a portfolio approach to endogenous growth equilibrium and optimal policy abstract this paper develops a portfolio approach to modeling endogenous growth in continuous time that is especially suitable for addressing fiscal and financial issues in policy design the analysis focuses on the equilibrium relationship between fiscal and financial policy rates of return and wealth allocation we analyze two models the first is based on the arrow romer model with increasing returns and an external effect of capital on labor productivity the second draws on barro s analysis of government spending and endogenous growth in both models we study the equilibrium allocation and discuss the optimal fiscal and financial policy

can stabilisation policy reduce long run growth this paper presents an analysis of the long run implications of short term stabilisation policy the analysis is based on a simple stochastic model of an imperfectly competitive economy with nominal rigidities and an endogenous technology by virtue of the latter temporary shocks have permanent effects such that the cyclical and secular properties of output are related in particular smoother cyclical fluctuations may be associated with flatter secular trends implying a trade off between short term stabilisation and long term growth

long term growth and short term economic instability when learning by doing is at the origin of growth the long run growth rate should be negatively related to the amplitude of the business cycle if human capital accumulation is increasing and concave in the cyclical component of production empirical evidence strongly supports this nding for industrialized countries and european regions using the standard control variables we nd that countries and regions that have a higher standard deviation of growth and of unemployment have lower growth rates the result does not come from an e ect of instability on investment the negative relation however does not hold for non industrialized countries for which learning by doing may not to be the main engine of growth 2000 elsevier science b v all rights reserved jel classixcation o40 e32

the school to work transition a cross national perspective school to work patterns and issues are discussed for seven economies france germany japan the netherlands sweden the united kingdom and the united states the emphasis is placed on differences across countries in the current labor market position of young people and recent trends therein along with the institutions that regulate youth education training and employment the power of public policies including labor market deregulation labor market programs vocationalization of education and apprenticeship to improve youth outcomes is discussed drawing on national evaluation literatures evidence of extensive policy failure points up the need to develop nationally appropriate institutions to improve school to work transitions

risk taking global diversification and growth this paper develops a continuous time stochastic model in which international risk sharing can yield substantial welfare gains through its effect on expected consumption growth the mechanism linking global diversification to growth is an attendant world portfolio shift from safe low yield capital to riskier high yield capital the presence of these two types of capital captures the idea that growth depends on the availability of an ever increasing array of specialized hence inherently risky production inputs calibration exercises using consumption and stock market data imply that most countries reap large steady state welfare gains from global financial integration copyright 1994 by american economic association

effects of the minimum wage on the employment status of youths an update the large decline in the relative value of the minimum wage during the 1980s makes that period a valuable one for identifying the impact of variation in the minimum wage on youth employment this study produces the robust finding that when the experience of the 1980s is included a 10 percent increase in the minimum wage is estimated to reduce teen employment by less than 1 percent the lower end of the range of previous estimates because this small employment effect is offset by a labor force withdrawal effect the study finds no discernible effect on measured unemployment the study also finds no apparent effect of the minimum wage on the employment of young adults aged 20 24

income maintenance and labor force participation the paper studies the optimal tax subsidy schedules in an economy where the only decision of the agents is to work or not with an application to the case of france given an income guarantee provided by the welfare state the tax schedule that maximizes government revenue provides a benchmark the laffer bound above which it is inefficient to tax in fact under mild conditions a feasible allocation is second best optimal if and only if the associated taxes are lower than the laffer bound the only restriction that efficiency puts on the shape of the tax scheme is this upper laffer bound the laffer tax scheme itself can be computed from the joint distribution of the agents productivities and work opportunity costs depending on the economy it can take widely different forms and exhibit for instance negative marginal tax rates after estimating the joint distribution of productivities and work opportunity costs on french data i compute the laffer bound for two subpopulations single women and married women with two children or more quite surprisingly the actual incentives to work appear to be very close to the bound

sustainability ranking and improvement of countries abstract human society is on a collision course with nature thus its sustainability is seriously questioned nowadays to understand this problem better it is essential to define and measure sustainability in this paper a model that uses fuzzy logic called safe is used to measure sustainability the sustainability of a country is based on a multitude of basic indicators in all 75 indicators for 128 countries are used this work extends safe as follows a the model is amended by an imputation procedure to fill in missing data b the rule bases of safe are compiled algebraically and c sustainability thresholds are defined so as to reflect expert opinion and international agreements and norms countries are ranked according to their sustainability index switzerland and sweden take the first two places and mauritania and sudan the two last ones a sensitivity analysis pinpoints those basic indicators that affect sustainability the most decision makers may focus on these indicators to improve sustainability

