictions. The paper also examines the implications of the Solow model for convergence in standards of living -- that is, for whether poor countries tend to grow faster than rich countries. The evidence indicates that, holding population growth and capital accumulation constant, countries converge at about the rate the augmented Solow model predicts.
Handle: RePEc:nbr:nberwo:3541
Template-Type: ReDIF-Paper 1.0
Title: Contracts and the Market for Executives
Author-Name: Sherwin Rosen
Note: LS
Number: 3542
Creation-Date: 1990-12
Order-URL: http://www.nber.org/papers/w3542
File-URL: http://www.nber.org/papers/w3542.pdf
File-Format: application/pdf
Publication-Status: published as Main Currents in Contract Economics, edited by Lars Werin and Hans Wijkander. Oxford: Blackwell Press, 1992.
Abstract: The paper reviews empirical findings on executive compensation in light of marginal productivity and contract theories. The executive labor market performs three functions. First, control must be distributed and assigned among executives. The most talented executives are efficiently assigned to control positions in the largest firms when talent and the marginal product of control are complements. These gains or rents are partially captured in larger earnings. In fact, the elasticity of top executive pay lies within a tight band around .25 among industries, time periods, and countries where it has been estimated. Second, executive contracts must provide incentives for managers to act in the interests of shareholders. Potential loss of reputation, bonding and takeovers probably substitute for direct monetary incentives in this task. Nevertheless, the elasticity of top executive pay with respect to accounting rates of return lie near 1.0. The elasticity with respect to stock market returns is much smaller, though precisely estimated, near 0.1. Differences of opinion remain on whether the market provides enough incentives to align interests between ownership and control. Third, the market must identify new talent and reassign control over careers from older to younger generations. Competition among executives for top positions and the diminishing incentive effect of future rewards with age implies that compensation should increasingly tilt rewards to current performance over the course of a career. Available evidence supports this prediction.
Handle: RePEc:nbr:nberwo:3542
Template-Type: ReDIF-Paper 1.0
Title: An Empirical Exploration of Exchange Rate Target-Zones
Author-Name: Robert P. Flood
Author-Person: pfl25
Author-Name: Andrew K. Rose
Author-Person: pro71
Author-Name: Donald J. Mathieson
Note: ITI IFM
Number: 3543
Creation-Date: 1990-12
Order-URL: http://www.nber.org/papers/w3543
File-URL: http://www.nber.org/papers/w3543.pdf
File-Format: application/pdf
Publication-Status: published as Carnegie-Rochester Conference Series on Public Policy, 1991.
Abstract: In the context of a flexible-price monetary exchange rate model and the assumption of uncovered interest parity, we obtain a measure of the fundamental determinant of exchange rates. Daily data for the European Monetary System are used to explore the importance of non-linearities in the relationship between the exchange rates and fundamentals. Many implications of existing "target-zone" exchange rate models are tested; little support is found for existing non-linear models of limited exchange rate flexibility.
Handle: RePEc:nbr:nberwo:3543
Template-Type: ReDIF-Paper 1.0
Title: The Political Economy of American Protection in Theory and in Practice
Author-Name: Anne O. Krueger
Note: ITI IFM
Number: 3544
Creation-Date: 1990-12
Order-URL: http://www.nber.org/papers/w3544
File-URL: http://www.nber.org/papers/w3544.pdf
File-Format: application/pdf
Publication-Status: published as in Horst Herberg and Ngo Van Long, eds., Trade, Welfare, and Economic Policies, University of Michigan Press, 1993, p. 215-236
Abstract: The results of recent empirical research show that the actual determinants of the form and substance of protection have little to do with the implicit classroom model of benevolent social guardians intent upon maximizing a Benthamite social utility function. This has led to efforts to understand the political bureaucratic process through which commercial policy is determined, and to the beginnings of a positive theory of protection, sometimes referred to as the "political economy of protection". In this paper the theoretical cases in which protection might be warranted are contrasted to the actual pattern of protection and mechanisms by which protection is decided upon in one open economy--the United states, and the various models attempting to explain the observed pattern of protection and the mechanisms that generate it are surveyed.
Handle: RePEc:nbr:nberwo:3544
Template-Type: ReDIF-Paper 1.0
Title: Impact of Government on Growth and Trade
Author-Name: Anne O. Krueger
Author-Name: David Orsmond
Note: EFG
Number: 3545
Creation-Date: 1990-12
Order-URL: http://www.nber.org/papers/w3545
File-URL: http://www.nber.org/papers/w3545.pdf
File-Format: application/pdf
Publication-Status: published as in Wilfred Ethier, Elhanan Helpman and Peter Neary, eds., Theory, Policyand Dynamics in International Trade, Cambridge University Press, p. 237-251 Impact of Government on Growth and Trade, Cambridge: Cambridge University Press, 1993.
Abstract: In this paper we attempt to test the development economist's perceptions of the negative contributions of governmental activities, as well as the positive contributions of other activities, to growth. This paper provides evidence on the importance of government behavior for economic growth and, in so doing, attempts to start building a bridge between the development economics literature and the new growth theory. The focal point is the recognition that governments do more than spend and tax in manners that maximize social welfare functions: they influence incentives and regulate in ways that affect private behavior, and their spending, even on infrastructure, is not always optimal.
