a dynamic model of welfare reform a dynamic structural model of labor supply welfare participation and food stamp participation is estimated using the 1992 1993 and 1996 panels of the survey of income and program participation details of various policies including welfare time limits work requirements and earned income tax credit eitc are incorporated formally in the budget constraint policy simulations reveal that the economy accounts for half of the increase in the labor supply of female heads of family between 1992 and 1999 a time limit results in a larger efficiency gain than a work requirement or a direct reduction in welfare benefits a reform package can lead to both a reduction in the government expenditure and an improvement in utility the eitc expansion results in a substantial efficiency gain among individuals with the lowest expected wage these individuals are almost unaffected by the economic expansion but their income and utility increase significantly under the reform package

the incentive effects of medicaid on women s labor supply this paper investigates medicaid s impact on women s labor supply behavior while taking into account medicaid s link to the afdc program the data were extracted from the 1986 current population survey a majorfinding is that medicaid valued as government provided health insurance has a significant negative impact on an average female head s probability of working for instance a i0 percent increase in medicaid would reduce a head s probability of working by 9 to 1 3 percentage points contrary to expectations medicaid is found to have a generally insignificant effect on hours worked

optimal dynamic pricing of inventories with stochastic demand over finite horizons in many industries managers face the problem of selling a given stock of items by a deadline we investigate the problem of dynamically pricing such inventories when demand is price sensitive and stochastic and the firm s objective is to maximize expected revenues examples that fit this framework include retailers selling fashion and seasonal goods and the travel and leisure industry which markets space such as seats on airline flights cabins on vacation cruises and rooms in hotels that become worthless if not sold by a specific time we formulate this problem using intensity control and obtain structural monotonicity results for the optimal intensity resp price as a function of the stock level and the length of the horizon for a particular exponential family of demand functions we find the optimal pricing policy in closed form for general demand functions we find an upper bound on the expected revenue based on analyzing the deterministic version of the problem and use this bound to prove that simple fixed price policies are asymptotically optimal as the volume of expected sales tends to infinity finally we extend our results to the case where demand is compound poisson only a finite number of prices is allowed the demand rate is time varying holding costs are incurred and cash flows are discounted the initial stock is a decision variable and reordering overbooking and random cancellations are allowed

the choice of a monetary instrument in a small open economy the case of korea abstract using a small macroeconometric model of korea this paper evaluates the correct choice of a monetary instrument either the money stock or the interest rate the optimal multiperiod policy and the value of current information on some monetary varialbles

the effect of food stamps on labor supply a bivariate selection model abstract although there is a large literature on the effects of u s transfer programs on labor supply this is the first such study of the food stamp program we model the nonlinearity and nonconvexity of the budget constraint and use maximum likelihood methods to estimate hours of work functions for female heads of household the largest recipient group in the program we also model the joint response to afdc and food stamps and we account for the existence of a significant number of eligible households who do not participate in the programs a three equation bivariate selection model is estimated on a sample of eligible households with maximum likelihood

the effect of child support payments on the labor supply of female family heads an econometric analysis recent census bureau statistics show that women who receive child support payments have higher earnings and work longer hours than women who do not does this suggest that child support unlike all other nonwage income does not deter work effort or are women who receive it simply different we use 1979 1982 cps data on divorced or separated women to estimate the determinants of hours worked when afdc participation and child support are endogenous we find evidence of unobservable differences between women who receive child support and those who do not controlling for these both child support and other nonwage income appear to reduce hours worked but the deterrent effect of child support is considerably less

central bank preferences and macroeconomic equilibrium abstract we investigate the behavior of an optimizing monetary authority in an economy described by a simple as ad model we develop a simple methodology for deriving the optimal policy and the associated model solution for various forms of the authority s objectives in our empirical work we focus on one of these specifications in which the authority cares about both the rate of inflation and the level of price innovations which boost real output in our model along the lines of barro and gordon 1983b estimating the model on post war us data we find that the revealed weight on price surprises is significant but only around a third of that on inflation the estimated elasticity of output with respect to price surprises is around one quarter but statistically insignificant

a little bit more evidence on the natural rate hypothesis from the u k abstract the evidence for the neutrality of anticipated changes in monetary policy in the u k over the period 1963q1 1982q1 is examined breaks in the stochastic process generating the money stock are used to identify the model the results are generally unfavourable to the proposition that only unanticipated money matters

estimating money demand functions the question of which functional forms of money demand regression equations are useful for empirical work is addressed here specifically it is argued that a functional form that focuses attention on the ability of the growth rate of nominal money to predict the inflation rate is a useful way of summarizing empirical evidence on the existence of a stable money demand function the results of estimating and simulating this functional form as well as standard functional forms are presented in the final part of this paper a typical equation expressing the public s demand for real money balances m is as follows

variable earnings and nonlinear taxation tax and transfer programs transform before tax income into after tax income income is variable and the tax and transfer system is nonlinear i e marginal tax rates vary we show that as a consequence the tax and transfer system punishes and rewards income variability we calculate the effect of the nonlinearity for several components of the u s tax and transfer system focusing on the low income population we find that the system rewards variability for some individuals and penalizes it for others we conclude that the tax and transfer system punishes and rewards variability in a manner that is both substantial and capricious

what mean impacts miss distributional effects of welfare reform experiments labor supply theory predicts systematic heterogeneity in the impact of recent welfare reforms on earnings transfers and income yet most welfare reform research focuses on mean impacts we investigate the importance of heterogeneity using random assignment data from connecticut s jobs first waiver which features key elements of post 1996 welfare programs estimated quantile treatment effects exhibit the substantial heterogeneity predicted by labor supply theory thus mean impacts miss a great deal looking separately at samples of dropouts and other women does not improve the performance of mean impacts we conclude that welfare reform s effects are likely both more varied and more extensive than has been recognized