differential taxation and the encouragement of risk taking abstract in the framework of expected utility maximization with risk aversion it is shown that the standard result about the tax encouragement of risk taking in a two asset model can be extended to the case of many risky assets there are no tax substitution effects within the set of risky assets in particular there is no substitution from less to more risky assets it is also demonstrated that the qualitative response pattern is independent of the assumed existence of a safe asset the by now common conclusion that capital income taxation encourages risk taking must therefore be interpreted with some care

minimum wages and the gender wage gap estimates are made of the effect of minimum wages on the size and composition of the gender wage gap in canada in 1986 it is found that minimum wages close the wage gap substantially for young workers and less so for adults the reduction in the gap is most attributable to the adverse employment effects of minimum wages the results also indicate that most of the reduction in the gap is realized through a fall in the discriminatory component

risk the financial market and macroeconomic equilibrium growing recognition of the importance of stock market phenomena to the real economy underscores the need for models linking exogenous uncertainty asset market performance and the rest of the economy in an optimizing framework without certainty equivalence this paper constructs a three agent model with continuous time stochastic variables uncertain private production and government expenditure and forward looking rational agents the growth rate of output physical capital accumulation financial asset returns and uncertain inflation are determined as functions of the exogenous uncertainty in the economy analysis of the model finds that increased risk associated with government policy often reverses in an explainable way the conventional comparative static predictions of nonstochastic macro models

fertility volatility and growth abstract empirically growth rates are negatively correlated with birth rates they are also correlated with production risk we argue that these stylized facts are related and arise jointly from the decision of how many children to have in a risky environment

who pays for the minimum wage this paper analyzes the eects of a large 60 and persistent increase in the minimum wage instituted in hungary in 2001 we propose a new approach to estimating the employment eects of a minimum wage increase that exploits information on the distribution of wages before and after the policy change we infer the number of jobs destroyed by comparing the number of pre reform jobs below the new minimum wage to the excess number of jobs paying at and above the new minimum wage our estimates imply that the higher minimum wage had at most a small negative eect on employment and so the main eect was pushing up wages we then use data on a large panel of firms to evaluate the economic incidence of the minimum wage increase contrary to theoretical models that attribute the small employment eects of minimum wage changes to monopsonistic wage setting we find no evidence that the rise in the minimum wage led to lower profitability among low wage employers instead we find that the costs of the minimum wage were largely passed through to consumers

factor income taxation in a horizontal innovation model we consider the optimal factor income taxation in a standard r d model with technical change represented by an increase in the variety of intermediate goods in the model there are externalities both to working and to saving due to market power by firms incomplete appropriability of the benefits of inventions and the cost of economic activity in terms of public expenditures redistributing the tax burden from labor to capital will increase employment but in most cases reduce the rate of growth with conflicting effects on the deadweight loss from the externalities under plausible calibrations of the model the optimal tax rate on capital will be sizable

minimum wage effects on labor market outcomes under search matching and endogenous contact rates building upon a continuous time model of search with nash bargaining in a stationary environment we analyze the effect of changes in minimum wages on labor market outcomes and welfare although minimum wage increases may or may not lead to increases in unemployment in our model they can be welfare improving to labor market participants on both the supply and demand sides of the labor market we discuss identification of the model using current population survey data on accepted wages and unemployment durations and show that by incorporating a limited amount of information from the demand side of the market it is possible to obtain credible and precise estimates of all primitive parameters we show that the optimal minimum wage in 1996 depends critically on whether or not contact rates can be considered to be exogenous and we note that the limited variation in minimum wages makes testing this assumption problematic

the contribution of minimum wages to increasing wage inequality recent research has shown the reduction in the minimum wage to be the main cause of the rise in wage dispersion in the lower half of the wage distribution in the us during the 1980s however the return to human capital does not seem to have been much affected using new methodology this paper confirms previous conclusions regarding the wage distribution but shows that the return to human capital has also increased strongly a 10 reduction of the minimum wage causes the wage of someone earning the previous minimum to fall by 8 evidence in favour of a distance dependent elasticity of substitution dides production function there has been a massive increase in wage inequality in the us the 10 50 and 50 90 log wage differential grew by 0 10 and 0 06 respectively during the 1980s economists have tried to put their finger on the causes of this phenomenon wood 1995 believes globalisation to be the main cause however most empirical research suggests that international trade is only a small part of the explanation see freeman 1995 for a survey others hold skill biased technological progress responsible for example bound and johnson 1992 technology is always a kind of residual item for which appropriate variables are hardly available its impact is therefore difficult to pin down empirically autor et al 1998 have shown that the use of computers by industry is strongly correlated to the increase in the employment of college graduates dinardo et al 1996 called attention to the role of institutions in particular declining unionism and the fall in minimum wages during the 1980s they hold minimum wages responsible for 25 of the increase in wage dispersion pictures of the estimated density functions for the period 1973 90 show that minimum wages have had a large impact dinardo et al calculate the effect of minimum wages by assuming a change in the minimum wage to have no effect on the shape of the wage distribution to the right of the minimum at first glance the wage distributions plotted in their paper suggest that this assumption is not supported by the data implying that their estimate of 25 is a lower bound indeed applying a different methodology lee 1999 reached the conclusion that the decrease in minimum wages can explain virtually the whole increase in wage inequality he simply regresses 10 50 and 50 90 log wage differentials by year and state on the relevant minimum wage using state variation in minimum wages lee s results open the question as to what mechanism makes that minimum wages have so large an impact there are two potential channels either minimum

