on the impacts of oil price fluctuations on european equity markets volatility spillover and hedging effectiveness the objective of this paper is to investigate the volatility spillovers between oil and stock markets in europe as not all industries are expected to be equally affected by oil price changes we conduct our study at both the aggregate as well as sector levels empirically we make use of a recently developed var garch approach which allows for transmissions in volatilities in addition we analyze the optimal weights and hedge ratios for oil stock portfolio holdings based on our results on the whole our findings show significant volatility spillovers between oil price and sector stock returns and suggest that a better understanding of those links is crucial for portfolio management in the presence of oil price risk

fdi and income inequality evidence from a panel of u s states this study employs state level panel data to explore the relationship between inward foreign direct investment fdi and income inequality in the united states using panel cointegration techniques that allow for cross sectional heterogeneity cross sectional dependence and endogenous regressors we find that the short run effects of fdi on income inequality are insignificant or weakly significant and negative in the long run however fdi exerts a significant and robust negative effect on income inequality in the united states this result for the united states as a whole does not imply that fdi narrows income gaps in the long run in each individual state there is considerable heterogeneity in the long run effects of fdi on income inequality across states with some states 21 out of 48 cases exhibiting a positive relationship between fdi in income inequality

learning your earning are labor income shocks really very persistent in this paper we examine the risk situation facing individuals in the labor market the current consensus in the literature is that the labor income process has a large random walk component we argue two points first the estimates of persistence from income data appear to be upward biased due to the omission of heterogeneity in income pro les across the population that would be implied for example by a human capital model with heterogeneity when we allow for dierences in pro les the estimated persistence falls from 0 99 to about 0 8 moreover the main evidence against pro le heterogeneity in the existing literature that the autocorrelations of income changes are small and typically negative is also replicated by the pro le heterogeneity model we estimate casting doubt on the previous interpretation of this evidence second we embed this process in a life cycle model to examine how it alters individuals consumption saving decision we assume that as seems plausible individuals do not know their pro les exactly at the beginning of life but learn in a bayesian way with successive income observations we nd that learning is very slow and aects consumption decision throughout the life cycle the model generates substantial rise in consumption inequality over the life cycle which matches empirical observations deaton and paxson 1994 moreover the shape of the age inequality pro le is non concave as in the data but unlike in a model with very persistent shocks finally the consumption pro les of college graduates are steeper than those of high school graduates in the model consistent with the data because they face a wider dispersion of and hence uncertainty about income growth rates overall this evidence indicates that income shocks may be signi cantly less persistent than what is currently assumed

states and the business cycle abstract we model the us business cycle using a dynamic factor model that identifies common factors underlying fluctuations in state level income and employment growth we find three such common factors each of which is associated with a set of factor loadings that indicate the extent to which each state s economy is related to the national business cycle according to the factor loadings there is a great deal of heterogeneity in the nature of the links between state and national economies in addition to exhibiting geographic patterns the closeness of state economies to the national business cycle is related not only to differences in industry mix but also to non industry variables such as agglomeration and neighbor effects finally we find that the common factors tend to explain large proportions of the total variability in state level business cycles although again there is a great deal of cross state heterogeneity

commodity price shocks and civil conflict evidence from colombia how do income shocks aect armed con ict theory suggests two op posite eects if labor is used to appropriate resources violently higher wages may lower con ict by reducing labor supplied to appropriation this is the opportunity cost eect alternatively a rise in contestable income may increase violence by raising gains from appropriation this is the rapacity eect our paper exploits exogenous price shocks in inter national commodity markets and a rich dataset on civil war in colombia to assess how dierent income shocks aect con ict we examine changes in the price of agricultural goods which are labor intensive and natural resources which are capital intensive we focus on coee and oil the two largest exports we nd that a sharp fall in coee prices in the 1990s increased violence dierentially in regions growing more coee by lower ing wages and the opportunity cost of joining armed groups in contrast a rise in oil prices increased violence dierentially in the oil region by in creasing municipal revenue siphoned through rapacity this pattern holds in several other agricultural and natural resource sectors providing robust evidence that price shocks aect con ict in opposite directions depending on the factor intensity of the commodity

the labour market over the business cycle can theory fit the facts we examine the ability of six labour market models to account for the business cycle behaviour of uk labour markets when embedded in a stochastic growth model we assess the models in terms of i their ability to mimic general business cycle correlations and volatility ii their success at explaining the persistence of labour market fluctuations and iii whether the models can explain why the growth and speed of adjustment of labour market variables changes between periods of expansions and contractions the main success of the models is the ability to broadly account for business cycle correlations and co movements and the changes in employment unemployment growth rates between expansions and contractions however there are three main failures a the models tend to produce insufficiently volatile employment and unemployment fluctuations b the models tend to produce too strong a correlation between wages and employment c most of the models generate only brief temporary deviations in unemployment in response to shocks rather than the protracted dynamics of the data

booms busts and babies health we study the relationship between the unemployment rate at the time of a baby s conception and parental characteristics parental behaviors and babies health babies conceived in times of high unemployment have a reduced incidence of low and very low birth weight fewer congenital malformations and lower post neonatal mortality these health improvements are attributable both to selection changes in the type of mothers that conceive during recessions and to improvements in health behavior during recessions black mothers tend to be higher socio economic status as measured by education and marital status in times of high unemployment whereas white mothers are less educated

from physical to human capital accumulation inequality and the process of development this paper develops a growth theory that captures the replacement of physical capital accumulation by human capital accumulation as a prime engine of growth along the process of development it argues that the positive impact of inequality on the growth process was reversed in this process in early stages of the industrial revolution when physical capital accumulation was the prime source of growth inequality stimulated development by channelling resources towards individuals with a higher propensity to save as human capital emerged as a growth engine equality alleviated adverse effects of credit constraints on human capital accumulation stimulating the growth process this research develops a growth theory that captures the endogenous replacement of physical capital accumulation by human capital accumulation as a prime engine of economic growth in the transition from the industrial revolution to modern growth the proposed theory offers a unified account for the effect of income inequality on the growth process during this transition it argues that the replacement of physical capital accumulation by human capital accumulation as a prime engine of economic growth changed the qualitative impact of inequality on the process of development in the early stages of the industrial revolution when physical capital accumulation was the prime source of economic growth inequality enhanced the process of development by channelling resources towards individuals whose marginal propensity to save is higher in the later stages of the transition to modern growth as human capital emerged as a prime engine of economic growth equality alleviated the adverse effect of credit constraints on human capital accumulation and stimulated the growth process the proposed theory unifies two fundamental approaches regarding the effect of income distribution on the process of development the classical approach and the credit market imperfection approach 1 the classical approach was originated by smith 1776 and was further interpreted and developed by keynes 1920 lewis 1954 kaldor 1957 and bourguignon 1981 according to this approach saving rates are an increasing function of wealth and inequality therefore channels resources towards individuals whose marginal propensity to save 1 the socio political economy approach provides an alternative mechanism equality diminishes the tendency for socio political instability or distortionary redistribution and hence it stimulates investment and economic growth see the comprehensive survey of benabou 1996b