determinacy and identification with taylor rules the new keynesian taylor rule theory of inflation determination relies on explosive dynamics by raising interest rates in response to inflation the fed induces ever larger inflation unless inflation jumps to one particular value on each date however economics does not rule out explosive inflation so inflation remains indeterminate attempts to fix this problem assume that the government will choose to blow up the economy if alternative equilibria emerge by following policies we usually consider impossible the taylor rule is not identified without unrealistic assumptions thus taylor rule regressions do not show that the fed moved from passive to active policy in 1980

comment on endogenous objectives and the evaluation of targeting rules for monetary policy 1 four mccallum principles itis bothanprivilege andapleasureformetoparticipateinthisconferenceinhonorofbennettt mccallum henceforthbtm thus beforeproceedingtomakespeci c comments regarding carl walsh s elegant paper on endogenous objectivesand targeting rules i would like to begin by providing some context in light ofbtm snumerouscontributionstotheanalysisofmonetarypolicy forthispurpose itishelpfultohighlightfourbasicprinciplesofeffectivemonetarypolicythatbtmhas consistently emphasized over the past several decades given the logicalcoherencyandintuitiveappealofhisworkonthissubject itisonlynaturaltorefertothesefourpointsasthe mccallumprinciples the rstmccallumprincipleisthatmonetarypolicymatters thatis theconductof monetary policy can have important consequences for social welfare btmanalyzedthetheoreticalandempiricalunderpinningsofthisprincipleinaseriesof

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

employment and welfare participation among women laurie j bassi the model makes a distinction between voluntary and involuntary welfare receipt the findings suggest that among female heads of households the increase in welfare receipt that occurred between 1967 and 1979 was almost completely attributable to an increase in involuntary unemployment and an increase in the proportion of the population that was eligible for welfare due to changes in program parameters the passage of time used as a proxy for changes in the stigma associated with receiving welfare appears to be of secondary importance the labor supply response to welfare programs is small and possibly diminishing over time i introduction during the last thirty years the aid to families with dependent children afdc and food stamp programs experienced phenomenal increases in outlays between 1965 and 1975 the afdc population grew 162 percent and real government spending on benefits more than tripled by 1980 the probability that a family was receiving afdc was four times the probability in 1950 value the food stamp program after its introduction in the late 1960s experienced equally dramatic increases in recipiency rates and outlays these striking increases in welfare costs and participation brought an emerging consensus that the afdc and food stamp programs had failed as charles murray writes in losing ground 1984 146 the popular wisdom is characterized by hostility toward welfare it makes people lazy historian james patterson 1981 179 provides an alternative though not inconsistent explanation of the skyrocketing caseloads despite the hostility of the middle classes to increases in welfare poor americans refused at last to be cowed from applying for aid compared to the past when poor people harassed and stigmatized by public authorities were slow to claim their rights this was a fundamental change both of these explanations of the increase in welfare participation assert changes in people s response to the programs murray claims that program changes in the 1960s induced negative labor supply responses increasing numbers of individuals voluntarily reduced their earned income in order to become eligible for welfare patterson claims that a reduction in the stigma associated with welfare led a greater percentage of those eligible to apply for welfare a theoretical model for evaluating the validity of these two views as descriptions of reality is presented here the model is tested using data on women who headed households at some time between 1967 to 1979 the analysis attempts to identify changes in behavior among female heads of households but does not model the decision to head a family a decision which embodies both marital status and fertility choices the implications of this limitation are discussed at the end of the paper the focus is on developing a tractable theoretical structure that allows for a distinction between voluntary and involuntary welfare participation the model also provides a simple test for whether reported unemployment is a constraint on choice or rather a result of it i e whether unemployment too is involuntary or voluntary the empirical results enable us to dis aggregate the changes in welfare participation into their component parts the findings suggest that the increase in welfare participation rates among female heads of households during the late 1960s and 1970s is attributable to both an increase in involuntary unemployment and to an increase in those eligible for welfare as a result of changes in program parameters the passage of time used as a proxy for a lessening of stigma appears to be of minor importance the labor supply response to welfare programs appears to be small and possibly diminishing over time in section ii a model for determining the effect of redistribution schemes on labor supply and welfare participation decisions is developed

the wisconsin child support assurance system estimated effects on poverty labor supply caseloads and costs the economic impact of a child support assurance system csas is simulated with microdata on custodial families in wisconsin the csas includes a uniform child support standard automatic wage withholding a minimum child support benefit and wage subsidy for eligible families the simulation incorporates a model of the labor supply decision representing the custodial parent s choice of whether to participate in csas or in the current afdc system the results suggest that csas can significantly reduce poverty as well as welfare caseloads if child support collections increase by one half of the difference between estimated ability to pay child support and current collections csas will be less costly than the current system

welfare reform when recipients are forward looking in 1996 the aid to families with dependent children program was replaced with the temporary assistance for needy families tanf program this paper considers the effects of two specific components of tanf time limits and work requirements on employment marriage and welfare participation a discrete choice dynamic programming model is used and parameter estimates are obtained using data from the panel study of income dynamics policy simulations show that a five year lifetime time limit results in a 60 percent reduction in welfare use and that a substantial part of this reduction occurs because recipients are forward looking

short and long interest rate targets can both short and long term interest rates be targeted independently can the target of the term structure help solve the problem of multiplicity of equilibria that occurs when only the short rate is targeted both questions are addressed and the answer is yes to both

