nonseparable preferences frisch labor supply and the consumption multiplier of government spending one solution to a fiscal policy puzzle this paper proposes a theoretical explanation of the positive consumption multipliers of government spending often found in the data the explanation requires two ingredients first labor demand expands e g prices are sticky second general nonseparable preferences over consumption and leisure should be such that the two goods are substitutes that is frisch labor supply elasticity is lower than the constant consumption elasticity this implies that constant consumption labor supply shifts left existing empirical evidence on the relative magnitudes of the two elasticities supports this hypothesis the parametric conditions under which the result occurs are consistent with restrictions of concavity and noninferiority of consumption and leisure

substitution elasticities between ghg polluting and nonpolluting inputs in agricultural production a meta regression abstract this paper reports meta regressions of substitution elasticities between greenhouse gas ghg polluting and nonpolluting inputs in agricultural production which is the main feedstock source for biofuel in the u s we treat energy fertilizer and manure collectively as the polluting input and labor land and capital as nonpolluting inputs we estimate meta regressions for samples of morishima substitution elasticities for labor land and capital vs the polluting input much of the heterogeneity of morishima elasticities can be explained by type of primal or dual function functional form type and observational level of data input categories number of outputs type of output time period and country categories each estimated long run elasticity for the reference case which is most relevant for assessing ghg emissions through life cycle analysis is greater than 1 0 and significantly different from zero most predicted long run elasticities remain significantly different from zero at the data means these findings imply that life cycle analysis based on fixed proportion production functions could provide grossly inaccurate measures of ghg of biofuel

non separability and sectoral comovement in a sticky price model this paper resolves the sectoral comovement problem between nondurable and durable outputs that arises in response to a monetary shock in a two sector sticky price model with flexibly priced durable goods we analytically demonstrate that the non separability between aggregate consumption and labor can generate the comovement between nondurable and durable outputs in response to a monetary policy shock we then estimate the degree of non separability together with other parameters using a bayesian approach we find that the non separable preferences are supported by the data and our estimated model generates the sectoral comovement in response to a monetary shock

real rigidities and the non neutrality of money rigidities in real prices are not sufficient to create rigidities in nominal prices and real effects of nominal shocks and by themselves small frictions in nominal adjustment such as costs of changing prices create only small non neutralities but this paper shows that substantial nominal rigidity can arise from a combination of real rigidities and small nominal frictions the paper shows the connection between real and nominal rigidity given the presence of nominal frictions both in general and for two specific sources of real rigidity one arising from goods market imperfections and the other from labour market imperfections

lifecycle economic analysis of biofuels accounting for economic substitution in policy assessment this paper develops a lifecycle economic analysis lcea model that integrates endogenous input substitution into the standard lifecycle analysis lca of biofuel that typically assumes fixed proportions production we use the lcea model to examine impacts of a pure carbon tax and a revenue neutral tax subsidy policy on lifecycle greenhouse gas emissions from cellulosic ethanol using forest residues as feedstock in washington state in a model allowing for input substitution in the cellulosic ethanol feedstock conversion and transportation process we consider energy source substitution woody biomass for coal in the cellulosic ethanol conversion plant and biodiesel for diesel in feedstock production and feedstock and ethanol transportation as well as substitution of capital and labor for energy in all stages of the lifecycle we find that ignoring endogenous input substitution by using standard lca leads to substantial underestimation of the impact of carbon tax policies on carbon emissions both tax policies can substantially reduce carbon emissions by inducing substitution among inputs the revenue neutral tax subsidy policy reduces emissions more effectively than the carbon tax policy for carbon tax rates currently in place throughout most of the world it stimulates substitution of woody biomass for coal and biodiesel for diesel at much lower tax rates when accompanied by corresponding subsidies for reduced emissions from renewable sources