Handle: RePEc:nbr:nberwo:3545
Template-Type: ReDIF-Paper 1.0
Title: "Liquidation" Cycles: Old-Fashioned Real Business Cycle Theory and the Great Depression
Author-Name: J. Bradford De Long
Note: ME
Number: 3546
Creation-Date: 1990-12
Order-URL: http://www.nber.org/papers/w3546
File-URL: http://www.nber.org/papers/w3546.pdf
File-Format: application/pdf
Abstract: During the 1929-33 slide into the Great Depression, the Federal Reserve took almost no steps to keep the money supply or the price level stable. Instead, the Federal Reserve acted - disastrously - as if the gathering Great Depression could not be avoided, and was best endured. Such a liquidationist' theory of depressions was in fact common before the Keynesian Revolution, and was held and advanced by economists like Kayek and Schumpeter. This paper tries to reconstruct the logic of the liquidationist' view. It argues that the perspective was carefully thought out (although not adequate to the Depression), may hold some truth in other times and places, and could be the core of a more productive research program that currently popular real' business cycle theories.
Handle: RePEc:nbr:nberwo:3546
Template-Type: ReDIF-Paper 1.0
Title: Aging and the Income Value of Housing Wealth
Author-Name: Steven F. Venti
Author-Name: David A. Wise
Author-Person: pwi45
Note: AG
Number: 3547
Creation-Date: 1990-12
Order-URL: http://www.nber.org/papers/w3547
File-URL: http://www.nber.org/papers/w3547.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Public Economics, Vol. 44, pp. 371-397, 1991.
Abstract: The potential of reverse annuity mortgages to increase the current income of the elderly is analyzed. We conclude that most low-income elderly also have little housing equity, although this is not always the case. In general, a reverse annuity mortgage would substantially affect the income only of the single elderly who are very old -- whose life expectancy is short. On the other hand, if the transfer were in the form of a lump sum amount -- rather than an annuity -- the payment would increase the liquid wealth of most elderly families by a large fraction. Thus legislation that would facilitate the market for reverse mortgages could improve substantially the financial status of a small proportion of the elderly. But the specter of a large number of poor widows with vast amounts of "locked-in" housing equity does not reflect the reality. Most low-income elderly have relatively little housing wealth.
Handle: RePEc:nbr:nberwo:3547
Template-Type: ReDIF-Paper 1.0
Title: The Market for Home Mortgage Credit: Recent Changes and Future Prospects
Author-Name: Patric H. Hendershott
Note: ME
Number: 3548
Creation-Date: 1990-12
Order-URL: http://www.nber.org/papers/w3548
File-URL: http://www.nber.org/papers/w3548.pdf
File-Format: application/pdf
Publication-Status: published as Gilbert, ed., Recent Changes in the Market for Financial Services, Economic Policy Conference, FRB of St. Louis, 1992, pp.99-123
Publication-Status: published as Patric H. Hendershott & Herbert M. Kaufman (ary), 1992. "The market for home mortgage credit: recent changes and future prospects," Proceedings, Federal Reserve Bank of St. Louis, pages 99-127.
Abstract: Three major changes occurred during the 1980s in the market for home mortgage credit; the securitization of fixed-rate mortgages, the development of a national primary market for adjustable-rate mortgages, and the decimation of the saving and loan industry. These changes and their impacts on various financial industries and homebuyers are the subjects of this paper. I also briefly speculate about likely future changes in this market.
Handle: RePEc:nbr:nberwo:3548
Template-Type: ReDIF-Paper 1.0
Title: Self-Selection, Prenatal Care, and Birthweight Among Blacks, Whites and Hispanics in New York City
Author-Name: Theodore Joyce
Author-Person: pjo112
Note: EH
Number: 3549
Creation-Date: 1990-12
Order-URL: http://www.nber.org/papers/w3549
File-URL: http://www.nber.org/papers/w3549.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Human Resources, Vol. 29, no. 3, Summer 1994, pp. 762-794
Abstract: Most research on birth outcomes has found a direct relationship between appropriate prenatal care and increased birthweight. Researchers concede, however, that without a randomized design, which is clearly unethical, one cannot determine how much of the association is due to the medical intervention and how much is due to the characteristics of the women receiving the care. In short, the degree of selection bias is unknown and potentially substantial. In this paper we test for selection bias and estimate its direction and magnitude. We find that adjusted mean differences in birthweight between women who obtain intermediate as opposed to inadequate prenatal care substantially underestimate the effects of care that would be observed under random assignment. In particular, ordinary least squares estimates indicate that the gains to intermediate care are 113 grams for black infants, 76 grams for white infants and 92 grams for Hispanic infants. Under random assignment, black infants would experience gains of 130 grams, whites 234 grams, and Hispanics 183 grams. The gains for adequate as opposed to intermediate care are relatively minor. The results point to adverse selection in the demand for prenatal care.