portfolio choice with non expected utility in continuous time non expected utility preferences which can distinguish intertemporal substitution from attitudes towards risk are extended to continuous time the consumption savings and portfolio problem is solved for constant intertemporal elasticity of substitution and constant relative risk aversion

the pre programme earnings dip and the determinants of participation in a social programme implications for simple programme evaluation strategies the key to estimating the impact of a programme is constructing the counterfactual outcome representing what would have happened in its absence this problem becomes more complicated when agents such as individuals firms or local governments self select into the programme rather than being exogenously assigned to it this paper uses data from a major social experiment to identify what would have happened to the earnings of self selected participants in a job training programme had they not participated in it we investigate the implications of these earnings patterns for the validity of widely used before after and difference in differences estimators

evaluating strategies for sustainable development fuzzy logic reasoning and sensitivity analysis abstract sustainable decision making involves political decisions at the local regional or national levels which aim at a balanced development of socio environmental systems a fundamental question in sustainable decision making is that of defining and measuring sustainable development many methods have been proposed to assess sustainability recently a model has been developed called sustainability assessment by fuzzy evaluation safe which uses fuzzy logic reasoning and basic indicators of environmental integrity economic efficiency and social welfare and derives measures of human hums ecological ecos and overall sustainability osus in this article we perform sensitivity analysis of the safe model to identify the most important factors contributing to sustainable development about 80 different indicators are tested and classified as promoting impeding or having no effect on the progress toward sustainable development the proposed method is applied to the greek and american economies the conclusion is that there is no unique sustainable path and accordingly policy makers should choose different criteria and strategies to make efficient sustainable decisions for each country

macroeconomic policies growth and welfare in a stochastic economy an integrated stochastic equilibrium growth model is constructed and directed to various questions pertaining to monetary and tax policy two main issues addressed include 1 the tradeoff between the rate of capital accumulation and inflation in a stochastic environment and 2 economic welfare and optimal policy making the key result is that policy variables impact on welfare through their effect on the after tax nominal interest rate which therefore serves as an intermediate policy target the welfare maximizing interest rate target is derived and the author discusses its attainment through appropriate monetary and tax policies tradeoffs between policy instruments are also addressed copyright 1993 by economics department of the university of pennsylvania and the osaka university institute of social and economic research association

equilibrium consumption and precautionary savings in a stochastically growing economy abstract the derivation of a closed form solution for consumption based on the constant elasticity utility function in the presence of stochastic labor income has proved to be intractable this paper derives a closed form equilibrium relationship between consumption and wealth one that holds along a balanced growth path in a stochastic romer endogenous growth model by employing more general recursive preferences we can disentangle the coefficient of relative risk aversion from the intertemporal elasticity of substitution the effects of key structural parameters on equilibrium consumption and its tradeoff with leisure are analyzed a significant aspect of our analysis concerns the extent to which current risk in the economy is shared between labor and capital this plays an important role in determining the impact of risk on the economy in general and on consumption in particular formal analysis is supplemented with extensive numerical simulations

the effectiveness of yts as a manpower policy using data from the 1985 and 1986 scottish people s surveys this paper attempts to measure the effectiveness of the youth training scheme by estimating the impact of youth training scheme participation on both the subsequent probability of employment and the subsequent earnings potential the youth training scheme is found to have a positive impact on the probability of employment after allowing for possible sample selection bias owing to participation being nonrandom there are indications that the youth training scheme may have a positive impact on subsequent wages but the estimates are so imprecise that it was not possible to draw any statistically significant conclusions about wage effects copyright 1990 by the london school of economics and political science

consequences of debt policy in a stochastically growing monetary economy the effects of open market operations and long versus short bond financing on risk in financial markets in a stochastically growing economy are studied an increase in short bonds resulting from exchanging long bonds increases the riskiness of long bonds and raises their real rate of return an open market purchase of either long or short bonds raises the price of long bonds and lowers their risk and real return however debt policy adjustments that affect the real return to long bonds do not affect real investment or growth so that overall the welfare consequences of debt policy are neutral copyright 1998 by economics department of the university of pennsylvania and the osaka university institute of social and economic research association