nonmonotonic demand for income redistribution benefits the case of afdc two different motives are often advanced to explain taxpayer nonrecipient support for income redistribution programs the first motive is the result of interdependent utilities between nonrecipients and the recipients of redistribution program benefits the source of this interdependence could be taxpayer altruism alternatively redistribution might be seen as one way to alleviate the potential for crime or social unrest recent theoretical analyses have suggested a second motiveincome redistribution programs act as protection against the possibility of unforseen loss in personal income 5 6 21 32 researchers using panel data find widespread random and temporary movements in individual income poverty and welfare program use that would seem to suggest a potentially significant insurance demand for redistribution programs 2 the results from one study for example indicate that while four to five percent of the total u s population could be classified as persistent recipients of welfare program benefits between 1969 and 1978 receiving program benefits in at least five of those years over one quarter of the u s population participated in welfare programs at least once over this same ten year period 9 74 in the past researchers estimating nonrecipient support for income transfer programs have considered only one of these two motives while ignoring the other 3 this paper extends the examination of the demand for income redistribution by integrating the public good and social insurance demand motives into one model the first part of the paper sets up the individual s decision model for income redistribution one consequence of interacting the public good and social insurance motives into one model is that support for higher benefit payments is expected to come from the tails of the income distribution low income individuals both recipients and nonrecipients benefit directly from the reduced risk of income randomness while high income

can we improve the structure of financial systems 1993 the main theme of this paper is that several of the characteristics of our present western monetary and banking systems have been crucially dependent on the particular temporal process of historical development and are not an essential feature of more fundamental preferences or technological conditions they exist in part because we take them for granted it is the purpose of this paper to examine what might change in both theory and practice if some of these inessential characteristics were to be changed

making work pay changes in effective tax rates and guarantees in u s transfer programs 1983 2002 in the 1990s many states liberalized statutory rules regarding the tax treatment of earned and unearned income for welfare program eligibility and benefit levels i use quality control data from the afdc tanf program over 1983 2002 to document changes in the corresponding effective tax rates and benefit guarantees after welfare reform i find that effective tax rates fell by 50 percent on earned income and by at least 70 percent on unearned income states that aggressively reformed their welfare programs especially those that implemented a stringent sanctions policy on benefits experienced more rapid reductions in effective tax rates and guarantees

indeterminacy bubbles and the fiscal theory of price level determination abstract the recently developed fiscal theory of price level determination contends that there is an important class of policy rules in which there exists a unique rational expectations solution that shows the price level to be dependent upon fiscal policy and independent of monetary variables the present paper argues however that there is an alternative solution to these models that has entirely traditional or monetarist properties this latter solution is arguably more plausible since it is the solution that is typically regarded as the bubble free fundamentals solution the paper s analysis involves the specification of feasible instrument variables

on non uniqueness in rational expectations models an attempt at perspective abstract many macroeconomic models involving rational expectations give rise to an infinity of solution paths even when the models are linear in all variables some writers have suggested that this non uniqueness constitutes a serious weakness for the rational expectations hypothesis one purpose of the present paper is to argue that the non uniqueness in question is not properly attributable to the rationality hypothesis but instead is a general feature of dynamic models involving expectations it is also argued that there typically exists in a very wide class of linear rational expectations models a single solution that excludes bubble or bootstrap effects one that occur only because they are arbitrarily expected to occur a systematic procedure for obtaining solutions free from such effects is introduced and discussed in addition this procedure is used to interpret and reconsider several prominent examples with solution multiplicities including ones developed by fischer black and john b taylor

technology shocks in the new keynesian model in the new keynesian model preference cost push and monetary shocks all compete with the real business cycle model s technology shock in driving aggregate fluctuations a version of this model estimated via maximum likelihood points to these other shocks as being more important for explaining the behavior of output inflation and interest rates in the postwar u s data these results weaken the links between the current generation of new keynesian models and the real business cycle models from which they were originally derived they also suggest that federal reserve officials have often faced difficult trade offs in conducting monetary policy

price level determinacy with an interest rate policy rule and rational expectations abstract this paper reconsiders a result obtained by sargent and wallace namely that price level indeterminacy obtains in their model if the monetary authorities adopt a feedback rule for the interest rate rather than the money stock it is shown that the indeterminacy vanishes if the interest rate rule is chosen so as to have a desired effect on the expected quantity of money demanded this holds even if considerable weight is given in the choice of a rule to the aim of smoothing interest rate fluctuations

an approximate dynamic programming approach to attended home delivery management we propose a new method of controlling demand through delivery time slot pricing in attended home delivery management with a focus on developing an approach suitable for industry scale implementation to this end we exploit a relatively simple yet effective way of approximating delivery costs by decomposing the overall delivery problem into a collection of smaller area specific problems these cost estimations serve as inputs into an approximate dynamic programming method that provides estimates of the opportunity cost associated with having a customer from a specific area book delivery in a specific time slot these estimates depend on the area and on the delivery time slot under consideration using real large scale industry data we estimate a demand model including a multinomial logit model of customers delivery time slot choice and show in simulation studies that we can improve profits by over two per cent in all tested instances relative to using a fixed price policy commonly encountered in e commerce these improvements are achieved despite making strong assumptions in estimating delivery cost these assumptions allow us to reduce computational run time to a level suitable for real time decision making on delivery time slot feasibility and pricing our approach provides quantitative insight into the importance of incorporating expected future order displacement costs into opportunity cost estimations alongside marginal delivery costs