country specific oil supply shocks and the global economy a counterfactual analysis abstract this paper investigates the global macroeconomic consequences of country specific oil supply shocks our contribution is both theoretical and empirical on the theoretical side we develop a model for the global oil market and integrate this within a compact quarterly model of the global economy to illustrate how our multi country approach to modeling oil markets can be used to identify country specific oil supply shocks on the empirical side estimating the gvar oil model for 27 countries regions over the period 1979q2 to 2013q1 we show that the global economic implications of oil supply shocks due to for instance sanctions wars or natural disasters vary considerably depending on which country is subject to the shock in particular we find that adverse shocks to iranian oil output are neutralized in terms of their effects on the global economy real outputs and financial markets mainly due to an increase in saudi arabian oil production in contrast a negative shock to oil supply in saudi arabia leads to an immediate and permanent increase in oil prices given that the loss in saudi arabian production is not compensated for by the other oil producers as a result a saudi arabian oil supply shock has significant adverse effects for the global economy with real gdp falling in both advanced and emerging economies and large losses in real equity prices worldwide

in defense of base drift the federal reserve has been criticized for allowing the base from which it calculates its target growth paths for the monetary aggregatesto drift from year to year in response to past deviations from target drift in the base implies that target misses permanently affect the levels of the monetary aggregates using a simple theoretical model this paper shows that the optimal degree of base drift consistent withprice stability depends on the importance of permanent versus transitory income and velocity disturbances neither zero base drift nor complete base drift are likely to be compatible with price stability copyright 1986 by american economic association

the effects of oil price uncertainty on global real economic activity this paper investigates the effect of oil price uncertainty on global real economic activity using a quarterly vector autoregressive model with stochastic volatility in mean stochastic volatility allows oil price uncertainty to vary separately from changes in the level of oil prices and allows one to incorporate an extraneous indicator of oil price uncertainty such as realized volatility that greatly improves the precision of the estimated uncertainty series the estimation results show that an oil price uncertainty shock has negative effects on world industrial production all else equal for example it is shown that a doubling of oil price volatility is associated with a cumulative decline as high as 0 3 percentage points in world industrial production

costs of business cycles for unskilled workers abstract unskilled workers are subject to a much larger risk of unemployment during recessions than are skilled workers moreover unskilled workers earn less income which limits their ability to self insure we examine how this heterogeneity in unemployment risk and income across different skill groups translates into heterogeneity in the cost of business cycles we find that the welfare cost of business cycles for unskilled workers is substantially higher than the welfare cost for skilled workers

cyclical dynamics in idiosyncratic labor market risk is individual labor income more risky in recessions this is a difficult question to answer because existing panel data sets are so short to address this problem we develop a generalized method of moments estimator that conditions on the macroeconomic history that each member of the panel has experienced variation in the cross sectional variance between households with differing macroeconomic histories allows us to incorporate business cycle information dating back to 1930 even though our data do not begin until 1968 we implement this estimator using household level labor earnings data from the panel study of income dynamics we estimate that idiosyncratic risk is i highly persistent with an annual autocorrelation coefficient of 0 95 and ii strongly countercyclical with a conditional standard deviation that increases by 75 percent from 0 12 to 0 21 as the macroeconomy moves from peak to trough

money income prices and interest rates including data from the 1980s sharply weakens the postwar time series evidence indicating significant relationships between money however defined and nominal income or between money and either real income or prices separately focusing on data from 1970 onward destroys this evidence altogether evidence indicating cointegration of real income and real money balances with due allowance for the effect of interest rates also deteriorates when the sample extends through the 1980s a positive finding is that the spread between the commercial paper rate and the treasury bill rate consistently contains highly significant information about future movements in real income copyright 1992 by american economic association

liquidity and the dynamic pattern of asset price adjustment a global view abstract global liquidity expansion has been very dynamic since 2001 contrary to conventional wisdom high money growth rates have not coincided with a concurrent rise in goods prices at the same time however asset prices have increased sharply significantly outpacing the subdued development in consumer prices we investigate the interactions between money and goods and asset prices at the global level using aggregated data for major oecd countries our var results support the view that different price elasticities on asset and goods markets explain the observed relative price change between asset classes and consumer goods

physical market determinants of the price of crude oil and the market premium abstract we analyze the determinants of the real price of crude oil by means of an equilibrium correction model over the last two decades where we focus on the aspects of the physical market that impact on the clearing price we find that two cointegrating relations affect the changes in prices one refers to opec s behavior attempting to control prices using its market power and quotas the other to the coverage rate of oecd expected future demand using inventory behaviors we derive a forecasting equation for the change in oil prices which we use to assess the speculative elements of the price increases of the period 2000 05 we show that worries alien to the physical markets were the causes of the increase in oil prices and we quantify their overall impact

why are crude oil prices high when global activity is weak abstract there have been substantial increases in liquidity in recent years and real oil prices have almost returned to the high levels achieved before the global financial crisis unanticipated increases in global real m2 led to statistically significant increases in real oil prices the historical impact of global real m2 on the real price of crude oil is important in the recovery of oil prices over 2009 to 2011

the nature of precautionary wealth abstract this paper uses the panel study of income dynamics to provide some of the first direct evidence that wealth is systematically higher for consumers with predictably greater income uncertainty however the apparent pattern of precautionary wealth is not consistent with a standard parameterization of the life cucle model in which consumers are patient enough to begin saving for retirement early in life wealth is estimated to be far less sensitive to uncertainty than implied by that model instead our results suggest that over most of their working life time consumers behave in accordance with the buffer stock models of saving described in carroll 1992 1997 or deaton 1991 in which consumers hold wealth principally to insulate consumption against near term fluctuations in income

money stock targeting base drift and price level predictability lessons from the u k experience abstract it is controversial whether money stock targeting without base drift i e following a trend stationary growth path makes the price level more predictable in the presence of permanent shocks to money demand we develop a procedure that is not subject to the lucas critique applying this procedure to the case of the u k we find that the variance of the trend inflation rate in the u k would have been reduced by more than one half if the bank of england had not allowed base drift

the equilibrium degree of transparency and control in monetary policy we examine a central bank s endogenous choice of degree of control and degree of transparency under both commitment and discretion we argue that discretion is the more realistic assumption for the choice of control and that commitment is more realistic for the choice of transparency for the choice of control under discretion maximum degree of control is the only equilibrium for the choice of transparency under commitment a su ciently patient bank with su ciently low average in ation bias will always choose minimum transparency thus a maximum feasible degree of control with a minimum degree of transparency is a likely outcome the bundesbank and the federal reserve system are arguably examples of this jel classi cation e52 e58