the effects of the minimum wage on the employment and earnings of youth the employment and earnings effects of the minimum wage are estimated by parameterizing a hypothesized relationship between underlying market employment and wage relationships versus observed wage

does tax competition really promote growth abstract this paper considers the relationship between tax competition and growth in an endogenous growth model where there are stochastic shocks to productivity and capital taxes fund a public good which may be for final consumption or an infrastructure input absent stochastic shocks decentralized tax setting two or more jurisdictions maximizes the rate of growth as the constant returns to scale present with endogenous growth implies extreme tax competition stochastic shocks imply that households face a portfolio choice problem which dampens down tax competition and may raise taxes above the centralized level growth can be lower with decentralization our results also predict a negative relationship between output volatility and growth with decentralization

exchange rate determination and asset prices in a stochastic small open economy abstract this paper constructs a stochastic general equilibrium model of a small open economy consisting of risk averse optimizing agents the stochastic processes describing the rate of monetary growth government expenditure private production and the foreign price level are taken to be exogenous determining all asset risks and returns and the equilibrium stochastic process describing the domestic inflation rate and the exchange rate the model is used to examine the effects of the means and variances of policy shocks on the equilibrium and the determinants of the foreign exchange risk premium

on the fluctuations in consumption and market returns in the presence of labor and human capital an equilibrium analysis abstract we examine the effects of human capital on consumption stock market and other fluctuations in a general equilibrium continuous time model a representative consumer worker investor derives utility from consumption and leisure a representative firm demands labor as the sole input to a stochastic production technology driven by general possibly nonmultiplicative shocks for cobb douglas utility and multiplicative shocks labor is nonstochastic and consumption and stock market volatility are equated as under no human capital deviations from this are analyzed for logarithmic utility and constant elasticity of substitution production technology cases are identified where the presence of labor causes consumption to be smoother than the stock market

minimum wages and labor market prospects of women in recent years the field of labor economics has witnessed growth of interest in causes and consequences of female labor force participation principal areas of research include determinants of female wages and labor supply many empirical issues remain unresolved and research continues to focus on the likely ranges of such parameters as the own wage elasticity of hours supplied the cross elasticity with respect to spouse s income the rate of return to female schooling and the issue of self selection in observed earnings of working women one area which remains relatively unexplored is the impact of minimum wage legislation on employment prospects of females the issue of minimum wages is of special interest in the case of women first the proportion of labor force nonparticipation by females exceeds that of males consequently institution of an effective minimum wage plays to a larger audience of nonparticipating females than males it is likely that a significant portion of the positive labor supply response to minimum wages is in the form of previously nonparticipating females second as is well known female wages tend to be lower than those of males owing in part to 1 lower levels of female schooling and experience 2 intermittent life cycle patterns of labor supply and human capital accumulation 3 sorting of females into occupations that are conducive to intermittent behavior and 4 as several researchers suggest gender discrimination consequently women are more likely than men to experience wages that fall short of the legal minimum this study examines the consequences of minimum wages on female employment prospects of special interest is the likelihood of successful job search for women whose wages in the absence of legislation would be below the minimum it is commonly argued that minimum wages in competitive labor markets have the effect of hindering employment prospects of low wage workers this study based on a sample of microdata from the public use sample of the 1980 census proposes a simple framework in which this issue can be addressed in the context of a conventional model of labor supply

constant increasing and decreasing risk aversion with many commodities the arrow 1971 pratt 1964 theory of risk aversion has achieved important successes in the study of economic responses to risk this theory applies to a special class of cases in which the von neumann morgenstern expected utility hypothesis is used to explain these responses under this hypothesis individuals who maximize the expected utility of different utility functions will in general make different choices in the face of uncertainty for the purpose of predicting which of two different utility functions will lead to locally more risk averse economic behaviour the essential feature of these functions is their associated arrow pratt absolute risk aversion measures in fact the local comparisons can be extended to global comparisons if the arrow pratt absolute measures are uniformly comparable the arrow pratt measure of absolute risk aversion and a closely related measure of relative risk aversion also play crucial roles in the investigation of changes induced by wealth increases in the risk taking behaviour of a single expected utility maximizing individual this study has resulted in a satisfactory theory of increasing decreasing and constant absolute and relative risk aversion the special cases to which the arrow pratt theory is directly applicable are those in which the utility functions in question are functions of a single variable e g wealth unfortunately the models required to explain many economic decisions employ a version of the expected utility hypothesis in which the argument of the utility function is a multidimensional vector one example arises in the study of the consumption savings decision another occurs in the analysis of the combined consumption savings portfolio decision a final example is obtained in the investigation of demand for goods of uncertain quality the papers of kihlstrom mirman 1974 and diamond stiglitz 1974 have suggested a partial generalization of the arrow pratt theory of absolute risk aversion this