the conformity of wage indexation models with stylized facts in a recent paper bennett mccallum 1982 lists what he considers to be prominent empirical regularities or stylized facts of aggregate economies in particular he notes that output and employment magnitudes are strongly related to contemporaneous money stock surprises but that output and employment magnitudes are not strongly and positively related to contemporaneous price level surprises p 4 these facts have prompted mccallum and others to develop models of the economy where prices as well as wages are predetermined the main feature of such models is their abandonment of aggregate supply formulations where price level disturbances provide a channel for the real effects of money the purpose of this paper is to demonstrate the consistency of familiar gray and fischer wage indexing models and their implied aggregate supply relationship with the stylized facts see joanna gray 1976 stanley fischer 1977 in a model where the nominal wage is indexed to the price level the efficient use of the information conveyed by the price level imposes qualitative restrictions on the covariance matrix of disturbances first the correlation between the price level and innovations in the deviation of actual output from the full information output level will be zero second because the money supply contains information about real disturbances that is not conveyed by the price level the correlation between money supply innovations and innovations in the deviation of output from the full information level will be positive third the regression of innovations in actual output on the price level will provide an estimate of the optimal degree of indexation evidence that is generally consistent with these properties of wage indexation models is found in quarterly data for the five largest oecd countries consider the familiar aggregate formulation 1

the impact of taxes and transfers on job search this article develops a framework for analyzing the impact of taxes and transfers on the length of time a person waits to accept a job while receiving transfer payments it considers the impact of changes in the parameters of a generic tax transfer system characterized by a guarantee and a tax rate on the costs and benefits of search the analytical results indicate that increases in guarantees need not increase duration of unemployment the results for unemployment insurance are a special case of the more general formulation developed in this article in fact increases in guarantees and increases in tax rates may shorten the duration of unemployment while decreasing the labor supply of transfer recipients

revenue management under a general discrete choice model of consumer behavior customer choice behavior such as buy up and buy down is an important phenomenon in a wide range of revenue management contexts yet most revenue management methodologies ignore this phenomenon or at best approximate it in a heuristic way in this paper we provide an exact and quite general analysis of this problem specifically we analyze a single leg reserve management problem in which the buyers choice behavior is modeled explicitly the choice model is very general simply specifying the probability of purchase for each fare product as a function of the set of fare products offered the control problem is to decide which subset of fare products to offer at each point in time we show that the optimal policy for this problem has a quite simple form namely it consists of identifying an ordered family of efficient subsets s 1 s m and at each point in time opening one of these sets s k where the optimal index k is increasing in the remaining capacity x and decreasing in the remaining time that is the more capacity or less time available the further the optimal set is along this sequence we also show that the optimal policy is a nested allocation policy if and only if the sequence of efficient sets is nested that is s 1 s 2 s m moreover we give a characterization of when nesting by fare order is optimal we also develop an estimation procedure for this setting based on the expectation maximization em method that jointly estimates arrival rates and choice model parameters when no purchase outcomes are unobservable numerical results are given to illustrate both the model and estimation procedure

are reserve requirements relevant for economic stabilization abstract the level of the required reserve ratio and the payment of interest on required reserves are irrelevant for economic stability 1 when the central bank appropriately adjusts its interest elasticity of supply of reserves or currency to offset changes in the required reserve ratio or in the interest rate paid on required reserves or 2 when economic agents form their price level expectations rationally conditional on the current interest rate

central bank independence and the monetary instrument problem we study the monetary instrument problem in a dynamic noncooperative game between separate discretionary fiscal and monetary policy makers we show that monetary instruments are equivalent only if the policy makers objectives are perfectly aligned otherwise an instrument problem exists when the central bank is benevolent while the fiscal authority is short sighted relative to the private sector excessive public spending and debt emerge under a money growth policy but not under an interest rate policy despite this property the interest rate is not necessarily the optimal instrument

price level determinacy and the choice of policy targets under rational expectations abstract we show that in a conventional macro model with rational expectations the government can use monetary policy to peg real interest rates and still attain a determinate price level provided it also pegs some nominal policy variable e g nominal expenditures

instrument instability and short term monetary control abstract the literature on instrument instability tends support to a policy of smoothing interest rates it contends that rigid adherence to a monetary rule would bring about explosive interest rate movements this contention is examined using a simple model which incorporates rational expectations the results suggest that instrument instability is associated with interest rate smoothing rather than with short term control of the money supply furthermore policy that attempts to stabilize interest rates may itself account for empirical findings which have hitherto been viewed as evidence that instrument instability would occur if the money supply were closely controlled

informational implications of money interest rate and price rules the information available to private agents determines the effectiveness of various types of monetary policy in an economy in which private agents have differential information sets the ranking of three classes of monetary policy rules critically depends on the specification of agents information sets a price rule for example minimizes the variance of output around its full information level when agents observe both the interest rate and money stock more generally if all three monetary policy variables the money stock the price level and the interest rate are contemporaneously observed the policy ranking is indeterminate

a reconsideration of sims evidence concerning monetarism abstract in var systems such as those of sims 1980 monetary policy surprises may be more accurately represented by interest rate than money stock innovations especially if the monetary authority uses an interest rate instrument

on the optimal monetary policy response to noisy indicators abstract we describe a behavior of a central bank when its measures of current inflation and output are subject to measurement errors in a framework of optimizing models with nominal price stickiness in our model a central bank sets the interest rate equal to its current estimate of the so called wicksellian natural rate of interest this is shown to imply that the interest rate responds to the central bank s estimates of both current inflation and output gap as advocated by taylor 1993 it is also shown that the noise contained in the indicators justifies a degree of policy cautiousness a reduced form representation of optimal policy should exhibit interest rate smoothing which is often found in the empirical literature on monetary policy reaction functions

interest rates aggregate information and monetary policy abstract interest rates set on economy wide markets represent an important source of information to economic agents within the class of business cycle models advanced by lucas and barro this paper explores the information conveyed by such aggregate signals and the types of monetary policies that can influence economic activity by changing the information content of interest rates