urban rural income polarization and economic growth in china evidence from the analysis of a dynamic panel data model using a dynamic panel data model and the system gmm this article examines the relationship between urban rural income polarization and economic growth at the provincial level in the period 1995 to 2010 in china the estimated results and significant tests indicate that a certain degree of urban rural income polarization is beneficial to economic growth at the provincial level in both stages for china as a whole though the contribution of urban rural income polarization to economic growth is relatively small aggravating urban rural income polarization has a negative impact on economic growth in china based on a cluster analysis of regional economic growth at the provincial level the authors carried out the same analysis separately for two categories of regions too the results for those two categories of regions show that positive correlations also exist between urban rural income polarization and economic growth in both stages which are very similar to the analysis for the whole of china in additio

interest rate smoothing and price level trend stationarity abstract this paper discusses the definition and mechanics of central bank interest rate smoothing under rational expectations a tension arising between interest rate smoothing and macroeconomic stabilization objectives induces non trend stationary price level and money stock behavior the paper thereby helps explain why such nominal non stationarities are widely observed further implications are drawn for base drift distribution of real returns on long term fixed rate nominal debt and operating characteristics of interest rate pegs and policy instruments

is inequality harmful for growth comment endogenous growth models have reignited interest in institutional and path dependencies in the economic growth process one reason for the interest in endogenous growth models is that they may explain why countries consistently grow at different rates in this vein it has been recently proposed that greater economic inequality reduces future economic growth an important paper in this literature is by torsten persson and guido tabellini 1994 who will be referred to as pt pt s model shows why it is reasonable to expect a negative relationship between inequality and future economic growth moreover their empirical evidence is consistent with their contention if pt s findings are robust to other data sets there would be important policy implications for example they imply that policy makers should not only be concerned with the distributional implications of government policies for political and social reasons but also because income distribution has long run effects on economic growth this indicates that greater u s income inequality since the early 1970 s may have resulted in lower subsequent economic growth however pt s results are somewhat fragile to various specifications suggesting that they should be replicated with different data sets and over different time periods pt p 617 with these implications in mind this study employs data from a panel of u s states to further explore the relationship between economic growth and income inequality in what follows section i summarizes pt s study and discusses how this comment extends their findings the empirical implementation and results in section ii directly examine the link between overall income inequality and growth section iii expands the analysis to alternative measures of income distribution and government policy one emphasis in section iii is the distinction between how the overall income distribution especially at the tails influences economic growth from how the relative well being of the median voter affects economic growth section iv provides some concluding discussion

monetary policy theory and practice in respect of the theory of monetary policy i am reminded of the comment that jacob viner made many years ago at a meeting of the american economic association about alfred marshall s economics what is new is highly unlikely at this late date also to be true and significant 1 consequently i shall restrict my remarks on theory to trying to summarize what i regard as the present intellectual position

the welfare cost of business cycles revisited finite lives and cyclical variation in idiosyncratic risk abstract this paper investigates the welfare costs of business cycles in a heterogeneous agent overlapping generations economy which is distinguished by idiosyncratic labor market risk aggregate variation arises both in terms of aggregate productivity shocks and countercyclical variation in the volatility of idiosyncratic shocks based on both aggregate data and microeconomic data from the panel study on income dynamics we find the welfare benefits of eliminating aggregate variation to be large an order of magnitude larger than those originally documented by lucas 1987 the key difference is countercyclical variation in idiosycratic risk which both amplifies the welfare cost of aggregate productivity shocks and imposes a cost of its own the magnitude of these effects increases non linearly in risk aversion our results therefore are consistent with the increasingly popular notion that distributional effects are an important aspect of understanding the welfare cost of business cycles

price level targeting vs inflation targeting a free lunch price level targeting without base drift and inflation targeting with base drift are compared under commitment and discretion with persistence in unemployment price level targeting is often said to imply more short run inflation variability and thereby more employment variability than inflation targeting counter to this conventional wisdom under discretion a price level target results in lower inflation variability than an inflation target if unemployment is at least moderately persistent a price level target also eliminates the inflation bias under discretion and as is well known reduces long term price variability society may be better off assigning a price level target to the central bank even if its preferences correspond to inflation targeting a price level target thus appears to have more advantages than commonly acknowledged

announcements inflation targeting and central bank incentives this paper studies the incentives a central bank faces in announcing inflation targets when the central bank has private information about the economy and the public is uncertain about the central bank s preferences targeting rules in the absence of announcements reduce the inflationary bias of discretionary policy but they distort the central bank s response to private information about the economy this distortion is eliminated when the central bank is allowed to announce the inflation target announcements also affect credibility although the way they do so depends on the exact definition of credibility that is employed in standard models of monetary policy in which dynamic inconsistency plays a prominent role announcements from the central bank about its policy inten tions are not believable the central bank has an incentive to lie yet central banks often do make announcements and they are legally required to do so in some cases the bank of england for example must issue periodic inflation reports the chairman of the federal reserve is required by the humphrey hawkins act to testify before congress twice each year to explain the fed s policy actions and to detail the fed s outlook for future economic develop ments similarly the reserve bank of new zealand is required under the reserve bank act of 1989 to publish policy statements that spell out its plans the january 1994 legislation governing the banque de france requires its gov ernor to appear before parliament and the european central bank must under the maastricht treaty report at least annually to the european parlia ment if public statements about policy intentions are not credible the question naturally arises as to why central banks are frequently required to make them the answer of course is that announcements do provide the public with some information given the growing interest in policy transparency particu larly among those central banks that have adopted some form of inflation targeting it is perhaps surprising that there has been relatively little explicit analysis of how inflation targeting requirements might combine with reporting requirements to influence the informational content of announcements the conduct of stabilization policies and the central bank s credibility the purpose of this paper is to analyse the way inflation targeting affects the incentives the central bank faces in announcing targets when the central bank has private information about the economy and the public is uncertain about the central bank s preferences inflation targeting has seen increased popularity in recent years but a fixed target for inflation is generally suboptimal in the face of supply shocks while state contingent targets are viewed as not feasible an important result of this paper is that allowing the central bank to announce its own inflation target

income distribution and macroeconomics this paper analyzes the role of wealth distribution in macroeconomics through investment in human capital it is shown that in the presence of credit markets imperfections and indivisibilities in investment in human capital the initial distribution of wealth affects aggregate output and investment both in the short and in the long run as there are multiple steady states this paper therefore provides an additional explanation for the persistent differences in per capita output across countries furthermore the paper shows that cross country differences in macroeconomic adjustment to aggregate shocks can be attributed among other factors to differences in wealth and income distribution across countries

the u s health care expenditure evidence from 2001 to 2009 abstractthis study utilizes state level data from 2001 to 2009 to estimate the impact of the 2007 financial crisis upon health care expenditures higher death rates are consistently found to have a positive and statistically significant impact on health expenditures while mental health and copd are not generally found to impact expenditures increases in the percentage of the population diagnosed with cholesterol and obesity tend to increase health expenditures increases in health expenditures slowed considerably after the financial crisis even though recessions high unemployment rates are generally found to have a positive impact on health expenditures the post financial crisis time period is estimated to have much lower health expenditures than in other time periods our results can be used to give insight into the conditions under which the slower rate of increase in health expenditures can be expected to increase more research will be needed to be able to more completely explore not only the re