labour market institutions and employment in france the purpose of this paper is to use individual data to study how the minimum wage and the welfare system combine to affect employment in france using the 1997 labour force survey we decompose non employment of married women into three components voluntary classical due to the minimum wage and other a residual category we find that the minimum wage explains close to 15 of non employment for these women and that the disincentive effects of some welfare policy measures may be large our approach also allows us to evaluate various labour and welfare policy experiments in their effects on participation and employment copyright 2002 john wiley sons ltd

revisiting the link between minimum wage and wage inequality empirical evidence from new zealand abstract this paper revisits the contentious link between the level of the minimum wage and wage inequality this is done utilizing the differential rates of minimum wage increase experienced by two age groups youth and adults in new zealand over the period 1997 to 2007

productivity growth and the structure of the business cycle abstract over the recent years opportunity cost oc models of growth have argued that recessions are times when firms engage in productivity improving activities because of intertemporal substitu tion this paper tests whether this approach is correct the technique used to disentangle the trend from the cycle is semi structural vector autoregression the results are mildly supportive of the oc theory there tends to be a negative impact of demand shocks on productivity both in the short run and in the long run and the short run impact is stronger in those countries where fluctuations are more transitory however there is no significant response of r d to demand shocks

disentangling the minimum wage puzzle an analysis of worker accessions and separations changes in the legislation in the mid 1980s in portugal provide remarkably good conditions for analysis of the employment effects of mandatory minimum wages as the minimum wage increased sharply for a very specific group of workers relying on a matched employer employee panel data set we model gross worker flows accessions and separations in continuing firms as well as in new firms and those going out of business using a count regression model applied to proportions employment trends for teenagers the affected group are contrasted to those of older workers before and after the raise in the youth minimum wage the major effect on teenagers of a rising minimum wage has been the reduction of separations from the employer which during the period under analysis has compensated for the reduction of accessions to new and continuing firms in this sense our results can reconcile some of the previous evidence in the empirical literature when analyzing the aggregate impact of the minimum wage on youth employment without decomposing it by type of worker flow jel d21 j23 j38

identifying the hand of past distinguishing state dependence from heterogeneity a basic problem in social science is to ascertain the importance of initial endowments on subsequent outcomes of a dynamic process interest in this topic centers on two distinct issues a do initial endowments have a temporally persistent effect on outcomes i e is there heterogeneity b are the effects of initial endowments attenuated or accentuated by subsequent experiences of the process being studied or by related processes i e is there state dependence these two questions show up in a variety of contexts 1 the importance of family background on a person s subsequent education and earnings is a hotly debated topic do market or nonmarket mechanisms reinforce or diminish initial endowments 2 the incidence of criminal activity is concentrated among a small population of repeated offenders are certain persons prone to criminality or does crime breed crime 3 are persons who experience unemployment more likely to experience future unemployment due to loss of work experience or market stigma 4 does early entry into an industry confer an advantage of incumbency or does it merely proxy the basic managerial and innovative ability of early entrants many formal models of state dependent processes or processes with persistent effects of initial conditions have been formulated invariance of steady states to initial endowments was viewed as a desirable feature of an economic model in the 1960 s and 1970 s path dependent synergism and nonergodicity are fashionable features of models today is the choice between models with long run dependence on initial conditions and those without solely a matter of intellectual esthetics can data discriminate between these two classes of models how many economically extraneous statistical regularity conditions have to be imposed in order to distinguish between these models how many and what kind of maintained assumptions are required in order to let the data speak on these important questions in this paper i focus on one nonergodic model that receives much attention in the literature the model of duration dependence and heterogeneity discussed by herbert silcock 1954 and also examined by tony lancaster 1979 chris elbers and geert ridder 1982 myself and burton singer 1984 and myself and bo honore 1989

minimum wage laws are they overrated l minimum has been fixed in nominal terms at about 55 percent of the current average wage rising wages in the rest of the economy gradually erode the real minimum wage and eventually the process is repeated sometimes the increase in the nominal minimum is accompanied by a permanent reduction in those businesses exempted from the law proposals for a lower minimum wage for young workers or to index the minimum wage to the average wage have been debated but not adopted the minimum wage was last increased to 3 35 in 1981 since then average hourly wages have risen by 25 percent eliminating any momentum for a lower minimum wage for youth but reviving proposals for another increase in the nominal minimum economists are fascinated by the minimum wage because we have strong theoretical predictions about the direction of the effect of the minimum wage on employment and fairly widely accepted methods to estimate the size of that impact it probably didn t hurt that the earliest and later estimates lined up well with the predictions but that is not the only reason for our fascination with the topic depending on whether we include those who say they earn less than the minimum wage minimum wage workers account for 6 to 12 percent of those employed gilroy 1981 p 157 and less than 5 percent of wage and salary income the minimum wage gives economists a relatively rare opportunity to study the impact of an exogenous increase in the price of labor and thus a chance to refine our thinking