Handle: RePEc:nbr:nberwo:3549
Template-Type: ReDIF-Paper 1.0
Title: Yield Curve
Author-Name: Frederic S. Mishkin
Author-Person: pmi37
Note: ME
Number: 3550
Creation-Date: 1990-12
Order-URL: http://www.nber.org/papers/w3550
File-URL: http://www.nber.org/papers/w3550.pdf
File-Format: application/pdf
Publication-Status: published as Eatwell, John, Murray Milgate and Peter Newman (eds.) The New Palgrave Dictionary of Money and Finance. London: Macmillan Press, 1992.
Abstract: This paper provides a brief survey of the relationship between the yield curve and future changes in interest rates and inflation. The expectations hypothesis of the term structure indicates .that when the yield curve is upward sloping, future short-term and long-term interest rates are expected to rise. Empirical evidence finds that as predicted by the expectations hypothesis, yield spreads are positively correlated with future changes in short-term interest rates, particularly at long horizons. However, yield spreads are negatively correlated with next period's change in long-term interest rates, the opposite prediction of the expectations hypothesis. Empirical evidence also suggests that the yield curve has almost no ability to forecast future inflation changes for short horizons: however, at horizons of a year or greater, the yield curve contains a great deal of information about the future path of inflation.
Handle: RePEc:nbr:nberwo:3550
Template-Type: ReDIF-Paper 1.0
Title: Banks and Loan Sales: Marketing Non-Marketable Assets
Author-Name: Gary Gorton
Author-Person: pgo458
Author-Name: George Pennacchi
Author-Person: ppe479
Note: ME
Number: 3551
Creation-Date: 1990-12
Order-URL: http://www.nber.org/papers/w3551
File-URL: http://www.nber.org/papers/w3551.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Monetary Economics, Vol. 35, no. 3 (1995): 389-411.
Abstract: A defining characteristic of bank loans is that they are not resold once created. Yet, in 1989 about $240 billion of commercial and industrial loans were sold, compared to trivial amounts five years earlier. Selling loans without explicit guarantee or recourse is inconsistent with theories of the existence of financial intermediation. What has changed to make bank loans marketable? In this paper we test for the presence of implicit contractual features of bank loan sales contracts that could explain this inconsistency. In addition, the effect of technological progress on the reduction of information asymmetries between loan buyers and loan sellers is considered. The paper tests for the presence of these features and effects using a sample of over 800 recent loan sales.
Handle: RePEc:nbr:nberwo:3551
Template-Type: ReDIF-Paper 1.0
Title: The Aggregate Implications of Machine Replacement: Theory and Evidence
Author-Name: Russell Cooper
Author-Name: John Haltiwanger
Author-Person: pha231
Note: EFG
Number: 3552
Creation-Date: 1990-12
Order-URL: http://www.nber.org/papers/w3552
File-URL: http://www.nber.org/papers/w3552.pdf
File-Format: application/pdf
Publication-Status: published as American Economic Review, Vol. 83, No. 3, pp. 360-382 (June 1993).
Abstract: This paper studies an economy in which producers must incur resource costs to replace depreciated machines. The process of costly replacement and depreciation creates endogenous fluctuations in productivity, employment and output of a single producer. We also explore the spillover effects of machine replacement by multiple, independent producers. The implications of our model are generally consistent with observed monthly output and productivity fluctuations in automobile plants and with monthly variations in employment and production in the manufacturing sector.
Handle: RePEc:nbr:nberwo:3552
Template-Type: ReDIF-Paper 1.0
Title: Last One Out Wins: Trade Policy in an International Exit Game
Author-Name: S. Lael Brainard
Note: ITI IFM
Number: 3553
Creation-Date: 1990-12
Order-URL: http://www.nber.org/papers/w3553
File-URL: http://www.nber.org/papers/w3553.pdf
File-Format: application/pdf
Publication-Status: published as International Economic Review, Feb. 1994, vo. 35, no. 1
Abstract: This paper examines the effect of government intervention on the order and timing of firm exit in an international industry with fixed costs and declined demand. A dynamic inconsistency problem arises when the government is unable to precommit to a path of policy: it always intervenes to prolong the viability of the firm located in its market, even when the firm's survival is not the socially optimal outcome. The effect of tariff intervention is in all cases to terminate market operation prematurely, and in many cases to reverse the order of firm exit. Intervention in the absence of precommittment is never first best, and actually reduces welfare relative to the free market equilibrium when the differential between firms' fixed costs is large.
Handle: RePEc:nbr:nberwo:3553
Template-Type: ReDIF-Paper 1.0
Title: Public Goods in Trade: On the Formation of Markets and Political Jurisdictions
Author-Name: Alessandra Casella
Author-Person: pca496
Author-Name: Jonathan S. Feinstein
Author-Person: pfe36
Note: ITI IFM
Number: 3554
Creation-Date: 1990-12
Order-URL: http://www.nber.org/papers/w3554
File-URL: http://www.nber.org/papers/w3554.pdf
File-Format: application/pdf
Publication-Status: published as Alessandra Casella & Jonathan S. Feinstein, 2002. "Public Goods in Trade on the Formation of Markets and Jurisdictions," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 43(2), pages 437-462, May.