discontinuity of output convergence within the united states why has the course changed has the progress of output convergence changed within the united states this article examines the output convergence among u s states for the last five decades by making several improvements over the extant literature by applying a battery of convergence tests designed to capture nonlinear transitional dynamics to real output per worker data i e nominal values deflated by state level price we find that output convergence has not been a feature of the continental united states since the 1970s instead output convergence has proceeded among four subgroups within which constituent states have certain characteristics in common our regression analysis suggests that state level characteristics related to technology and human capital play a crucial role in accounting for the formation and composition of convergence clubs in agreement with the recent theoretical models of growth and development e g aghion et al 2009 gennaioli et al 2013b the level of technology proxied by patents turns out to be a consistently significant determinant even after controlling for endogeneity suggesting that frictions in the diffusion of technology and human capital may have led to clustering of states with different levels of productivity our results therefore cast doubt on the common view that diffusion of knowledge and technology across state borders is frictionless jel o47 o51

surviving the great recession the influence of income inequality in us urban counties abstractsurviving the great recession the influence of income inequality in us urban counties regional studies while there has been extensive research on the role of income inequality in economic growth there has been less investigation as to the role of income inequality on economic resilience this paper addresses the relationship between income inequality and resilience by evaluating the vulnerability of urban counties in the united states entering recession between 2006 and 2010 and tests whether income inequality contributes to their probability of recession survival a cox proportional hazards model is used to determine factors contributing toward urban counties resilience to the external shock of the great recession the research is focused on the relationship between the level of income inequality in a county and its recession risk it is found that areas with increased income inequality entered recession earlier

a comparison of the effects of exogenous oil supply shocks on output and inflation in the g7 countries a comparison of the effects of exogenous shocks to global crude oil production on seven major industrialized economies suggests a fair degree of similarity in the real growth responses an exogenous oil supply disruption typically causes a temporary reduction in real gdp growth that is concentrated in the second year after the shock inflation responses are more varied the median cpi inflation response peaks after three to four quarters exogenous oil supply disruptions need not generate sustained inflation or stagflation typical responses include a fall in the real wage higher short term interest rates and a depreciating currency with respect to the dollar despite many qualitative similarities there is strong statistical evidence that the responses to exogenous oil supply disruptions differ across g7 countries for suitable subsets of countries homogeneity cannot be ruled out a counterfactual historical exercise suggests that the evolution of cpi inflation in the g7 countries would have been similar overall to the actual path even in the absence of exogenous shocks to oil production consistent with a monetary explanation of the inflation of the 1970s there is no evidence that the 1973 1974 and 2002 2003 oil supply shocks had a substantial impact on real growth in any g7 country whereas the 1978 1979 1980 and 1990 1991 shocks contributed to lower growth in at least some g7 countries jel e31 e32 q43

explaining crude oil prices using fundamental measures abstract oil is the world s most important commodity and improving the understanding of drivers of its price is a longstanding research objective this article analyses real oil prices during 1984 2007 using a monthly dataset of fundamental and market parameters that cover financial markets global economic growth demand and supply of oil and geopolitical measures the innovation is to incorporate proxies for speculative and terrorist activity and dummies for major industry events and quantify price impacts of each new findings are positive links between oil prices and speculative activity bond yields an interaction term incorporating opec market share and oecd import dependence and the number of us troops and frequency of terrorist attacks in the middle east shocks also prove significant with a 6 18 per barrel impact on price for several months

political equilibrium income distribution and growth this paper analyzes the impact of income distribution on growth when investment in human capital is the source of growth and individuals vote over the degree of redistribution in the economy the model has three main features first very different patterns of income distribution are conducive to high growth at different levels of per capita income second growth is associated with an externality whereby investment in human capital by one group increases the productivity of other groups thus potentially enabling them to invest in human capital third the initial pattern of income distribution and the resulting political equilibrium are crucial in determining whether the transmission of this externality is promoted in which case growth is enhanced or prevented in which case growth is stopped using a non overlapping generations model with voting i derive several empirical implications in particular the model implies an inverted u relation between levels of inequality and levels of income in cross sections but not necessarily in time series a result that seems consistent with a number of empirical studies

income inequality in the united states 1913 1998 this paper presents new homogeneous series on top shares of income and wages from 1913 to 1998 in the united states using individual tax returns data top income and wages shares display a u shaped pattern over the century our series suggest that the large shocks that capital owners experienced during the great depression and world war ii have had a permanent effect on top capital incomes we argue that steep progressive income and estate taxation may have prevented large fortunes from fully recovering from these shocks top wage shares were flat before world war ii dropped precipitously during the war and did not start to recover before the late 1960s but are now higher than before world war ii as a result the working rich have replaced the rentiers at the top of the income distribution

oil price dynamics 2002 2006 abstract oil price dynamics during 2002 2006 have been characterized by high volatility high intensity jumps and strong upward drift and were concomitant with underlying fundamentals of oil markets and world economy namely pressure on oil prices resulting from rigid crude oil supply and expanding world demand for crude oil a change in the oil price process parameters would require a change in underlying fundamentals market expectations extracted from call and put option prices anticipated no change in underlying fundamentals in the short term markets expected oil prices to remain volatile and jumpy and with higher probabilities to rise rather than fall above the expected mean

from the peaks to the valleys cross state evidence on income volatility over the business cycle abstract countercyclical variation in individuals idiosyncratic labor income risk could generate substantial welfare costs following past research we infer income volatility the variance of permanent income shocks a standard proxy for income risk from the rate at which cross sectional variances of income rise over the life cycle for a given cohort our novelty lies in exploiting cross state variation in state economic conditions or state sensitivity to national economic conditions we find that income volatility is higher in good state times than bad during good national times we find volatility is higher in states that are more sensitive to national conditions

inequality income growth and mobility the basic facts during the 1950s and 1960s mean wages in the united states grew rapidly and the dispersion around this growing mean changed very litde starting in the 1970s and continuing into the 1980s and 1990s these patterns were reversed mean wages grew slowly and inequality increased rapidly these changes in labor markets were reflected in changes in the distribution of family income the mean of the distribution of family income did increase after 1973 in spite of the near constancy of mean real wages as family members increased the number of hours they worked however the increase in inequality of wages was mirrored by an increase in the dispersion of family income a large descriptive literature has documented the rise in inequality while a smaller behavioral literature has sought to delineate the causes of this rise these changes in the distribution of family income a fected rates of poverty directly during the 1950s and 1960s temporary increases in poverty during recessions were more than offset by declines in poverty during economic expansions as long as the poor gained along with everyone else fi om the secular growth in the mean one could be confident that poverty rates would ratchet down this is exactly what happened as poverty rates fell from 22 4 percent in 1959 to 11 1 percent in 1973