capital income taxation and risk taking in a small open economy abstract how do capital income taxes affect household portfolio choice and growth we approach this question within the context of a stochastic model of a small open economy in which taxes on income from domestic capital equity and foreign bonds affect household portfolio choice welfare and the growth rate of the economy the theoretical and numerical analysis demonstrates the important role that risk plays in determining the mean and variability of growth as well as the conditions under which a higher tax rate can be welfare improving to shed more light on the complex theoretical interaction between taxes and risk taking we estimate a reduced form multinomial probit model of household portfolio choice using the method of simulated moments the empirical evidence is in stark contrast to the conventional wisdom we find that higher taxes make it less likely that the household will hold risky assets

fiscal policy inflation and the accumulation of risky capital the effect of government policies on the level of investment and inflation has become a major concern of policy makers in a number of industrial countries proposals to raise the level of business investment have included overall tax cuts tax incentives to spur investment and a reduction in the level of government spending this paper presents a theoretical apparatus to explore the relationships between fiscal policy government debt inflation and capital accumulation it develops a one sector growth model embodying a stochastic production function and government fiscal policy atomistic agents in the economy choose consumption levels and allocate their wealth between risky capital and risky government debt to maximize expected discounted utility over an infinite horizon fiscal policy by affecting asset yields affects the composition of portfolios the price of government bonds and the accumulation of capital the model is used to answer three general questions 1 does the level of government expenditure affect the rate of capital accumulation and inflation in steady state 2 does the mode of government finance when the choice is between an income tax and deficit finance affect these magnitudes 3 what is the effect of uncertainty in the productivity of capital on growth the analysis relates to several areas of literature 1 the analysis of the relationship between capital accumulation and debt 2 the theory of the demand for government debt 3 considerations of the effect of income taxation on risk bearing and 4 the analysis of capital accumulation under uncertainty 1 the effects on output and the capital stock of the government s expenditure decision and its decision to finance its expenditure by taxation or debt issue are explored in two major bodies of economic theory the literature on the burden of the debt as developed by modigliani 1961 diamond 1965 and phelps and shell 1969 for example implies that policies which increase the value of outstanding government debt will tend to lower the level of the capital stock by displacing capital with public debt in private wealth the theory of money and growth as represented by tobin 1965 and sidrauski 1967b also implies that government debt displaces capital but specifically recognizes the role of capital gains on government debt

evaluating risky consumption paths the role of intertemporal substitutability abstract in dynamic stochastic welfare comparisons a failure clearly to distinguish between risk aversion and intertemporal substitutability can result in misleading assessments of the impact of risk aversion on the welfare costs of consumption risk changes the problem arises in any setting in which uncertainty is propagated over time notably but not exclusively in economies with stochastic consumption trends regardless of the preference setup adopted an increase in risk aversion amplifies the per period costs of risks the weights consumers use to cumulate the per period costs of risks with persistent effects should however depend on intertemporal substitutability as well as on risk aversion under time separable expected utility preferences an increase in the period utility function s curvature therefore alters the welfare effect of risk for reasons that are in part unrelated to risk aversion to illustrate these points i reconsider lucas s estimate of the cost of consumption instability for the postwar united states

the spirit of capitalism asset pricing and growth in a small open economy abstract conventional models of economic behavior have failed to account for a number of observed empirical regularities in macroeconomics and international economics this may be due to preference specifications in conventional models in this paper we consider preferences with the spirit of capitalism the desire to accumulate wealth as a way of acquiring status we analyze a number of potential effects of international catching up and the spirit of capitalism on savings growth portfolio allocation and asset pricing moreover we obtain a multi factor capital asset pricing model capm our results show that status concerns have non trivial effects on savings growth portfolio allocation asset prices and the foreign exchange risk premium

the job search behavior of employed youth an employed worker s search strategies include 1 employed not searching 2 employed searching and 3 unemployed searching the last requires that the worker quit to search under plausible assumptions on search costs the optimal algorithm involves a dual reservation wage strategy burdett 1978 the probability of on the job search increases as the current wage decreases relative to the distribution of alternative wages if the wage is sufficiently low the searcher quits to search substituting time for financial outlays estimates based on the national longitudinal survey of youth indicate that these calculations characterize the search strategies of young workers copyright 1991 by mit press