Abstract: The current debate in Western Europe centers on the relationship between economic and political integration. To address this problem, we construct a simple general equilibrium model in which the returns to trading are directly affected by the availability of a public good. In our model, heterogeneous agents choose both a club and a market to belong to. In the club, agents vote over the public good, are taxed to finance this good, and receive access to it when they trade. In the market, they are randomly matched with a partner. If a match occurs between traders of different clubs, they both suffer a transactions cost. We show that, in general, the political boundaries established by the clubs can be distinct from market borders, leading to international trade between members of different clubs. Further, as the region develops, markets become wider (eventually leading to a common market) and the desire to avoid transaction costs initially leads to political unification. At still higher levels of development, however, where transaction costs are less important, traders prefer the diversity offered by multiple clubs.
Handle: RePEc:nbr:nberwo:3554
Template-Type: ReDIF-Paper 1.0
Title: Credible Disinflation with Staggered Price Setting
Author-Name: Laurence Ball
Author-Person: pba605
Note: EFG
Number: 3555
Creation-Date: 1990-12
Order-URL: http://www.nber.org/papers/w3555
File-URL: http://www.nber.org/papers/w3555.pdf
File-Format: application/pdf
Publication-Status: published as American Economic Review, March 1994
Abstract: This paper determines the real effects of credible disinflation when price setting is staggered. The results are surprising: a fairly quick disinflation causes a boom. This finding suggests that nominal price rigidity alone does not explain why disinflation is costly in actual economies.
Handle: RePEc:nbr:nberwo:3555
Template-Type: ReDIF-Paper 1.0
Title: Labor Hoarding and the Business Cycle
Author-Name: Craig Burnside
Author-Person: pbu20
Author-Name: Martin Eichenbaum
Author-Person: pei4
Author-Name: Sergio Rebelo
Note: EFG
Number: 3556
Creation-Date: 1990-12
Order-URL: http://www.nber.org/papers/w3556
File-URL: http://www.nber.org/papers/w3556.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Political Economy, Vol. 101, No. 2, pp. 245-273 (April 1993).
Abstract: Existing Real Business Cycle (RBC) models assume that the key impulses to business cycles are stochastic technology shocks. RBC analysts typically measure these technology shocks by the Solow residual. This paper assesses the sensitivity of inference based on Solow residual accounting to labor hoarding behavior. Our main results can be summarized as follows. First, the quantitative implications of RBC models are very sensitive to the possibility of labor hoarding. Allowing for such behavior reduces our estimate of the variance of technology shocks by 50%. Depending on the sample period investigated, this reduces the ability of technology shocks to account for aggregate output fluctuations by 30% to 60%. Second, our labor hoarding model is capable of quantitatively accounting for the observed correlation between government consumption and the Solow residual. Third, unlike standard RBC models, our labor hoarding model is consistent with three important qualitative features of the joint behavior of average productivity and hours worked: (i) average productivity and hours worked do not display any marked contemporaneous correlation, (ii) average productivity is positively correlated with future hours worked, and (iii) average productivity is negatively correlated with lagged hours worked.
Handle: RePEc:nbr:nberwo:3556
Template-Type: ReDIF-Paper 1.0
Title: The Incidence of Mandated Employer-Provided Insurance: Lessons from Workers' Compensation Insurance
Author-Name: Jonathan Gruber
Author-Person: pgr20
Author-Name: Alan B. Krueger
Author-Person: pkr63
Note: LS PE
Number: 3557
Creation-Date: 1990-12
Order-URL: http://www.nber.org/papers/w3557
File-URL: http://www.nber.org/papers/w3557.pdf
File-Format: application/pdf
Publication-Status: published as The Incidence of Mandated Employer-Provided Insurance: Lessons from Workers' Compensation Insurance, Jonathan Gruber, Alan B. Krueger. in Tax Policy and the Economy, Volume 5, Bradford. 1991
Abstract: Workers' compensation insurance provides cash payments and medical benefits to workers who incur a work-related injury or illness. Many features of the workers' compensation program parallel features of proposed mandated employer-paid health insurance plans. This paper empirically examines the incidence of the workers' compensation program to infer the likely consequences of mandated health insurance proposals. In certain industries, such as trucking and carpentry, workers' compensation insurance costs are quite large, and vary tremendously within states over time, and across states at a moment in time. This variation is used to identify the incidence of the program. Empirical analysis of two data sets suggest that changes in employers' costs of workers' compensation insurance are largely shifted to employees in the form of lower wages. In addition, higher insurance costs are found to have a negative but statistically insignificant effect on employment. The implied elasticity of labor demand from our results is about -.50.
Handle: RePEc:nbr:nberwo:3557
Template-Type: ReDIF-Paper 1.0
Title: Three Models of Retirement: Computational Complexity Versus Predictive Validity
Author-Name: Robin L. Lumsdaine
Author-Name: James H. Stock
Author-Person: pst148
Author-Name: David A. Wise
Author-Person: pwi45
Note: AG
Number: 3558
Creation-Date: 1990-12
Order-URL: http://www.nber.org/papers/w3558
File-URL: http://www.nber.org/papers/w3558.pdf
File-Format: application/pdf
Publication-Status: published as David A. Wise, editor. Topics in the Economics of Aging. Chicago: The University of Chicago Press, pp. 21-60, April 1992.