oil price uncertainty and the u s stock market analysis based on a garch in mean var model abstract this paper uses a bivariate garch in mean var model to examine the effect of oil price uncertainty on the u s real stock returns at the aggregate and sectoral levels estimation results suggest that there is no statistically significant effect of oil price volatility on the u s stock returns the absence of an uncertainty effect might be explained by the fact that companies are likely to hedge against fluctuations in oil prices it could also stem from the ability of most companies to transfer the higher cost of oil to customers moreover the impulse responses indicate that accounting for oil price uncertainty oil price increases and decreases have symmetric effects on the u s aggregate stock returns in that energy price increases and decreases are estimated to have equal and opposite effects on the u s financial market however this symmetric effect doesn t hold across all the sectors studied in this paper

income inequality education expenditures and growth abstract recent studies have reported a negative association between income inequality and economic growth if true what accounts for this finding what are possible transition mechanisms that might link the two this paper explores one such mechanism income inequality raises expenditures for public education as a fraction of gross domestic product gdp although public education expenditures are positively associated with future economic growth the contemporaneous effect upon growth is negative given this cost upon current growth these findings may help to explain the lack of a large positive effect from the growth of human capital upon economic growth as reported in the literature

the great overestimation tax data and inequality measurements in the united states 1913 1943 historical measures of income inequality in the united states must grapple with the challenge of data quality we examine one such problem affecting the well known estimates of income inequality produced by piketty and saez 2003 using the records of the internal revenue service irs prior to 1943 incomes were self reported combined with lax enforcement on the part of the irs self reporting of incomes could provide a misleading portrait of the income distribution to test the accuracy of irs records we compare them to independently tabulated state income tax returns between 1919 and 1945 from states with more comprehensive and rigorously enforced tax collection procedures state income tax records show lower overall levels of income inequality than irs records however we still find that top income concentrations declined across the period between 1929 and world war ii these findings attest to the sensitivity of distributional estimation to the reporting selectivity and economic quality of underlying tax data suggesting that the existing irs derived series systematically overstates top income concentration in the interwar period jel h2 n32 d31 e01

inequality and growth in the united states evidence from a new state level panel of income inequality measures i introduction rising income inequality in the united states over the past quarter century is well documented see e g gottschalk 1997 krueger 2003 levy and murnane 1992 piketty and saez 2003 whether and by how much this change in inequality is associated with a change in economic performance is an important question yet recent empirical work has been largely inconclusive positive relationships between income inequality and economic growth have been found by partridge 1997 2005 using a panel of states and by forbes 2000 using a panel of countries empirical work by panizza 2002 and quah 2001 however has found little or no stable relationship between inequality and growth the results appear to be extremely sensitive to the econometric specification additionally barro 2000 has found evidence that the relationship is nonlinear with inequality being positively related to growth among wealthier countries like the united states but negatively related to growth among low income countries much of this recent empirical literature was initiated by the important work of deininger and squire 1996 who constructed a large cross national panel of inequality measures containing several time series observations for each nation spaced over multiple decades a parallel empirical literature also emerged using u s state level data with income inequality measures typically spaced at 10 yr intervals see e g panizza 2002 partridge 1997 2005 both the state level and the cross national empirical literatures benefited by exploiting the more advanced panel data econometrics afforded by the large n small t panel dimensions in this paper we offer a new more comprehensive panel of state level income inequality measures and use this panel to reevaluate the empirical inequality growth relationship 1 this panel has the unique feature of being large in both n and t with annual observations of the 48 contiguous states for the entirety of the postwar period 1945 2004 for nearly all the states in the panel the share of income held by the top decile experienced a prolonged period of stability after world war ii followed by a substantial increase during the 1980s and 1990s these state level trends appear to closely replicate the overall trends in aggregate u s inequality found by piketty and saez 2003 exploiting the large and balanced size of our inequality panel we explore the long run relationship between inequality and growth via three alternative dynamic panel error correction estimators the fixed effects fe estimator the mean group mg estimator of pesaran and smith 1995 and the pooled mg estimator of pesaran shin and smith 1999 the greater homogeneity of state level data helps mitigate the difficulty in adequately capturing structural differences across international panels of earlier studies such as forbes 2000 and barro 2000 corruption levels labor market flexibility tax neutrality tradition of entrepreneurship and many other factors are only poorly measured if at all barro 2000 1011 and these sources of heterogeneity are much more likely to contribute to omitted variable bias across countries than across states the results from our analysis indicate that the long run relationship between the top decile share of income and economic growth is positive in nature moreover an evaluation of several alternative income inequality measures suggests that this positive relationship is driven primarily by the concentration of income in the upper end of the income distribution the structure of the paper is as follows section ii presents the new panel of annual state level inequality measures and includes an important discussion of its key limitations section iii then offers an empirical investigation on the impact of income inequality on the growth rate of real income per capita finally section iv offers a brief set of conclusions

opec s market power an empirical dominant firm model for the oil market abstract we estimate a dominant firm competitive fringe model for the crude oil market using quarterly data on oil prices for the 1986 2016 period the estimated structural parameters have the expected signs and are significant we find that opec exercised market power during the sample period counterfactual experiments indicate that world gdp is the main driver of long run oil prices however supply depletion factors have become more important in recent years

a new data set measuring income inequality this article presents a new data set on inequality in the distribution of income the authors explain the criteria they applied in selecting data on gini coefficients and on individual quintile groups income shares comparison of the new data set with existing compilations reveals that the data assembled here represent an improvement in quality and a significant expansion in coverage although differences in the definition of the underlying data might still affect inter temporal and international comparability based on this new data set the authors do not find a systematic link between growth and changes in aggregate inequality they do find a strong positive relationship between growth and reduction of poverty

is there a role for commodity prices in the design of monetary policy some empirical the consumer price index in the united states follows a non trend stationary stochastic process that describes the index as drifting randomly upward without bound monetarists have long pointed to similar properties in the time series of monetary aggregates as the source of this incipient inflation their solution to this problem is close adherence by the central bank to targets for a monetary or reserve aggregate that correspond to slow and steady monetary growth with any periods of excessive monetary growth subsequently offset this would produce monetary series that are trend stationary if the demand for money is reasonably stable price series would also become trend stationary and for properly chosen targets the price level would be bounded with a mean inflation rate of zero

effects of global liquidity on commodity and food prices summary this article investigates the relationship between global liquidity and commodity and food prices applying a global cointegrated vector autoregressive model we use different measures of global liquidity and various indices of commodity and food prices for the period 1980 2011 our results support the hypothesis that there is a positive long run relation between global liquidity and the development of food and commodity prices and that food and commodity prices adjust significantly to this cointegrating relation global liquidity in contrast does not adjust it drives the relationship