optimal government finance policy and exchange rate management in a stochastically growing open economy abstract optimal monetary policy is analyzed in a stochastic small open economy consisting of risk averse representative agents the analysis shows how optimal monetary policy should be directed toward an optimal interest rate target this target which maximizes the intertemporal utility of the representative agent is determined by balancing off the marginal gains of a higher interest rate on increased growth and the future consumption it generates against the marginal losses stemming from a reduction in the holdings of real money balances the paper shows how an appropriately set monetary growth rate eliminates the need for continuous intervention in the exchange market

the minimum wage law and youth crimes time series evidence gtrowing evidence indicates that the federal minimum wage law has adversely affected the employment rate the labor force participation rate and on the job training of young workers 1 insofar as the minimum wage has adverse effects on youth labor markets it is also expected to affect the time spent in activities outside the labor market including criminal activities 2 little research has been done on the minimum wage

hedging in incomplete markets with hara utility in the context of merton s original problem of optimal consumption and portfolio choice in continuous time this paper solves an extension in which the investor is endowed with a stochastic income that cannot be replicated by trading the available securities the problem is treated by demonstrating using analytic and in particular viscosity solutions techniques that the value function of the stochastic control problem is a smooth solution of the associated hamilton jacobi bellman hjb equation the optimal policy is shown to exist and given in a feedback form from the optimality conditions in the hjb equation at zero wealth a fixed fraction of income is consumed for large wealth the original merton policy is approached we also give a sufficient condition for wealth under the optimal policy to remain strictly positive

retirement pensions and ageing we study the effects of demographic shocks and changes in the pension system on the macroeconomic performance of an advanced small open economy facing a given world interest rate we construct an overlapping generations model which includes a realistic description of the mortality process individual agents choose their optimal retirement age taking into account the time and age profiles of wages taxes and the public pension system the early retirement provision in most pension systems acts as a trap inducing most workers to retire well before the normal retirement age simulations show that pension reform must be drastic for it to have any effects on the retirement behaviour of workers

spikes and spill overs the impact of the national minimum wage on the wage distribution in a low wage sector the uk national minimum wage nmw has had a minimal impact on uk wage inequality because it has been set at a modest level and because aggregate evidence suggests very small spill over effects but the small spill over effects might be because of the small numbers of workers affected and widespread anticipation of the introduction of the nmw might make the impact effect appear very small this paper investigates these issues using data collected from care homes where the nmw affected 40 of workers but we still find no evidence of large spill over effects and very small amounts of anticipation of the nmw

job security provisions and employment european countries have enacted various job security provisions over the last 30 years employers are required to pay workers on separation or to give advance notice of termination in anything less than a perfectly functioning market there are effects of the provisions on employment incumbents are more likely to retain their jobs but new workers are less likely to be hired an examination of the european data suggests that severance pay requirements reduce employment

taxation risk taking and growth a continuous time stochastic general equilibrium analysis with labor leisure choice abstract this paper investigates the equilibrium relationship between taxation portfolio choice risk taking and capital accumulation specifically it examines how taxes affect risk taking and capital accumulation we extend the existing literature by relaxing two crucial assumptions in modelling risk taking behavior i that the investment opportunity set is fixed and ii that there is no distinction between attitudes towards risk and behavior towards intertemporal substitution we extend the investment opportunity set of individuals through optimally determined human capital and distinguish intertemporal substitution from attitudes towards risk via a recursive utility function in the presence of these extensions the paper successfully derives a closed form solution to the stochastic growth model with stochastic wage income

structural and frictional unemployment in an equilibrium search model with heterogeneous agents we specify and estimate an equilibrium search model with between market heterogeneity in the productivity levels the model allows for two types of unemployment unemployment due to search frictions and unemployment due to wage floors wage floors may exist because of large unemployment benefits or a binding mandatory minimum wage using data on labour market histories for a sample of dutch workers we decompose the total unemployment rate in a structural and frictional unemployment rate we also discuss the effect of changes in the minimum wage

drivers of socially responsible investing a case study of four nordic countries in this study we try to establish what determines the substantial differences in the nordic countries size and composition of socially responsible investing sri we investigate if these differences between denmark finland norway and sweden can be associated with key characteristics in economics finance culture and institutions we find that in particular economic openness the size of the pension industry and cultural values of masculinity femininity and uncertainty avoidance can be associated with the differences in sri in the four countries on basis of these findings we lay foundations for an international theory of sri