Publication-Status: published as Three Models of Retirement: Computational Complexity versus Predictive Validity, Robin L. Lumsdaine, James H. Stock, David A. Wise. in Topics in the Economics of Aging, Wise. 1992
Abstract: Empirical analysis often raises questions of approximation to underlying individual behavior. Closer approximation may require more complex statistical specifications, On the other hand, more complex specifications may presume computational facility that is beyond the grasp of most real people and therefore less consistent with the actual rules that govern their behavior, even though economic theory may push analysts to increasingly more complex specifications. Thus the issue is not only whether more complex models are worth the effort, but also whether they are better. We compare the in-sample and out-of-sample predictive performance of three models of retirement -- "option value," dynamic programming, and probit -- to determine which of the retirement rules most closely matches retirement behavior in a large firm. The primary measure of predictive validity is the correspondence between the model predictions and actual retirement under the firm's temporary early retirement window plan. The "option value" and dynamic programming models are considerably more successful than the less complex probit model in approximating the rules individuals use to make retirement decisions, but the more complex dynamic programming rule approximates behavior no better than the simpler option value rule.
Handle: RePEc:nbr:nberwo:3558
Template-Type: ReDIF-Paper 1.0
Title: Approaches to Efficient Capital Taxation: Leveling the Playing Field vs.Living by the Golden Rule
Author-Name: Lawrence H. Goulder
Author-Name: Philippe Thalmann
Author-Person: pth6
Note: PE
Number: 3559
Creation-Date: 1990-12
Order-URL: http://www.nber.org/papers/w3559
File-URL: http://www.nber.org/papers/w3559.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Public Economics, Vol. 50, no. 2 (1993): 169-
Abstract: In this paper we explore the efficiency gains from the Tax Reform Act of 1986 and prospective tax reforms, separating out the intersectoral and intertemporal efficiency consequences. To assess these effects, we employ a general equilibrium model that considers the effects of taxes on the allocation of capital across industries, assets, sectors, and time. We find that the 1986 tax reform yielded only a small improvement in the intersectoral allocation of capital because the beneficial effects from its more uniform treatment of capital within the business sector are largely offset by adverse effects stemming from increased tax disparities between the business and housing sectors. The intertemporal efficiency effects of the reform, in contrast, are significant and negative. Hence the overall efficiency impact of the reform is negative as well. Our results indicate that the economic margins offering the greatest scope for efficiency gains are different from those that received the most attention under the 1986 tax reform. While much of the 1986 reform concentrated on reducing tax disparities within the business sector, much larger efficiency gains would result from reducing tax disparities between the business and housing sectors and from general reductions in effective marginal tax rates on capital.
Handle: RePEc:nbr:nberwo:3559
Template-Type: ReDIF-Paper 1.0
Title: Individual Precautions to Prevent Theft: Private Versus Socially OptimalBehavior
Author-Name: Steven Shavell
Author-Person: psh42
Note: LE
Number: 3560
Creation-Date: 1990-12
Order-URL: http://www.nber.org/papers/w3560
File-URL: http://www.nber.org/papers/w3560.pdf
File-Format: application/pdf
Publication-Status: published as International Review of Law & Economics, September, 1991, Vol. 11, No. 2, 1 23-132.
Abstract: A model is examined in which individuals take precautions that reduce the amount stolen if thieves enter their homes; and the amount of theft is influenced by the level of individuals' precautions. It is emphasized that the motive of individuals acting alone to take precautions may include the diversion of theft to others but does not take into account general deterrence. For this and other reasons, the level of precautions exercised by individuals acting alone may differ from their collectively optimal level and also from the socially optimal level (which reflects effort devoted to theft).
Handle: RePEc:nbr:nberwo:3560
Template-Type: ReDIF-Paper 1.0
Title: Soft Budget Constraints, Taxes, and the Incentive to Cooperate
Author-Name: Joshua Aizenman
Author-Person: pai8
Note: ITI IFM
Number: 3561
Creation-Date: 1990-12
Order-URL: http://www.nber.org/papers/w3561
File-URL: http://www.nber.org/papers/w3561.pdf
File-Format: application/pdf
Publication-Status: published as International Economic Review, November 1993, pp. 819-832
Abstract: This paper considers an economy where the macroeconomic equilibrium is the outcome of the conduct of an administration, consisting of a large number of decision makers whose horizon is uncertain, being endogenously determined by their behavior. Limited monitoring enables each decision maker to behave opportunistically in the short run, abusing his 'official' budget constraint, generating in the short run a degree of 'softness' in his budget. The uncertainty has two dimensions: the temporal one relates to the detection possibility facing the opportunistic decision maker, and the intertemporal one relates to the survival probability of the administration. We assume that the survival probability of the administration goes down with signals like inflation, tax rates and the like. In such a system, the public imposes a degree of discipline on the policy makers by its option to replace the administration, and the administration imposes discipline on the policy makers by monitoring their effective expenditure. We characterize the equilibrium, identifying conditions that yield limited cooperation. We show that adverse shocks (like a lower tax collection, lower international transfers, higher real interest rates and the like) or shorter horizon (due to greater instability) will tend to reduce cooperation among policy makers and will increase the inflation rate and the use of discretionary taxes.
Handle: RePEc:nbr:nberwo:3561
Template-Type: ReDIF-Paper 1.0
Title: What has Foreign Market Intervention Since the Plaza Agreement Accomplished?