what do we know about the risk of individual account pensions evidence from industrial countries the traditional way by which rich countries assure old age income security is through mandatory publicly financed pensions most national systems provide defined benefit pensions in which a worker s benefit is calculated based on years of coverage under the program and average wages while contributing to the system traditional systems are designed to replace a predictable and stable percentage of workers average earnings over their later careers excessive pension commitments have pushed many pay as you go pension programs toward insolvency however one reform option is to scale back traditional pensions gradually and replace them with pensions financed out of individual investment accounts a presidential commission recently outlined three reform plans to reduce benefits under the u s social security system and replace them with annuities financed out of retirement savings accounts president s commission to strengthen social security 2002 this paper examines evidence on the likely success of individual accounts in providing retirement income i use historical and simulated data on financial market performance to evaluate the market risks facing contributors to a system that is based on individual investment accounts the paper estimates the hypothetical pensions that workers in five industrialized countries could have obtained based on historical data the empirical magnitude of retirement income risks is shown to be quite large almost certainly larger than would be tolerated in most rich democracies

investment shocks and consumption abstract several influential papers have argued that preferences featuring a weak wealth effect on labour supply are key to generate macroeconomic co movement across real variables in response to shocks using a fully general specification for the instantaneous utility function we show that the size of the wealth effect on labour supply is largely inconsequential for macroeconomic dynamics instead we find that edgeworth complementarity between consumption and hours worked is crucial in order to obtain co movement of key macroeconomic variables we consider investment shocks and we show that co movement can easily be achieved with non separable preferences in combination with a reasonable degree of nominal rigidity this holds even in the presence of sizeable wealth effects

changes in the output euler equation and asset markets participation recent estimates of the output euler equation for the united states indicate that the elasticity of aggregate demand to interest rates is not significantly different from zero we first argue that this result may hide a structural break the estimated elasticity is a convolution of two coefficients with opposite signs across the samples 1965 1979 and 1982 2003 the sign of the coefficient in the earlier sample is inconsistent with standard economic theory and intuition we outline a model with limited asset markets participation that can generate this change in sign when asset market participation changes from low to high and provide institutional evidence for such a change in the united states in the late 70s and early 80s

a dynamic analysis of interfuel substitution in u s industrial energy demand using data for 1960 92 to analyze interfuel substitution in the u s industrial sector a dynamic linear logit model is shown to provide superior global properties than a comparable dynamic translog model confirming earlier static results by t j considine 1989 the linear logit model provides a direct unbiased estimate of the rate of dynamic adjustment indicating a median response lag of less than two years excluding fuels used for nonenergy purposes yields larger estimates of the price elasticities for coal and oil and indicates generally greater potential for interfuel substitution than when using aggregate data

estimating the effect of unearned income on labor supply earnings savings and consumption evidence from a survey of lottery players this paper provides empirical evidence about the effect of unearned income on earnings consumption and savings using an original survey of people playing the lottery in massachusetts in the mid 1980 s the effects of the magnitude of lottery prizes on economic behavior are analyzed the critical assumption is that among lottery winners the magnitude of the prize is randomly assigned it is found that unearned income reduces labor earnings with a marginal propensity to consume leisure of approximately 11 percent with larger effects for individuals between 55 and 65 years old after receiving about half their prize individuals saved about 16 percent

risk management of pensions from the perspective of loss aversion abstract this paper studies two interrelated questions first is a pay as you go payg pension component beneficial from a risk management point of view second does optimal risk management of old age consumption differ between different income groups the analysis is based on so called lexicographic loss aversion preferences interest in these preferences stems from the fact that they explain the cross section of individuals savings and asset allocation choices better than alternative models i find that all income groups benefit from the presence of a substantial payg component only for the two highest income quintiles old age provision should heavily rely on equity investments

investment shocks consumption puzzle and business cycles a mass of recent research shows that investment shocks are primary driving forces of business cycles a thorny issue however arises due to countercyclical consumption behavior following the investment shocks this article contributes to the literature by resolving this anomalous issue in a model that features time inconsistency modeled as naive hyperbolic discounting the proposed model delivers positive responses of consumption to an investment shock and thus produces comovement of key macroaggregates which is in line with the observed u s business cycles furthermore this article also substantiates the validity of the proposed model by producing comovement following an investment news or anticipated investment shock additional analyses on changes in model structure and parameter value do not reverse the main finding jel e3 e7