afdc benefits and the inter urban variation in poverty among female headed households the percentage of families headed by females in poverty varies widely across metropolitan areas for example 8 37 of all families in albany georgia were female headed and in poverty in 1980 while in sheboygan wisconsin the figure was 1 1 though not as dramatic as this interregional difference intra regional variation can also be significant in detroit michigan 4 90 of families were femaled headed and in poverty and in the closest interstate metropolitan area toledo ohio the figure was 3 77 recent research into the behavior of low income femaleheaded families suggests that state benefit differentials in aid to families with dependent children afdc may in part be responsible in this paper we construct a model that explains an important and overlooked implication of non uniform benefit standards among states the inter urban variation in the size of the potential and actual afdc recipient population particular attention is given to 1 the impact of interurban differences in real afdc payments 2 the potential of afdc to alter the number of female headed families in poverty and 3 the relative importance of other urban characteristics in explaining the size of the potential and actual afdc recipient population the model uses 1980 census data and is estimated for all standard metropolitan statistical areas for which we were able to obtain data

dynamic pricing of multiple home delivery options abstract online grocers accept delivery bookings and have to deliver groceries to consumers residences grocery stores operate on very thin margins therefore a critical question that an online grocery store needs to address is the cost of home delivery operations in this paper we develop a markov decision process based pricing model that recognizes the need to balance utilization of delivery capacity by the grocer and the need to have the goods delivered at the most convenient time for the customer the model dynamically adjusts delivery prices as customers arrive and make choices the optimal prices have the following properties first the optimal prices are such that the online grocer gains the same expected payoff in the remaining booking horizon regardless of the delivery option independently chosen by a consumer second with unit order sizes delivery prices can increase due to dynamic substitution effects as there is less time left in the booking horizon

wealth effects of open market operations and optimal monetary policy abstract equilibrium models of the business cycle such as those developed by lucas 1973 and barro 1976 barro 1980 are often used to analyze the effects of monetary disturbances on the economy these models typically view monetary injections as arising through lump sum transfer payments that are independent of an agent s holdings of money this paper examines the effects caused by misperceptions about money for the more realistic case when money is injected through open market operations the major result is that unperceived open market operations have a negative wealth effect

a century of us central banking goals frameworks accountability several key episodes in the 100 year history of the federal reserve have everal key episodes in the 100 year history of the federal reserve have been referred to in various contexts with the adjective great attached to been referred to in various contexts with the adjective great attached to them the great experiment of the federal reserve s founding the great them the great experiment of the federal reserve s founding the great depression the great infl ation and subsequent disinfl ation the great moderation depression the great infl ation and subsequent disinfl ation the great moderation and the recent great recession here i ll use this sequence of great episodes and the recent great recession here i ll use this sequence of great episodes to discuss the evolution over the past 100 years of three key aspects of federal to discuss the evolution over the past 100 years of three key aspects of federal reserve policymaking the goals of policy the policy framework and accountability reserve policymaking the goals of policy the policy framework and accountability and communication the changes over time in these three areas provide a useful and communication the changes over time in these three areas provide a useful perspective i believe on how the role and functioning of the federal reserve have perspective i believe on how the role and functioning of the federal reserve have changed since its founding in 1913 as well as some lessons for the present and for changed since its founding in 1913 as well as some lessons for the present and for the future the future

how inefficient are multiple in kind transfers the inefficiencies from multiple in kind transfers are smaller than one would guess from studying such programs singly though medicaid can give rise to average discounts as large as 60 percent the benefits from the programs are quite large relative to recipients incomes effective marginal tax rates under in kind transfers are appreciably lower than they would be if the programs gave cash poverty rates among recipients are markedly lowered if one counts the value of in kind transfers as income this effect is insensitive to whether one accounts for the discounting of in kind transfers by recipients

inflation targeting price path targeting and indeterminacy abstract in this paper we examine the areas of indeterminacy in a flexible price rbc model with shopping time role for money and a central bank that uses an interest rate rule to target inflation and or the price level we present analytical results showing that although inflation targeting often results in real indeterminacy a price level target generally delivers a unique equilibrium for a relevant range of policy parameters

a comparison of the effect of welfare programme features on welfare participation one and two parent families the effect of welfare programme characteristics on the decision to enter the welfare system is modelled as a binary discrete choice latent variable model dependent upon an underlying index function the two chief classes of welfare beneficiaries in the us welfare system are analysed two parent families and single female headed families the data set is a large recent non experimental multiyear cross sectional pooled data set derived from the us census bureaus current population survey behavioural impacts from a range of economic variables are consistent in sign with predictions made by economic theory newly estimated comprehensive descriptive statistics of the entire welfare system for both single female household heads and married couples with children are employed to characterize the welfare system statistically significant estimates of substantial magnitude are obtained for the impacts on welfare participation for the welfare guarantee level the effective tax rate on earned income and the effec

the intergenerational transfer of welfare dependency some statistical evidence does a mother s welfare receipt increase the future dependency of her children does the welfare system thus stimulate the dependency of future generations parameter estimates reported here suggest such intergenerational effects the sample comprises young girls and their mothers after control for observed and unobserved heterogeneity a mother s welfare participation is found to increase her daughter s later welfare dependency copyright 1992 by mit press

intermediate monetary targets and macroeconomic fluctuations it is investigated whether the choice of intermediate target has altered macroeconomic fluctuations and whether the observed changes are consistent with predictions from economic theory since implications from the theoretical literature focus on the effects of structural disturbances an empirical analysis must identify these effects the structural vector autoregressive var technique estimates structural disturbances using restrictions from standard macroeconomic theory based on descriptions of actual targeting procedures by insiders to federal reserve policy decisions the intermediate target for the united states is identified as the interest rate from 1951 to 1969 and money from 1970 to 1986 var models are estimated over each subsample to assess whether the estimated structural disturbances cause endogenous variables to behave as economic theory predicts tests are also performed to assess whether or not the targeting rule affects the variance of endogenous variables attributable to structural sh