Author-Name: Michael D. Bordo
Author-Person: pbo243
Author-Name: Anna J. Schwartz
Note: ME ITI IFM
Number: 3562
Creation-Date: 1990-12
Order-URL: http://www.nber.org/papers/w3562
File-URL: http://www.nber.org/papers/w3562.pdf
File-Format: application/pdf
Publication-Status: published as Open Economies Review, Vol. 2, pp. 39-64, (1991).
Abstract: We review the conduct and scale of official intervention by monetary authorities in the U.S.A., Japan, and West Germany since the Plaza Agreement. Relative to trading volume and the stock of internationally traded assets denominated in foreign currencies, intervention is small--scale and sporadic, hence at best limited to transitory effects. It does not appear to reduce volatility of daily exchange rates. Monetary authorities gamble that they will not suffer losses on their foreign currency holdings. Evidence in favor of sterilized foreign exchange market intervention as a way of conveying information to the private sector is far from convincing. Since changes in relative monetary growth rates are sufficient to alter bilateral exchange rates, monetary authorities can achieve their exchange rate preferences with domestic monetary policy, but at the cost of Possible distortionary effects on monetary growth rates, domestic interest rates, and international capital flows.
Handle: RePEc:nbr:nberwo:3562
Template-Type: ReDIF-Paper 1.0
Title: Lecture Notes on Economic Growth(I): Introduction to the Literature and Neoclassical Models
Author-Name: Xavier Sala-i-Martin
Author-Person: psa510
Note: EFG
Number: 3563
Creation-Date: 1990-12
Order-URL: http://www.nber.org/papers/w3563
File-URL: http://www.nber.org/papers/w3563.pdf
File-Format: application/pdf
Abstract: This is a survey of the literature on Economic Growth. In the introduction we analyze the main differences between exogenous and endogenous growth models using fixed savings rate analysis. We argue that in order to have endogenous growth there must be constant returns to the factors that can be accumulated. A graphical tool is then developed to show that changes in the savings rate have different effects on long run growth in the two kinds of models; we show that only endogenous growth models are affected by shifts in the savings rate. We then explore two versions of the Raasey-Cass-Koopmans neoclassical model where savings are determined optimally; one with exogenous productivity growth and one without.
Handle: RePEc:nbr:nberwo:3563
Template-Type: ReDIF-Paper 1.0
Title: Lecture Notes on Economic Growth(II): Five Prototype Models of Endogenous Growth
Author-Name: Xavier Sala-i-Martin
Author-Person: psa510
Note: EFG
Number: 3564
Creation-Date: 1990-12
Order-URL: http://www.nber.org/papers/w3564
File-URL: http://www.nber.org/papers/w3564.pdf
File-Format: application/pdf
Publication-Status: published as With Casey B. Mulligan, published as "Transition Dynamics in Two-Sector Models of Endogenous Growth", Quarterly Journal of Economics, Vol. 108, no. 3 (1993): 739-773.
Abstract: This paper explores the five simplest models of endogenous growth. We start with the AK model (Rebelo (1990)) and argue that all endogenous growth models can be viewed as variations or microfoundations of it. We then examine the Barro (1990) model of government spending and growth. Next we look at the Arrow-Sheshinskj-Romer model of learning by doing and externalities. The Lucas (1988) model of human capital accumulation is then considered. Finally, we present a simple model of R&D and growth.
Handle: RePEc:nbr:nberwo:3564
Template-Type: ReDIF-Paper 1.0
Title: A Signaling Theory of Unemployment
Author-Name: Ching-to Albert Ma
Author-Name: Andrew M. Weiss
Note: LS
Number: 3565
Creation-Date: 1990-12
Order-URL: http://www.nber.org/papers/w3565
File-URL: http://www.nber.org/papers/w3565.pdf
File-Format: application/pdf
Publication-Status: published as Ma, Ching-to and Andrew M. Weiss. "A Signaling Theory Of Unemployment," European Economic Review, 1993, v37(1), 135-158.
Abstract: This paper presents a signaling explanation for unemployment. The basic idea is that employment at an unskilled job may be regarded as a bad signal. Therefore, good workers who are more likely to qualify for employment at a skilled job in the future are better off being unemployed than accepting an unskilled job. We present conditions under which all equilibria satisfying the Cho-Kreps intuitive criterion involve unemployment. However, there always exist budget balancing wage subsidies and taxes that eliminate unemployment. Also, for any unemployment equilibrium, either there always exists a set of Pareto improving wage taxes and subsidies, or we give conditions under which there exists a set of Pareto improving wage taxes and subsidies.