consumption heterogeneity employment dynamics and macroeconomic co movement abstract real business cycle models rely on total factor productivity tfp shocks to explain the observed co movement among consumption investment and hours however an emerging body of evidence identifies investment shocks as important drivers of business cycles this paper shows that a neoclassical model consistent with observed heterogeneity in labor supply and consumption across employed and non employed can generate co movement in response non tfp shocks estimation reveals fluctuations in the marginal efficiency of investment that explain the bulk of business cycle variance in consumption investment and hours a corollary of the model s empirical success is the labor wedge that is not important at business cycle frequencies

interfuel substitution a meta analysis interfuel substitutability has been of longstanding interest to the energy economics and policy community however no quantitative meta analysis has yet been carried out of this literature this paper fills this gap by analyzing a broad sample of studies of interfuel substitution in the industrial sector manufacturing industry or subindustries or macro economy of a variety of developed and developing economies publication bias is controlled for by including the primary study sample size in the meta regression results for the shadow elasticities of substitution between coal oil gas and electricity for forty six primary studies show that at the level of the industrial sector there are easy substitution possibilities between all the fuel pairs with the exception of gas electricity and coal electricity substitution possibilities seem more constrained at the macro level and less constrained in sub industries estimates also vary across countries publication bias does not seem to be present but model and data specification issues very significantly affect the estimates derived by each individual study estimates from cross section regressions are generally largest fixed effects panel estimates intermediate in magnitude and time series estimates are mostly much smaller econometric research suggests that the fixed effects estimates are likely the best among the existing studies though biased downwards

indivisible labor lotteries and equilibrium abstract this paper considers an economy where labor is indivisible and agents are identical although the discontinuity in labor supply at the individual level disappears as a result of aggregation it is shown that indivisible labor has strong consequences for the aggregate bahavior of the economy it is also shown that optimal allocations involve lotteries over employment and consumption

multi objective regulations on transportation fuels comparing renewable fuel mandates and emission standards 2015 elsevier b v we compare two types of fuel market regulations a renewable fuel mandate and a fuel emission standard that could be employed to simultaneously achieve multiple outcomes such as reduction in fuel prices fuel imports and greenhouse gas ghg emissions we compare these two types of regulations in a global context taking into account heterogeneity in carbon content of both fossil fuels and renewable fuels we find that although neither the ethanol mandate nor the emission standard is certain to reduce emissions relative to a business as usual baseline at any given level of biofuel consumption in the policy region a mandate relative to an emission standard results in higher ghg emissions smaller expenditure on fuel imports lower price of ethanol blended gasoline and higher domestic fuel market surplus this result holds over a wide range of values of model parameters we also discuss the implications of this result to a regulation such as the us renewable fuel standard given recent developments within the us such as increase in shale and tight oil production and large increase in average vehicle fuel economy of the automotive fleet

measures of per capita hours and their implications for the technology hours debate structural vector autoregressions give conflicting results on the effects of technology shocks on hours the results depend crucially on the assumed data generating process for hours per capita we show that the standard measure of hours per capita and productivity have significant low frequency movements that are the source of the conflicting results hodrick prescott hp filtered hours per capita produce results consistent with those obtained when hours are assumed to have a unit root we show that important sources of the low frequency movements in the standard measure are sectoral shifts in hours and the changing age composition of the working age population when we control for these low frequency components to determine the effect of technology shocks on hours using long run restrictions we get one consistent answer hours decline in the short run in response to a positive technology shock we further extend the analysis by examining the effects of demographic controls on the impulse responses to investment specific technology shocks our results are less conclusive

indivisible labor and the business cycle abstract a growth model with shocks to technology is studied labor is indivisible so all variability in hours worked is due to fluctuations in the number employed we find that unlike previous equilibrium models of the business cycle this economy displays large fluctuations in hours worked and relatively small fluctuations in productivity this finding is independent of individuals willingness to substitute leisure across time this and other findings are the result of studying and comparing summary statistics describing this economy an economy with divisible labor and post war u s time series

nonseparable preferences fiscal policy puzzles and inferior goods nonseparable preferences over consumption and leisure can generate an increase in private consumption in response to government spending as found in the data in a frictionless business cycle model however the conditions on preferences required for these result to obtain hold if and only if the consumption good is inferior similarly positive co movement of consumption and hours worked occurs if and only if either consumption or leisure is inferior