money s role in the monetary business cycle a small structural model of the monetary business cycle implies that real money balances enter into a correctly specified forward looking is curve if and only if they enter into a correctly specified forward looking phillips curve the model also implies that empirical measures of real balances must be adjusted for shifts in money demand to accurately isolate and quantify the dynamic effects of money on output and inflation maximum likelihood estimates of the modelos parameters take both these considerations into account but still suggest that money plays a minimal role in the monetary business cycle

capital and macroeconomic instability in a discrete time model with forward looking interest rate rules abstract we establish the necessary and sufficient conditions for local real determinacy in a discrete time production economy with monopolistic competition and a quadratic price adjustment cost under forward looking policy rules for the case where capital is in exogenously fixed supply and the case with endogenous capital accumulation using these conditions we show that i indeterminacy is more likely to occur with a greater share of payment to capital in value added production cost ii indeterminacy can be more or less likely to occur with constant capital than with variable capital iii indeterminacy is more likely to occur when prices are modelled as jump variables than as predetermined variables iv indeterminacy is less likely to occur with a greater degree of steady state monopolistic distortions and v indeterminacy is less likely to occur with a greater degree of price stickiness or with a higher steady state inflation rate in contrast to some existing research our analysis indicates that capital tends to lead to macroeconomic instability by affecting firms pricing behavior in product markets rather than households arbitrage activity in asset markets even under forward looking policy rules

when did the fomc begin targeting the federal funds rate what the verbatim transcripts tell us in october 1982 the fomc deemphasized m1 and moved to what is commonly referred to as a borrowed reserves operating procedure sometime thereafter the fomc switched to a funds rate targeting procedure but never formally announced the change given the close correspondence between a borrowed reserves operating procedure and a funds rate targeting procedure thornton 1988 suggested that the fomc went immediately to a funds rate targeting procedure others date the switch to the funds rate procedure later meulendyke 1998 suggests the switch came in late 1987 while others suggest the change occurred later this paper reviews the verbatim transcripts of the fomc meetings to establish the timing of the switch the verbatim transcripts suggest that the fomc effectively switched to a funds rate targeting procedure in 1982 the documentary evidence is supported by an analysis of the spread between the funds rate and the funds rate target which suggests that the differences in the behavior of the spread before october 1979 and after october 1982 are relatively small and economically unimportant

child support welfare dependency and women s labor supply this study evaluates the potential effectiveness of alternative child support policies in reducing welfare program participation employing longitudinal data from the panel study of income dynamics the analysis addresses the simultaneity of women s decisions regarding welfare participation labor force participation and annual hours of work following marital breakup the estimation framework accounts for the endogeneity of child support payments with female labor supply and for the selection bias due to differential rates of remarriage among divorced separated women results show that higher child support payments would i decrease welfare participation and ii increase average hours of work the empirical estimates are used to assess the potential effects of adopting alternative child support policies such as the wisconsin child support assurance system these results suggest that large potential welfare cost savings are attainable but significant reductions in welfare participation rates would only be achieved through substantial improvements in child support enforcement or through government assured child support payments

interest rates and monetary policy this article conducts a thorough intertemporal analysis of nominal interest rate based monetary policy its main contribution is to show how such a policy can have different effects depending on the assumptions made about the saving and borrowing behaviour of firms we consider two cases i consumers are savers and firms are borrowers and ii both consumers and firms are borrowers the nation as a whole is borrowing from abroad in one case we confirm conventional wisdom but in the other case we find there may be unexpected and surprising results moreover our analysis has important implications for both inflation and nominal exchange rate targeting policies

interest rate innovations and the business cycle abstract recent evidence from vector autoregressions points towards the importance of interest rate innovations in explaining output variations we show that this evidence supports an interpretation of business cycles based on nominal contractual rigidities rather than cotinuous market clearing

dynamic pricing in the presence of inventory considerations research overview current practices and future directions the benefits of dynamic pricing methods have long been known in industries such as airlines hotels and electric utilities where the capacity is fixed in the short term and perishable in recent years there has been an increasing adoption of dynamic pricing policies in retail and other industries where the sellers have the ability to store inventory three factors contributed to this phenomenon 1 the increased availability of demand data 2 the ease of changing prices due to new technologies and 3 the availability of decision support tools for analyzing demand data and for dynamic pricing this paper constitutes a review of the literature and current practices in dynamic pricing given its applicability in most markets and its increasing adoption in practice our focus is on dynamic intertemporal pricing in the presence of inventory considerations

the duration of welfare spells probability distributions for the duration of welfare spells are estimated the principle guiding the work is that a recipient will not exit from welfare if the expected utility on welfare exceeds the expected utility of welfare the analysis indicates that while the majority of welfare spells are of short duration a nontrivial minority of spells are quite long those recipients with long spells are found to differ in predictable ways from those experiencing brief spells this suggests that strategies to move women off welfare are unnecessary in many cases and should be targeted on those most likely to be long term recipients copyright 1987 by mit press

effective tax rates and guarantees in the afdc program 1967 1982 estimates of effective tax rates on earned and unearned income and estimates of effective guarantees in the afdc program by state are provided for the period 1967 1982 the results indicate that effective real guarantees fell every year from 1967 to 1981 but stabilized in 1982 effective tax rates on unearned income rose steadily from 1967 to 1981 and took a particularly large additional jump in 1982 effective tax rates on earned income fell after 1967 but then gradually rose throughout the 1970s until 1982 when they took a much larger jump thus guarantees fell and tax rates rose over the 1970s as tight budgets forced states to restrict benefits and in the early 1980s tax rates were pushed even higher by federal legislation