do inequality unemployment and deterrence affect crime over the long run abstractdo inequality unemployment and deterrence affect crime over the long run regional studies this paper investigates the long run relationship between crime inequality unemployment and deterrence using us state level data from 1978 to 2013 the novelty is to use non stationary panels with a factor structure the results show that 1 a crime theoretical model fits the long run relationship well 2 income inequality and unemployment have a positive impact on crime whereas that of deterrence is negative 3 the effect of income inequality on crime is larger when inequality is measured on a wider population proportion and 4 property crime is generally highly sensitive to the deterrence effect of police

mortality and the business cycle evidence from individual and aggregated data there has been much interest recently in the relationship between economic conditions and mortality with some studies showing that mortality is pro cyclical while others find the opposite some suggest that the aggregation level of analysis e g individual vs regional matters we use both individual and aggregated data on a sample of 20 64 year old swedish men from 1993 to 2007 our results show that the association between the business cycle and mortality does not depend on the level of analysis the sign and magnitude of the parameter estimates are similar at the individual level and the aggregate county level both showing pro cyclical mortality

aggregation and the estimated effects of economic conditions on health this paper considers the relationship between economic conditions and health with a focus on different approaches to geographic aggregation after reviewing the tradeoffs associated with more and less disaggregated analyses i update earlier state level analyses of mortality and infant health and then consider how the estimated effects vary when the analysis is conducted at differing levels of geographic aggregation this analysis reveals that the results are sensitive to the level of geographic aggregation with more disaggregated analyses particularly county level analyses routinely producing estimates that are smaller in magnitude further analyses suggest this is due to spillover effects of economic conditions on health outcomes across counties

the role of economic shocks on health evidence from german reunification sudden economic shocks impact the everyday lives of people from one day to the next a number of studies have examined the association between economic fluctuations and health however no consensus on the nature of this relationship has been established by exploiting the dramatic economic fluctuations following the german reunification of 1990 which included a sudden change from a socialist to a capitalist system in east germany this study examines the association between broad negative economic shocks and health the article finds that increases in state unemployment rates are associated with large and statistically significant declines in health outcomes estimates are stronger for people who became unemployed shortly after reunification for low income individuals and for east germans a group confronted with larger economic fluctuations when examining potential mechanisms that could explain the observed health deteriorations the study finds significant reductions in exercise frequency and increases in economic uncertainty and overall stress

income receipt and mortality evidence from swedish public sector employees in this paper we study the short run effect of salary receipt on mortality among swedish public sector employees by exploiting variation in paydays across work places we completely control for mortality patterns related to for example public holidays and other special days or events coinciding with paydays and for general within month and within week mortality patterns we find a dramatic increase in mortality on the day that salaries arrive the increase is especially pronounced for younger workers and for deaths due to activity related causes such as heart conditions and strokes the effect is entirely driven by an increase in mortality among low income individuals who are more likely to experience liquidity constraints all things considered our results suggest that an increase in general economic activity on salary receipt is an important cause of the excess mortality

oil and the macroeconomy since the 1970s economists have long been intrigued by empirical evidence that suggests that oil price shocks may be closely related to macroeconomic performance this interest dates back to the 1970s the 1970s were a period of growing dependence on imported oil unprecedented disruptions in the global oil market and poor macroeconomic performance in the united states thus it was natural to suspect a causal relationship from oil prices to u s macroeconomic aggregates since then a large body of work has accumulated that purports to establish this link on theoretical grounds and to provide empirical evidence in its support we do not attempt a comprehensive survey of this literature but rather provide an idiosyncratic synthesis of what we view as the key issues in this debate and the insights gained over the last 30 years the timing seems right for such an account although the experience of the 1970s continues to play an important role in discussions of the link between oil and the macroeconomy there have been a number of new oil price shocks since the 1970s notably the 1986 collapse of oil prices and the 2000 boom in oil prices as well as the oil price increases associated with the 1990 1991 gulf war and the 2003 iraq war given this richer case history we are arguably in a better position than two decades ago to distinguish the idiosyncratic features of each oil crisis from the systematic effects increases in oil prices have been held responsible for recessions periods of excessive inflation reduced productivity and lower economic growth in this paper we review the arguments supporting such views first we highlight some of the conceptual difficulties in assigning a central role to oil price shocks in explaining

relative income race and mortality abstract this paper examines the relationship between relative income and mortality our research is motivated by recent literature that posits that holding individual income fixed those whose income are low relative to the incomes of those in a reference group will have worse health we develop an empirical model in which an individual s health is a function of his or her own income and the incomes of those who live in the same geographical area we show how this individual level model can be estimated using semi aggregated data on the mortality rates of people categorized by age race gender and place of residence the model is estimated using mortality data from the 1980 and 1990 compressed mortality files merged with income data from the 1980 and 1990 5 public use samples of the us census we find no evidence that having relatively wealthy neighbors holding own income fixed is associated with higher mortality instead we find evidence that among some demographic and age groups in particular working aged black males having relatively wealthy neighbors is associated with lower mortality for example among younger aged 25 64 black men an increase in the income of others is estimated to have a beneficial effect on mortality that is 40 as large as an equivalent increase in own income

financial liquidity geopolitics and oil prices abstract this paper aims simultaneously to study the global dynamic relationship of oil prices financial liquidity and geopolitical risk on the one hand and the economic performance of oil exports dependent economies on the other global and country specific dynamics are studied together in a global vector autoregression gvar model that allows different lag structures for different variables in different countries global impulse response functions from the estimated model suggest that new waves of high oil prices are unlikely despite the likely continuation of high global financial liquidity and heightened geopolitical risk which had driven earlier episodes of very high oil prices with oil remaining at modest to low prices by recent historical standards we study the prospects for economic growth in oil export dependent economies through dramatic increases in domestic investment as planned under visions 2030 of some arab countries and conclude that unfortunately success is unlikely

the relation between narrative and money market indicators of monetary policy this paper studies the relation between narrative based indicators of monetary policy and widely used money market indicators of monetary policy three principal findings emerge first changes in monetary policy as measured by the narrative based policy indices are associated with persistent changes in the levels of m2 and the monetary base in contrast changes in the narrative policy indicators lead to transitory changes in short term interest rates nonborrowed reserves and the spread between the six month commercial paper rate and the three month treasury bill rate third these findings are generally robust across different narrative based policy indices

why are recessions good for your health a series of influential papers by christopher j ruhm 2000 2003 2005 2008 documents that recessions are good for your health or more specifically that state level mortality rates are strongly procyclical the magnitude of the correlation is economically meaningful a typical estimate from the literature suggests that a 1 percentage point increase in a state s unemployment rate is associated with a 0 54 percent reduction in that state s mortality rates if this reflects a causal relationship that is also valid at the national level then a 1 percentage point increase in the unemployment rate would translate based on 2004 mortality rates into about 12 000 fewer deaths per year these findings are frequently interpreted as resulting from the rising opportunity cost of time that accompanies better labor market opportunities and some empirical support exists for this interpretation for example ruhm 2000 shows that obesity and smoking also exhibit a procyclical pattern the economy and health