dissecting the dynamics of the us trade balance in an estimated equilibrium model in an estimated two country dsge model we find that efficiency shocks specific to investment account for more than half of the forecast variance of cyclical fluctuations in the us trade balance both domestic and foreign investment specific shocks have a substantial impact on the variability of the imbalance total factor productivity shocks do not matter for the variance and even lead to procyclicality in the trade balance

net exports consumption volatility and international business cycle models abstract conventional two country rbc models interpret countercyclical net exports as reflecting primarily the dynamics of capital i show that quantitatively theoretical economies rely on counterfactual terms of trade effects trade fluctuations on the contrary are driven by consumption smoothing thus generating procyclical net trade in goods i then consider a class of preferences that embeds home production in a reduced form consumption volatility increases so that countercyclical net exports reflect primarily a strong relation between consumption and imports as in the data the major discrepancy between theory and data concerns the variability of international prices

refinements on macroeconomic modeling the role of non separability and heterogeneous labor supply abstract this paper proposes a dynamic stochastic general equilibrium model characterized by heterogenous labor schedules and non separability between consumption and labor in the utility function the model successfully describes output consumption investment and interest rates after a monetary expansion the proposed formulation improves on standard models by using preferences favored by the data and by requiring investment adjustment costs and habit formation parameters more in line with the micro based evidence

time use during the great recession using data from the american time use survey between 2003 and 2010 we document that home production absorbs roughly 30 percent of foregone market work hours at business cycle frequencies leisure absorbs roughly 50 percent of foregone market work hours with sleeping and television watching accounting for most of this increase we document significant increases in time spent on shopping child care education and health job search absorbs between 2 and 6 percent of foregone market work hours we discuss the implications of our results for business cycle models with home production and non separable preferences jel codes d13 e32 j22

five facts about prices a reevaluation of menu cost models are price decreases 3 the frequency of price increases covaries strongly with inflation whereas the frequency of price decreases and the size of price increases and price decreases do not 4 the frequency of price change is highly seasonal it is highest in the first quarter and then declines 5 we find no evidence of upwardsloping hazard functions of price changes for individual products we show that the first second and third facts are consistent with a benchmark menu cost model whereas the fourth and fifth facts are not

investment shocks and business cycles abstract the origins of business cycles are still controversial among macroeconomists this paper contributes to this debate by studying the driving forces of fluctuations in an estimated new neoclassical synthesis model of the u s economy in this model most of the variability of output and hours at business cycle frequencies is due to shocks to the marginal efficiency of investment imperfect competition and to a lesser extent technological frictions are the key to their transmission although labor supply shocks explain a large fraction of the fluctuations in hours at very low frequencies they are irrelevant over the business cycle this finding is important because the microfoundations of these disturbances are widely regarded as unappealing

evaluating monetary policy under preferences with zero wealth effect a bayesian approach abstract both real and monetary macro models have parallely exploited the potential for various preferences in accounting for empirical facts this paper brings the two literatures together by estimating time non separable preferences with habit formation in consumption that nests several commonly used preferences in the absence of wealth effects and external habits these preferences fail to generate observed inflation inertia and output persistence after a monetary policy shock furthermore the data strongly rejects these preferences in favor of preferences with external habits an alternative solution is to include habit adjusted intermediate wealth effect preferences which are able to simultaneously generate sluggish responses of the variables to a monetary policy shock and fit the data better

interfuel substitution in the united states in this paper we use the locally flexible translog functional form to investigate the demand for energy and interfuel substitution in the united states and to provide a comparison of our results with most of the existing empirical energy demand literature motivated by the widespread practice of ignoring theoretical regularity we follow barnett s 2002 suggestions and estimate the model subject to theoretical regularity using methods developed by diewert and wales 1987 and ryan and wales 2000 in an attempt to produce inference consistent with neoclassical microeconomic theory moreover we use the most recent data published by the u s energy information administration eia and in addition to investigating interfuel substitution possibilities in total u s energy demand we follow serletis et al 2009 and also examine interfuel substitution possibilities in energy demand by sector moreover we test for weak separability with the objective of discovering the structure of the functional form in total energy demand as well as energy demand by sector