Handle: RePEc:nbr:nberwo:3565
Template-Type: ReDIF-Paper 1.0
Title: Tastes and Technology in a Two-Country Model of the Business Cycle: Explaining International Comovements
Author-Name: Alan C. Stockman
Author-Person: pst94
Author-Name: Linda L. Tesar
Author-Person: pte111
Note: ITI IFM
Number: 3566
Creation-Date: 1990-12
Order-URL: http://www.nber.org/papers/w3566
File-URL: http://www.nber.org/papers/w3566.pdf
File-Format: application/pdf
Publication-Status: published as American Economic Review, vol 85, no. 1, pp. 168-185, (March 1995)
Abstract: This paper studies the international transmission of business cycles by developing a two-country real business-cycle model and confronting it with a broad set of empirical observations. These observations include variances and covariances of output, labor, consumption, employment, and investment in traded and nontraded sectors of the economy, cross-country correlations of output and consumption, and correlations between quantities and relative prices. We find that technology shocks as measured by observed total factor productivity (by sector) must be supplemented by other sources of disturbances to explain certain features of the data. We call these other disturbances taste shocks, though they may stand in for some other shocks. In particular, it is difficult to explain the observed comovements of the relative price of nontraded to traded goods with the relative consumption of those goods without invoking something like taste shocks. Our model is roughly consistent with a broad set of observations, though puzzles emerge regarding the correlation of nontraded-sector output with its relative price and the variance of the balance of trade.
Handle: RePEc:nbr:nberwo:3566
Template-Type: ReDIF-Paper 1.0
Title: Quality Adjusted Cost Functions
Author-Name: Paul J. Gertler
Author-Person: pge194
Author-Name: Donald M. Waldman
Note: EH
Number: 3567
Creation-Date: 1990-12
Order-URL: http://www.nber.org/papers/w3567
File-URL: http://www.nber.org/papers/w3567.pdf
File-Format: application/pdf
Publication-Status: published as "Quality Adjusted Cost Functions and Policy Evaluation in the Nursing Home Industry", Journal of Political Economy, Vol. 100, no. 6, December 1992,pp. 1232-1256
Abstract: We propose a simple method for estimating cost functions in the presence of endogenous and unobserved quality. The theory of production, the equilibrium conditions implied by optimizing behavior, and exogenous influences on product demand are used to identify the model. An important advantage of the method is that the data requirements, above those necessary for standard cost function estimation, are minimal and the data are usually readily available. Specifically, exogenous information that influences the demand for the firm's product is required. We apply this method to estimate quality-adjusted cost functions in the nursing home industry. Estimation of a translog cost function that ignores quality yields seriously misleading estimates of marginal cost and economies of scale. In particular, while estimation of a quality-exogenous cost function reports economies of scale, estimation of a quality adjusted cost function reveals diseconomies of scale for high quality homes, constant returns to scale for average quality homes, and economies of scale for low quality homes.
Handle: RePEc:nbr:nberwo:3567
Template-Type: ReDIF-Paper 1.0
Title: A Micro Econometric Model of Capital Utilization and Retirement
Author-Name: Sanghamitra Das
Note: PR
Number: 3568
Creation-Date: 1990-12
Order-URL: http://www.nber.org/papers/w3568
File-URL: http://www.nber.org/papers/w3568.pdf
File-Format: application/pdf
Publication-Status: published as Review of Economic Studies Volume 59, pp.277-297 April 1992
Abstract: The paper presents a micro econometric model of capital utilization and retirement. Some estimates of a firm's discrete decision problem with regard to an existing piece of capital--whether to operate, hold idle or retire it--are obtained, in the context of the US cement industry, by solving a discrete choice stochastic dynamic programming model. The estimates are then used to simulate effects of product and input price changes, and changes in the size and age of capital on a firm's propensity to operate, hold idle and retire capital.
Handle: RePEc:nbr:nberwo:3568
Template-Type: ReDIF-Paper 1.0
Title: Theory and Practice of Commercial Policy: 1945-1990
Author-Name: Anne O. Krueger
Note: ITI IFM
Number: 3569
Creation-Date: 1990-12
Order-URL: http://www.nber.org/papers/w3569
File-URL: http://www.nber.org/papers/w3569.pdf
File-Format: application/pdf
Publication-Status: published as Money, Trade, and Competition: Essays in Memory of Egon Sohmen, Berlin: Springer-Verlag, 1992 pp. 233-252 Herbert Giersch, ed.
Abstract: In this paper, the evolution of thought regarding protectionist trade policies in developed and in developing countries is examined and contrasted. In the developing countries distrust of markets and a belief in the infant industry argument led to highly protectionist trade regimes. The consequences were so negative that thinking about interventions has changed markedly. The lessons from this experience for the policy implications of the "new trade theory" are then examined.
Handle: RePEc:nbr:nberwo:3569
Template-Type: ReDIF-Paper 1.0
Title: Exchange Rate Volatility in Integrating Capital Markets
Author-Name: Giancarlo Corsetti
Author-Name: Vittorio Grilli
Author-Name: Nouriel Roubini
Author-Person: pro145
Note: ITI IFM
Number: 3570
Creation-Date: 1990-12
Order-URL: http://www.nber.org/papers/w3570
File-URL: http://www.nber.org/papers/w3570.pdf
File-Format: application/pdf
Abstract: This paper investigates the relationship between international capital liberalization and exchange rate volatility. While the effects of a capital controls liberalization on the transaction volume in the foreign exchange market are theoretically unambiguous, the effects on the volatility of exchange rate can have either sign. On one hand, the liberalization leads to increasing economy-wide and investor-specific uncertainty. On the other hand, the augiented number of participants in the market should reduce exchange rate fluctuations. The uncertainty effects should be dominant in the short run, while the increase in the number of traders in the longer run should make the market thicker and tend to reduce volatility. It is shown that, for a sample of countries which have liberalized capital controls in the last 15 years, structural breaks in the process generating exchange rate volatility have occurred very close to the time when liberalization measures were implemented. The results also suggest an increase in volatility after the structural breakpoint.