labor supply flexibility and portfolio choice in a life cycle model abstract this paper examines the effect of the labor leisure choice on portfolio and consumption decisions over an individual s life cycle the model incorporates the fact that individuals may have considerable flexibility in varying their work effort including their choice of when to retire given this flexibility the individual simultaneously determines optimal levels of current consumption labor effort and an optimal financial investment strategy at each point in his life cycle we show that labor and investment choices are intimately related the ability to vary labor supply ex post induces the individual to assume greater risks in his investment portfolio ex ante

the effects of minimum bargained wages on earnings evidence from spain abstract this paper provides an empirical evaluation of the effects of spanish sectoral collective bargaining on wages for this purpose we use a sample of workers for whom bargained wage rates and earnings are available using a variant of the meyer and wise approach we are able to estimate wage gains due to minimum bargained wages and their employment effects the most relevant conclusion is that there is evidence of a sword of justice effect by unions but this is limited by non compliance among unskilled workers and the non binding nature of bargained wages for skilled workers

feasibility and transversality conditions for models of portfolio choice with non expected utility in continuous time abstract this note explores the feasibility and transversality conditions for the continuous time consumption portfolio problem with generalized isoelastic gie preferences unlike the case of time separable preferences the transversality condition usually is neither necessary nor sufficient for the feasibility condition to be satisfied furthermore ordinally equivalent representations of gie preferences produce different transversality conditions

the long term effects of youth unemployment using nlsy data we examine the long term effects of youth unemployment on later labor market outcomes involuntary unemployment may yield suboptimal investments in human capital in the short run a theoretical model of dynamic human capital investment predicts a rational catch up response using semiparametric techniques to control for the endogeneity of prior behavior our estimates provide strong evidence of this response we also find evidence of persistence in unemployment combining our semiparametric estimates with a dynamic approximation to the lifecycle we find that unemployment experienced as long ago as ten years continues to affect earnings adversely despite the catch up response

migration selectivity and the effects of public programs abstract a model of the spatial distribution of mobile heterogeneous agents is formulated to assess how a price change or program subsidy that is location specific affects the composition of local residents via selective migration and thus biases evaluations of the effectiveness of the program based on its local consequences longitudinal data from colombia are used to test the implications of migration selectivity the findings confirm the existence of selective migration suggesting that local subsidies to human capital attract high income but within income groups low fertility households and those with low human capital endowments these migration patterns are shown to be consistent with the dominance of endowment over tastes heterogeneity in the population under plausible behavioral assumptions

adjustment costs and investment in a stochastic endogenous growth model abstract this paper introduces costly investment into a stochastic equilibrium macro model investment is determined by an endogenously determined tobin q that depends upon the structural parameters of the economy the model permits a sequence of economies allowing for an increasing role of government to be studied the effects of both a structural change taking the form of a higher variance of productivity shocks and fiscal policy on the equilibrium is analyzed paying particular attention to the impact on the growth rate and its variability the role of the tobin q in determining the response of the mean growth rate and its variance is emphasized

the effect of minimum wages on low wage jobs we estimate the eect of minimum wages on low wage jobs using 138 prominent state level minimum wage changes between 1979 and 2016 in the u s using a dierence in dierences approach we first estimate the eect of the minimum wage increase on employment changes by wage bins throughout the hourly wage distribution we then focus on the bottom part of the wage distribution and compare the number of excess jobs paying at or slightly above the new minimum wage to the missing jobs paying below it to infer the employment eect we find that the overall number of low wage jobs remained essentially unchanged over the five years following the increase at the same time the direct eect of the minimum wage on average earnings was amplified by modest wage spillovers at the bottom of the wage distribution our estimates by detailed demographic groups show that the lack of job loss is not explained by labor labor substitution at the bottom of the wage distribution we also find no evidence of disemployment when we consider higher levels of minimum wages however we do find some evidence of reduced employment in tradable sectors we also show how decomposing the overall employment eect by wage bins allows a transparent way of assessing the plausibility of estimates

production technologies in stochastic continuous time models abstract properties of dynamic stochastic general equilibrium models can be revealed by either using numerical solutions or qualitative analysis very precise and intuition building results are obtained by working with models which provide closed form solutions closed form solutions are known for a large class of models some of which however have some undesirable features such as potentially negative output this paper offers closed form solutions for models which are just as tractable but do not suffer from these shortcomings

cross country evidence on the link between volatility and growth this paper presents empirical evidence against the standard dichotomy in macroeconomics that separates growth from the volatility of economic fluctuations in a sample of ninety two countries as well as a sample of oecd countries the authors find that countries with higher volatility have lower growth the addition of standard control variables strengthens the negative relationship the authors also find that government spending induced volatility is negatively associated with growth even after controlling for both time and country fixed effects copyright 1995 by american economic association