housework and fiscal expansions in an otherwise standard business cycle model with housework calibrated consistently with data on time use we discipline complementarity between consumption and hours worked and relate its strength to the size of fiscal multipliers evidence on the substitutability between home and market goods confirms that complementarity is an empirically relevant driver of fiscal multipliers however in a housework model substantial complementarity can be generated without imposing a low wealth effect which contradicts the microeconomic evidence also explicitly modeling housework matters for assessing the welfare effects of government spending which are understated by theories that neglect substitutability between home produced and market goods

tax evasion investment shocks and the consumption puzzle a dsge analysis with financial frictions recent studies identify marginal efficiency of investment mei shocks as important drivers of the business cycle however dynamic stochastic general equilibrium dsge models struggle to explain macroeconomic comovements between consumption and the key real variables after a mei shock moreover engaging in tax evasion practices is often an answer to financial constraints which have been recognized as important determinants of cyclical fluctuations as well we use a medium scale new keynesian dsge model that combines tax evasion with financial frictions to simulate a mei shock we show that entrepreneurial tax evasion can solve the comovement problem to a fair extent

can government purchases stimulate the economy this essay briefly reviews the state of knowledge about the government spending multiplier drawing on theoretical work aggregate empirical estimates from the united states as well as cross locality estimates i assess the likely range of multiplier values for the experiment most relevant to the stimulus package debate a temporary deficit financed increase in government purchases i conclude that the multiplier for this type of spending is probably between 0 8 and 1 5 jel e23 e62 h50

the laffer curve revisited abstract laffer curves for the us the eu 14 and individual european countries are compared using a neoclassical growth model featuring constant frisch elasticity cfe preferences new tax rate data is provided the us can maximally increase tax revenues by 30 with labor taxes and 6 with capital taxes we obtain 8 and 1 for the eu 14 there 54 of a labor tax cut and 79 of a capital tax cut are self financing the consumption tax laffer curve does not peak endogenous growth and human capital accumulation affect the results quantitatively household heterogeneity may not be important while transition matters greatly

investment shocks and the comovement problem recent work based on sticky price wage estimated dynamic stochastic general equilibrium dsge models suggests investment shocks are the most important drivers of post world war ii us business cycles consumption however typically falls after an investment shock this finding sits oddly with the observed business cycle comovement where consumption along with hours worked and investment moves with economic activity we show that this comovement problem is resolved in an estimated dsge model when i the cost of capital utilization is specified in terms of increased depreciation of capital as originally proposed by greenwood et al 1988 in a neoclassical setting or ii there is no wealth effect on labor supply the data however favors the first channel traditionally the cost of utilization is specified in terms of forgone consumption following christiano et al 2005 who studied the effects of monetary policy shocks the alternative specification we consider has two additional implications relative to the traditional one i it has a substantially better fit with the data and ii the contribution of investment shocks to the variance of consumption is over three times larger the contributions to output investment and hours are also relatively higher suggesting that these shocks may be quantitatively even more important than previous estimates based on the traditional specification

social security and individual accounts as elements of overall risk sharing the widespread public and political impetus in the united states and elsewhere to revamp social security to incorporate some form of individual accounts creates a time of opportunity it is a time when people want to see the better exploitation of the available trade off between risk and return and a time to reconsider the foundations of the social security system so that it can much better serve its intended purpose as a manager of risks as i argue in my new book the new financial order risk in the 21st century shiller 2003 the time when we redesign social security ought to be a time when we carefully consider the fundamental intergenerational risk management problem and define choices in individual accounts that reflect the true problem it is also a time when we must make creative use of insights from behavioral economics that have emerged over the years finally it is a time for an expanded exploitation of our new electronic information technology we should not miss this opportunity this means we must work now toward solving a complex constrained optimization problem where the objective is to maximize a social welfare function involving all generations and the constraints reflect the varying degrees of individual optimization ability psychological underpinnings of human behavior and modem information technology