liquidity economic activity and mortality abstract we document a within month mortality cycle where deaths decline before the first day of the month and spike after the first this cycle is present across a wide variety of causes and demographic groups a similar cycle exists for a range of economic activities suggesting the mortality cycle may be due to short term variation in levels of economic activity we provide evidence that the within month activity cycle is generated by liquidity our results suggest a causal pathway whereby liquidity problems reduce activity which in turn reduces mortality these relationships may help explain the procyclical nature of mortality

the short run relationship between inequality and growth evidence from oecd regions during the great recession abstractthis paper provides evidence on the relationship between income inequality and economic growth in organisation for economic co operation and development oecd regions during the decade 2003 13 it combines household survey data and macroeconomic databases covering over 200 comparable regions in 15 oecd countries the econometric results based on two alternative sets of instruments highlight a general negative association between inequalities and economic growth since the start of the economic crisis this relationship is sensitive to the type of urban structure higher inequalities seem to be more detrimental for growth in regions characterized by medium to large sized cities while regions characterized by small cities and rural areas are less affected

crude oil and stock markets stability instability and bubbles abstract we analyze the long run relationship between the world price of crude oil and international stock markets over 1971 1 2008 3 using a cointegrated vector error correction model with additional regressors allowing for endogenously identified breaks in the cointegrating and error correction matrices we find evidence for breaks after 1980 5 1988 1 and 1999 9 there is a clear long run relationship between these series for six oecd countries for 1971 1 1980 5 and 1988 2 1999 9 suggesting that stock market indices respond negatively to increases in the oil price in the long run during 1980 6 1988 1 we find relationships that are not statistically significantly different from either zero or from the relationships of the previous period the expected negative long run relationship appears to disintegrate after 1999 9 this finding supports a conjecture of change in the relationship between real oil price and real stock prices in the last decade compared to earlier years which may suggest the presence of several stock market bubbles and or oil price bubbles since the turn of the century

tests of long run neutrality using permanent monetary and real shocks abstract we present tests of long run monetary neutrality using an empirical framework that allows for the effects of real shocks on the long run behavior of both output and monetary aggregates our findings support long run monetary neutrality as a feature of the post world war ii u s economy we further find that permanent innovations in labor supply as measured by working age population are a principal factor in the long run movements in u s output and monetary aggregates

exploring the income distribution business cycle dynamics abstract we document the business cycle behavior of the us income distribution and explore the extent to which unemployment spells and cyclically moving factor shares account for this behavior by analyzing four heterogeneous household extensions of the neoclassical growth model we conclude i that partitioning the population into five types subject to type specific employment processes seems to be enough to account for most aspects of the us income distribution business cycle dynamics ii that the role played by cyclically moving factor shares is small and iii that the income distribution business cycle dynamics may be essentially independent from the significant part of the observed wealth concentration that these model worlds fail to account for

an empirical characterization of the dynamic effects of police spending on violent and property crime the study estimates the dynamic effects of shocks to police expenditures on measures of violent and property crime rates using annual u s state level data for the period 1960 2015 we employ a structural panel var model and achieve identification by imposing the restriction that police spending responds to structural shocks to crime with at least a lag of 1 year results indicate that a shock to police spending leads to a persistent and significant decreases in violent and property crime rates and b significant and persistent negative impacts on crime rates in periods of high crime but little impacts in periods of low crime variance decompositions show that shocks to police spending account for moderate to large proportions of the variability of u s state level crime rates our findings are robust across separate measures of violent and property crime rates as well as to the inclusion of additional variables to the baseline panel var model jel k42

pro cyclical mortality across socioeconomic groups and health status abstract using variation across geographic regions a number of studies from the u s and other developed countries have found more deaths in economic upturns and less deaths in economic downturns we use data from regions in norway for 1977 2008 and find the same pro cyclical patterns using individual level register data for the identical population we find that disadvantaged socioeconomic groups are not hit harder by pro cyclical mortality than advantaged groups we also find that other indicators of deteriorated health than death like becoming disabled are pro cyclical overall our analysis suggests that pro cyclical mortality is rather related to deaths of people already in deteriorated health than to people of low socioeconomic status

recessions healthy no more abstract over the 1976 2010 period total mortality shifted from strongly procyclical to being weakly or unrelated to macroeconomic conditions the association is likely to be poorly measured when using short less than 15 year analysis periods deaths from cardiovascular disease and transport accidents continue to be procyclical however countercyclical patterns have emerged for fatalities from cancer mortality and external causes among the latter non transport accidents particularly accidental poisonings play an important role

crime and conspicuous consumption we study how property crime distorts consumption decisions using an incomplete information model we argue that consuming conspicuous goods reveals information to criminals seeking bountiful victims and increases the likelihood of being victimized thus property crime reduces the consumption of visible goods even when these cannot be directly stolen but simply carry information about a potential victim s wealth we exploit the large decline in property crime in the u s during the 90s to test this mechanism using data from the u s consumer expenditure survey from 1986 to 2003 we find that households located in states experiencing sharper reductions in property crime increased significantly their consumption of visible goods even when these goods are not generally stolen both in absolute terms and relative to other consumption goods our findings hold when we instrument the decline in property crime during the 90s using a variety of strategies

monetary policies in interdependent economies an open economy explanation for base drift and price level non trend stationarities abstract most nations have experienced base drift of their money stocks and associated price level non trend stationarities recent explanations for this fact have emphasized tensions among various possible objectives of central banks in closed economy or small open economy frameworks in contrast this paper explores structural and policy interdependence among economies as an explanation for price level non trend stationarities it demonstrates that such interdependence can induce central banks to follow non trend stationary policies even if they desire only to smooth prices in their home economies

economic freedom and social capital this article brings together two growing literatures social capital and economic freedom to examine whether economic freedom contributes to social capital more specifically using us state level data from 1986 to 2004 and both ols and system gmm dynamic panel estimation we find that there is no clear trade off between economic freedom and either the level or growth of social capital

the differential effects of oil demand and supply shocks on the global economy abstract we employ a set of sign restrictions on the impulse responses of a global var model estimated for 38 countries regions over the period 1979q2 2011q2 as well as bounds on impact price elasticities of oil supply and oil demand to discriminate between supply driven and demand driven oil price shocks and to study the time profile of their macroeconomic effects across a wide range of countries and real financial variables we show that the above identification scheme can greatly benefit from the cross sectional dimension of the gvar by providing a large number of additional cross country sign restrictions and hence reducing the set of admissible models the results indicate that the economic consequences of a supply driven oil price shock are very different from those of an oil demand shock driven by global economic activity and vary for oil importing countries compared to energy exporters while oil importers typically face a long lived fall in economic activity in response to a supply driven surge in oil prices the impact is positive for energy exporting countries that possess large proven oil gas reserves however in response to an oil demand disturbance almost all countries in our sample experience long run inflationary pressures an increase in real output a rise in interest rates and a fall in equity prices