Handle: RePEc:nbr:nberwo:3570
Template-Type: ReDIF-Paper 1.0
Title: The Effect of Age at School Entry on Educational Attainment: An Application of Instrumental Variables with Moments from Two Samples
Author-Name: Joshua D. Angrist
Author-Person: pan29
Author-Name: Alan B. Krueger
Author-Person: pkr63
Note: LS
Number: 3571
Creation-Date: 1990-12
Order-URL: http://www.nber.org/papers/w3571
File-URL: http://www.nber.org/papers/w3571.pdf
File-Format: application/pdf
Publication-Status: published as Joshua D. Angrist & Alan B. Krueger, 1992. "The Effect of Age at School Entry on Educational Attainment: An Application of Instrumental Variables with Moments from Two Samples," Journal of the American Statistical Association, vol 87(418), pages 328-336.
Abstract: This paper tests the hypothesis that compulsory school attendance laws, which typically require school attendance until a specified birthday, induce a relationship between the years of schooling and age at school entry. Variation in school start age created by children's date of birth provides a natural experiment for estimation of the effect of age at school entry. Because no large data set contains information on both age at school entry and educational attainment, we use an Instrumental Variables (IV) estimator with data derived from the 1960 and 1980 Censuses to test the age-at-entry/compulsory schooling model. In most IV applications, the two covariance matrices that form the estimator are constructed from the same sample. We use a method of moments framework to discuss IV estimators that combine moments from different data sets. In our application, quarter of birth dummies are the instrumental variables used to link the 1960 Census, from which age at school entry can be derived for one cohort of students, to the 1980 Census, which contains educational attainment for the same cohort of students. The results suggest that roughly 10 percent of students were constrained to stay in school by compulsory schooling laws.
Handle: RePEc:nbr:nberwo:3571
Template-Type: ReDIF-Paper 1.0
Title: Does Compulsory School Attendance Affect Schooling and Earnings?
Author-Name: Joshua D. Angrist
Author-Person: pan29
Author-Name: Alan B. Krueger
Author-Person: pkr63
Note: LS
Number: 3572
Creation-Date: 1990-12
Order-URL: http://www.nber.org/papers/w3572
File-URL: http://www.nber.org/papers/w3572.pdf
File-Format: application/pdf
Publication-Status: published as Angrist, Joshua D & Krueger, Alan B, 1991. "Does Compulsory School Attendance Affect Schooling and Earnings?" The Quarterly Journal of Economics, vol. 106(4), pages 979-1014, November.
Abstract: This paper presents evidence showing that individuals' season of birth is related to their educational attainment because of the combined effects of school start age policy and compulsory school attendance laws. In most school districts, individuals born in the beginning of the year start school at a slightly older age, and therefore are eligible to drop out of school after completing fewer years of schooling than individuals born near the end of the year. Our estimates suggest that as many as 25 percent of potential dropouts remain in school because of compulsory schooling laws. We estimate the impact of compulsory schooling on earnings by using quarter of birth as an instrumental variable for education in an earnings equation. This provides a valid identification strategy because date of birth is unlikely to be correlated with omitted earnings determinants. The instrumental variables estimate of the rate of return to education is remarkably close to the ordinary least squares estimate, suggesting that there is little ability bias in conventional estimates of the return to education. The results also imply that individuals who are compelled to attend school longer than they desire by compulsory schooling laws reap a substantial return for their extra schooling.
Handle: RePEc:nbr:nberwo:3572
Template-Type: ReDIF-Paper 1.0
Title: The Assimilation of Immigrants in the U.S. Labor Markets
Author-Name: Robert J. LaLonde
Author-Person: pla194
Author-Name: Robert H. Topel
Author-Person: pto111
Note: LS
Number: 3573
Creation-Date: 1990-12
Order-URL: http://www.nber.org/papers/w3573
File-URL: http://www.nber.org/papers/w3573.pdf
File-Format: application/pdf
Publication-Status: published as LaLonde, Robert J. and Robert H. Topel. "Immigrants In The American Labor Market: Quality, Assimilation, And Distributional Effects," American Economic Review, 1991, 81(2): 297-302.
Publication-Status: published as The Assimilation of Immigrants in the U. S. Labor Market, Robert J. LaLonde, Robert H. Topel. in Immigration and the Work Force: Economic Consequences for the United States and Source Areas, Borjas and Freeman. 1992
Abstract: This paper reassesses the evidence on the assimilation and the changing labor market skills of immigrants to the United States. We find strong evidence of labor market assimilation for most immigrant groups. For Asian and Mexican immigrants the first ten years experience in the united States raise earnings by more than 20 percent. Further, this estimate may understate the actual rate of assimilation because of the sharp decline in the relative wages of unskilled U.S. workers. We also find little evidence of declining immigrant "quality" within ethnic groups. The diminished labor market skills of new immigrants result entirely from changes in the immigrants' countries of origin.
Handle: RePEc:nbr:nberwo:3573