a taxonomy and research overview of perishable asset revenue management yield management overbooking and pricing this paper proposes the term perishable asset revenue management to denote the field that combines the areas of yield management overbooking and pricing for perishable assets after summarizing the characteristics common to problems in this field the paper discusses the objectives and constraints faced by decision makers then it offers a comprehensive taxonomy with 14 different elements and reviews the research that has been done related to each element finally it suggests some important areas of future research that can help bridge the gap between theory and application

labour supply impacts of effective welfare programme parameters a reanalysis we quantify the impact of effective welfare programme parameters on the labour supply of single female household heads the primary group of welfare recipients in the usa our panel of data is derived from the us census bureau s current population survey for the years 1979 to 1990 inclusive behavioural impacts from a range of economic variables are consistent in sign with predictions made by economic theory we find that effective welfare gurantee levels and the effective tax rate on earned income both significantly decrease labour supply the marginal effects of these welfare programme parameters are economically small a us 1000 increase in the expected welfare guarantee level reduces annual labour supply by about 36 hours a 10 percentage point increase in the effective tax rate on earned income reduces annual labour supply by about 7 5 hours

interest rate rules and price determinacy the role of transactions services of bonds abstract interest rate rules have been associated with price indeterminacy when they do not respond aggressively enough to inflation price indeterminacy is typically associated with indeterminacy of real bond balances suggesting that the missing element is a meaningful role for government bonds we assume that government bonds provide arbitrarily small transactions services and show that this can dramatically change the local and global determinacy conditions in particular the specification of fiscal policy affects the aggressiveness with which monetary policy must respond to inflation to deliver local determinacy a range of passive monetary policies even an interest rate peg may yield determinacy

the effect of incomes wages and afdc benefits on marital disruption this paper uses a choice based model to estimate the effects of a broad set of economic factors including afdc benefit levels husband s earnings and a woman s wage rate on the probability of marital dissolution we find that the probability of divorce is lower for marriages in which the husband s labor income is higher we also find that while afdc income has a substantial effect on welfare receipt by a divorced woman it has a relatively small effect on the probability that a married woman will become divorced finally we find no support for the hypothesis that rising wages for women have increased marital instability

a reconsideration of the uncovered interest parity relationship abstract this paper argues that the uncovered interest parity uip relationship is distinct from and more important than the unbiasedness of forward exchange rates as predictors of future spot rates the standard finding that the slope estimate b is roughly 3 in regressions of s t on t 1 s t 1 implies rejection of unbiasedness but not necessarily uip the hypothesis that monetary authorities manage interest rates so as to smooth their movements while also resisting changes in exchange rates is attractive conceptually and is capable of explaining not only the b 3 finding but also several other notable features of the data

interest rate rules and transitional dynamics in an endogenously growing open economy abstract this paper sets up an endogenous growth model of an open economy in which the monetary authority implements a gradualist interest rate rule with targets for both inflation and economic growth we show that under a passive rule a monetary equilibrium exists and is unique moreover the equilibrium is locally determinate by contrast an active rule implies either two equilibria one high growth and one low growth or none in the case of two equilibria the high growth equilibrium is locally determinate while the low growth equilibrium is a source besides the stabilization and growth effects of alternative target policies are also explored in this study moreover in departing from the existing literature we turn to focus on the analysis of transition with a particular emphasis on the case of imperfect credibility

child support welfare dependency and poverty female headed families have among the highest poverty rates of any major demographic group in the united states the purpose of this paperis to investigate empirically the effectiveness of current child support enforcement policies and to determine their role in reducing poverty and welfare dependency a special supplement to the april 1982 current population survey provides the data for the analysis the results indicate that child support enforce ment may represent an effective means for re ducing welfare program costs but isunlikely to have a dramatic effect on either welfare de pendency or poverty copyright 1986 by american economic association

a multiproduct dynamic pricing problem and its applications to network yield management a firm has inventories of a set of components that are used to produce a set of products there is a finite horizon over which the firm can sell its products demand for each product is a stochastic point process with an intensity that is a function of the vector of prices for the products and the time at which these prices are offered the problem is to price the finished products so as to maximize total expected revenue over the finite sales horizon an upper bound on the optimal expected revenue is established by analyzing a deterministic version of the problem the solution to the deterministic problem suggests two heuristics for the stochastic problem that are shown to be asymptotically optimal as the expected sales volume tends to infinity several applications of the model to network yield management are given numerical examples illustrate both the range of problems that can be modeled under this framework and the effectiveness of the proposed heuristics the results provide several fundamental insights into the performance of yield management systems

global stability and the choice of policy targets under rational expectations abstract it is shown that if the supply of capital is properly incorporated in a macromodel with rational expectations the government cannot peg its expenditures wholly in real terms since otherwise the economy will be globally unstable

optimal monetary policy endogenous supply and rational expectations abstract in this paper we demonstrate that the choice of monetary policy regime will affect the variability of output when private agents in forming their supply decisions take into account the authority s selection of a policy rule a striking feature of the analysis is that the choice between policy rules in sargent wallace 1975 framework but with endogenous aggregate supply depends only on the variability of aggregate demand under each rule and not on the variability of aggregate supply it follows that the choice of monetary policy rules reduces to the problem analyzed by poole 1970 in the stochastic keynesian structure

interest rates and exchange rates under money supply targets the swiss evidence abstract short term effects of monetary policy on interest rates and exchange rates are evaluated with monthly and daily data for switzerland from 1974 to 1991 during this period the swiss national bank generally pursued a policy of targeting the money supply some evidence in favor of liquidity effects on interest rates is found the influence of changes in monetary aggregates is however not very strong both in terms of magnitude and explanatory power and depends on the time period investigated exchange rates do not react systematically to monetary policy actions