oil price dynamics and speculation a multivariate financial approach abstract this paper assesses empirically whether speculation affects oil price dynamics the growing presence of financial operators in the oil markets has led to the diffusion of trading techniques based on extrapolative expectations strategies of this kind foster feedback trading that may cause considerable departures of prices from their fundamental values we investigate this hypothesis using a modified capm following shiller 1984 and sentana and wadhwani 1992 first a univariate garch 1 1 m is estimated assuming the risk premium to be a function of the conditional oil price volatility the single factor model however is outperformed by the multifactor icapm merton 1973 which takes into account a larger investment opportunity set analysis is then carried out using a trivariate ccc garch m model with complex nonlinear conditional mean equations where oil price dynamics are associated with both stock market and exchange rate behavior we find strong evidence that oil price shifts are negatively related to stock price and exchange rate changes and that a complex web of time varying first and second order conditional moment interactions affects both the capm and feedback trading components of the model despite the difficulties we identify a significant role played by speculation in the oil market which is consistent with the observed large daily upward and downward shifts in prices a clear evidence that it is not a fundamental driven market thus from a policy point of view given the impact of volatile oil prices on global inflation and growth actions that monitor speculative activities on commodity markets more effectively are to be welcomed

a theory of trickle down growth and development this paper develops a model of growth and income inequalities in the presence of imperfect capital markets and it analyses the trickle down effect of capital accumulation moral hazard with limited wealth constraints on the part of the borrowers is the source of both capital market imperfections and the emergence of persistent income inequalities three main conclusions are obtained from this model first when the rate of capital accumulation is sufficiently high the economy converges to a unique invariant wealth distribution second even though the trickle down mechanism can lead to a unique steady state distribution under laissez faire there is room for government intervention in particular redistribution of wealth from rich lenders to poor and middle class borrowers improves the production efficiency of the economy both because it brings about greater equality of opportunity and also because it accelerates the trickle down process third the process of capital accumulation initially has the effect of widening inequalities but in later stages it reduces them in other words this model can generate a kuznets curve

inequality and growth in the united states is there asymmetric response at the state level a previous study that tried to assess the impact of economic growth on income inequality in the u s used state level data and an ardl panel model to conclude that economic growth worsens income in

marginal deterrence at work abstract the marginal deterrence principle of law enforcement implies that penalties must be scaled according to the severity of crimes in order to deter individuals from committing more severe offenses in this paper we test whether the us legal system is consistent with the rational economic model of marginal deterrence to this purpose we use novel and unique data on sentence length for a large sample of inmates in us correctional facilities combined with an official ranking of crimes by severity and with proxies for the maximum possible punishment and for the cost of monitoring criminals specifically the cost of policing in each us state over a period spanning up to 50 years we find that sentences are on average longer in states where maximum punishment is higher and monitoring cost is lower we document that these relations are systematically stronger in states where the private benefits from crime are more heterogeneous finally we show that sanctions increase relatively faster with the severity of crimes in states with higher maximum punishment and lower monitoring cost overall these results point to the rational economic model of marginal deterrence as providing a reasonable description of the actual enforcement policies chosen by regulators

the cost of business cycles under endogenous growth robert e lucas jr argued that the welfare gains from reducing aggregate consumption volatility are negligible subsequent work that revisited his calculation continued to find small welfare benefits further reinforcing the perception that business cycles do not matter this paper argues instead that fluctuations can affect welfare by affecting the growth rate of consumption i show that fluctuations can reduce growth starting from a given initial consumption which can imply substantial welfare effects as lucas himself observed empirical evidence suggests the welfare effects are likely to be substantial about two orders of magnitude greater than lucas original estimates

explaining international and intertemporal variations in income inequality this paper explores the propositions that income inequality is relatively stable within countries and that it varies significantly among countries a new and expanded data set provides broad support for both propositions drawing on a political economy and capital market imperfection arguments to explain the intertemporal and international variation in inequality the empirical analysis shows that the predicted variables associated with the first argument a measure of civil liberties and the initial level of secondary schooling and the second argument a measure of financial depth and the initial distribution of land are indeed important determinants of inequality this paper explores two propositions regarding income inequality they are first income inequality is relatively stable within countries and second it varies significantly across countries to illustrate note that the gini coefficient in india remained almost constant for forty years 1951 92 with mean 32 6 and standard deviation 2 0 2 in contrast the variation in gini coefficients across countries is large 61 9 in honduras in 1968 compared with 17 8 in bulgaria in 1976 if substantiated these propositions have potentially significant implications for poverty the significance of the first is obvious barring any fundamental socio political change poverty reduction will depend crucially on the rate of economic growth given this the significance of the second is that in inegalitarian economies the poor will enjoy a smaller share of any national increment in income than in more egalitarian ones drawing on a new and expanded data set on inequality deininger and squire 1996a the first of the paper s three sections conducts standard statistical tests of the two propositions the sample comprises 573 observations on the most common measure of inequality the gini coefficient for 49 developed and developing countries covering the period 1947 94 the results broadly confirm our two propositions specifically analysis of variance anova shows that about 90 of the total variance in the gini coefficients

the stability of money supply policies that peg the rate of interest this paper examines monetary policies that peg the rate of interest without relying on an interestelastic money supply in one case the money supply is completely predetermined in the sense that it only depends on past disturbances that is current disturbances do not affect the current money supply as is the case with an interest elastic money supply interest elastic money supply rules are shown to be untenable because such interest elasticity if large enough results in dynamic instability economists have long debated the relative desirability and the viability of two alternate monetary policies a fixed money supply and a pegged rate of interest one familiar theme which runs from wicksell through patinkin 6 and finally to sargent and wallace 7 is the possible incompatibility between a pegged rate of interest and a determinate nominal price level using different models and quite different analytical techniques both patinkin 6 and sargent and wallace 7 demonstrate this incompatibility more recently sargent and wallace 8 do not treat a pegged rate of interest and a fixed money supply as mutually exclusive alternatives rather their version of the real bills doctrine is a policy that fixes both the money supply and the rate of interest through the use of one period currency loans while preserving dynamic stability and establishing a determinate equilibrium price level the money supply rules derived below which peg the rate of interest are similar to the policy considered by sargent and wallace 8 since the analytic framework employed below is similar to that used by mccallum 5 canzoneri henderson and rogoff 1 and goodfriend 3 this paper bridges the gap between the sargent wallace treatment of a pegged rate of interest and discussions that employ a more conventional analytic framework section ii derives two interest rate pegging policies by employing the notion of a permanent future rate of money growth defined analogously to permanent income this concept is used to show that policies that peg the rate of interest while preserving dynamic stability are equivalent to policies that fine tune the public s perception of future rates of money growth it is this fine tuning of the public s perception of future rates of money growth rather than a perfectly interest