dynamic translog and linear logit models a factor demand analysis of interfuel substitution in us industrial energy demand abstract we compare and contrast two popular dynamic flexible functional forms for cost functions the translog and the logit j bus econ stat 8 1990 347 353 using data on us industrial energy demand from 1960 to 1992 which has been analysed by previous studies energy econ 11 1989 89 94 appl econ 21 1989 931 945 j bus econ stat 13 1995 459 465 we show the crucial role played by different dynamic formulations of the translog in this analysis of factor demands with respect to rates of dynamic adjustment and substitution possibilities we conclude that the poor performance of the dynamic translog relative to the dynamic logit cannot be explained solely by dynamic model mis specification or the inclusion of price unresponsive non energy fuel use data our most robust empirical result is that coal and oil are substitutes

measuring global gasoline and diesel price and income elasticities abstract price and income elasticities of transport fuel demand have numerous applications they help forecast increases in fuel consumption as countries get richer they help develop appropriate tax policies to curtail consumption help determine how the transport fuel mix might evolve and show the price response to a fuel disruption given their usefulness it is understandable why hundreds of studies have focused on measuring such elasticities for gasoline and diesel fuel consumption in this paper i focus my attention on price and income elasticities in the existing studies to see what can be learned from them i summarize the elasticities from these historical studies i use statistical analysis to investigate whether income and price elasticities seem to be constant across countries with different incomes and prices although income and price elasticities for gasoline and diesel fuel are not found to be the same at high and low incomes and at high and low prices patterns emerge that allow me to develop suggested price and income elasticities for gasoline and diesel demand for over one hundred countries i adjust these elasticities for recent fuel mix policies and suggest an agenda of future research topics

modelling approaches for consequential life cycle assessment c lca of bioenergy critical review and proposed framework for biogas production abstract conventional life cycle inventories lcis are static models not considering any mechanism of revenue maximisation and price equilibrium under external constraints an additional demand of a given commodity irrespective of the amount can always be supplied by the average supplier under fully elastic market assumption this constitutes a recognised limitation for the application of lca to the assessment of the environmental consequences of changes applied to complex systems like agro systems in the so called consequential lci c lci the relationships between the activities and processes of a life cycle are no longer seen as essentially technical connections based on average data instead the determining socio economic mechanisms are considered via market information and eventually economic models partial or computable general equilibrium the practical implementation of c lci is however still obscure to many practitioners and the complementarities and overlaps between the different c lci modelling approaches have not been completely clarified so far this paper aims at filling this gap the first part of the paper provides a survey of a number of applications using different equilibrium models afterwards we critically review the main variables and parameters supporting the definition and implementation of the c lci modelling approaches in the last part of the paper we propose a methodology to integrate economic modelling and lca in order to perform a c lca of biogas production specifically addressing the indirect land use change iluc issue finally we describe the application of this methodology to a case study dealing with the production of biogas in luxembourg

transposing lessons between different forms of consequential greenhouse gas accounting lessons for consequential life cycle assessment project level accounting and policy level accounting abstract greenhouse gas accounting has developed in a number of semi isolated fields of practice and there appears to be considerable opportunity for transposing methodological innovations and lessons between these different fields this research paper identifies three consequential forms of greenhouse gas accounting consequential life cycle assessment project level accounting and policy level accounting these methods are described in detail and then compared in order to identify the key methodological differences and the potential lessons that can be transposed between them analysis of the substantive methodological differences suggests that consequential life cycle assessment could be enhanced by adopting the same structure used in project and policy level accounting which provides a time series of impacts aggregate level analysis and a transparent specification of the baseline and decision scenarios there is a case for conceptualising a unified form of consequential time series assessment of which project policy and product assessments would be sub types

the balance between defined benefit defined contribution and state provision we examine the possible consequences of the increasing shift from defined benefit to defined contribution arrangements for private pensions whilst much analysis has focused on the possible distribution of investment and job tenure risk we point out the additional role for issues relating to adverse selection and to retirement incentives these issues are illustrated using empirical evidence from the united kingdom where the fact that private pensions are an alternative as opposed to a supplement to earnings related state pension provision makes the effects particularly salient jel i38 j32 d91