work incentives in the afdc system an analysis of the 1981 reforms the road to welfare reform increasingly appears to be one of the rockier paths the united states has traversed indeed by all outward appearances it is not even clear whether the current path runs uphill or downhill as far as work incentives in the welfare system are concerned economists of all political persuasions from milton friedman to james tobin have agreed that the uphill direction is that which leads to lower tax rates i e lower benefit reduction rates however as with free trade the near unanimity of opinion among economists has strangely only occasionally persuaded a majority of the nation s representatives to vote to go uphill the legislative history so illustrates from 1935 when the aid to families with dependent children afdc program was enacted to the 1967 social security amendments the tax rate in the program was 100 percent that is benefits were reduced by one dollar for every extra dollar earned with the 1967 amendments congress lowered the tax rate to 67 percent and in the heady atmosphere of the 1960 s it was expected that further progress in this direction would be made and that the tax rate would be lowered further indeed the family assistance plan subsequently proposed by president nixon would have lowered tax rates however the legislation passed the house but not the senate the ford administration considered welfare reform proposals internally but never proposed legislation while the carter administration proposed a massive welfare reform plan that met with no legislative success welfare reform was finally achieved in 1981 when the omnibus budget reconciliation act obra was enacted but obra increased the tax rate back to 100 percent the level prevailing prior to 1967 in retrospect it appears that 1967 marked the end not the beginning of legislative progress on work incentives in the welfare system in this paper i shall report the results of recent research that complicates the issue considerably by questioning whether lower tax rates do in fact provide work incentives the findings themselves seesaw not unlike the path of welfare reform itself first on a theoretical basis it appears that lower tax rates in a welfare program do not necessarily increase labor supply in the low income population as a whole contrary to the conventional wisdom in fact it also appears that members of the reagan administration were aware of this all along well in advance of the economics profession this theoretical ambiguity has fairly fundamental implications for the work incentive issue in welfare reform second nevertheless the empirical resolution of the ambiguity provided by existing econometric estimates in the labor supply literature and by estimates of the effect of afdc on labor supply indicates that a lower tax rate would indeed increase labor supply in the low income population as a whole and that a higher tax rate would decrease it thus the conventional wisdom is correct even though based upon an incorrect tdiscussants henry aaron the brookings institution and university of maryland harold watts columbia university edward gramlich university of michigan

estimating a dynamic model of household choices in the presence of income taxation the purpose of the article is to study the incentive and distributional consequences of income taxation the article analyzes tax changes in a dynamic setting the framework is estimated under a set of different identifying assumptions using parametric nonparametric and semiparametric techniques the empirical results focus on tax reforms in germany in the 1980s the article shows that these reforms did not significantly lower effective tax rates the findings also suggest that estimated elasticities for male labor supply are small ranging between 0 02 and 0 2

interest rate rules vs money growth rules a welfare comparison in a cash in advance economy abstract this paper considers the welfare consequences of two particularly simple rules for monetary policy an interest rate peg and a money growth peg the model economy consists of a real side that is the standard real business cycle model and a monetary side that amounts to imposing cash in advance constraints on certain market transactions the paper also considers the effect of assuming a rigidity in the typical household s cash savings choice the competitive equilibrium of the economy is not pareto efficient partly because of two distortions a distortion on the capital accumulation decision and a distortion on portfolio choice that arises from the assumed rigidity the principal result of the paper is that the interest rate rule but not the money growth rule entirely eliminates these two distortions and is thus the benevolent central banker s policy choice

the incredible volcker disinflation abstract the reduction in inflation that occurred in the early 1980s when the federal reserve was headed by paul volcker is arguably the most widely discussed and visible macroeconomic event of the last 50 years of u s history inflation had been dramatically rising but under volcker the fed first contained and then reversed this process using a simple modern macroeconomic model we argue that the real effects of the volcker disinflation were mainly due to its imperfect credibility in our view the observed upward volatility and subsequent stubborn elevation of long term interest rates during the disinflation are key indicators of that imperfect credibility studying transcripts of the federal open market committee recently released to the public we find to our surprise that volcker and other fomc members likewise regarded the long term interest rates as indicative of inflation expectations and of the credibility of their disinflationary policy drawing from the transcripts and other contemporary sources we consider the interplay of monetary targets operating procedures and credibility during the volcker disinflation

the indeterminacy of prices under interest rate pegging the non ricardian case abstract this paper investigates the issue of price level indeterminacy under a pure interest rate peg in models that depart from standard ricardian assumptions using a monetary version of blanchard s finite horizons model i find wealth effects operating on government bonds are not sufficient to determine a unique price level next i consider price determination under a non ricardian fiscal authority i show that if agents rationally perceive the possibility of fiscal default the price level is again indeterminate i conclude that departures from ricardian equivalence are not sufficient to ensure a unique price level under a monetary policy of pure interest rate pegging

the dynamics of welfare fraud an econometric duration model in discrete time an important source of errors in transfer payments programs is the fraudulent misreporting of earnings received by recipients we propose a model of the recipient s decision to report income and the expected penalties if caught engaging in fraud we discuss several features of the detection and penalty structures in the afdc and food stamps programs and present estimates of a model of the duration of fraudulent earnings misreporting episodes we find that recipients respond to increases in the returns to fraud by lengthening their episodes of misreporting however the level of fraudulent activity at any given time is rather low

welfare the earned income tax credit and the labor supply of single mothers during 1984 1996 welfare and tax policy were changed to encourage work by single mothers the earned income tax credit was expanded welfare benets were cut welfare time limits were added and welfare cases were terminated medicaid for the working poor was expanded as were training programs and child care during this same time period there were unprecedented increases in the employment and hours of single mothers we show that a large share of the increase in work by single mothers can be attributed to the eitc and other tax changes with smaller shares for welfare benet cuts welfare waivers training programs and child care programs