optimal monetary policy in an economy with inflation persistence abstract this paper studies optimal monetary policy in a model where inflation is persistent two types of price setters are assumed to exist one acts rationally given calvo type constraints on price setting the other type sets prices according to a rule of thumb this results in a phillips curve with both a forward looking term and a backward looking term the phillips curve nests a standard purely forward looking phillips curve as well as a standard purely backward looking phillips curve as special cases a cost push supply shock is derived from microfoundations by adding a time varying income tax and by making the elasticity of substitution between goods stochastic a central bank loss function for this model is derived from a second order taylor approximation of the household s welfare function optimal monetary policy for different relative values of the forward and backward looking terms is then analyzed for both the commitment case and the case of discretion

strategy proofness and efficiency are incompatible in production economies in a production economy where a single private good is produced via a non linear concave technology no direct mechanism satisfies strategy proofness and efficiency if the preference domain contains the class of linear preferences

inflation price level and hybrid rules under inflation uncertainty the performance and robustness of optimised interest rate rules are analysed in a new keynesian model estimated for the euro area economy in particular we examine the properties of rules responding to inflation the price level or a combination of the two a hybrid rule all the rules also respond to the output gap the optimal hybrid rule is only marginally superior when there is no model uncertainty when there is uncertainty about the degree of inflation persistence the inflation rule is the most robust rule and the performance of the other two rules deteriorates however all the rules perform well if the true degree of inflation persistence turns out to be less than policymakers estimate

efficient strategy proof exchange and minimum consumption guarantees abstract for exchange economies with classical economic preferences it is shown that any strategy proof social choice function that selects pareto optimal outcomes cannot guarantee everyone a consumption bundle bounded away from the origin this result demonstrates that there is a fundamental conflict between efficiency and distributional goals in exchange economies if the social choice rule is required to be strategy proof

strategy proof exchange we consider the allocation of goods in exchange economies with a finite number of agents who may have private information about their preferences in such a setting standard allocation rules such as walrasian equilibria or rational expectations equilibria are not compatible with individual incentives we characterize the set of allocation rules which are incentive compatible or in other words the set of strategy proof social choice functions social choice functions which are strategy proof are those which can be obtained from trading according to a finite number of pre specified proportions the number of proportions which can be accommodated is proportional to the number of agents such rules are necessarily inefficient even in the limit as the economy grows

assessing nominal income rules for monetary policy with model and data uncertainty nominal income rules for monetary policy have long been debated but two issues are of particular recent interest first there are questions about the performance of such rules over a range of plausible empirical models especially models with and without explicit rational inflation expectations second there are questions about the performance of these rules in real time using the type of data that is actually available contemporaneously to policy makers rather than final revised data this paper determines optimal monetary policy rules in the presence of such model uncertainty and real time data uncertainty and finds only a limited role for nominal output growth

job exit behavior of older men a dynamic programming model of job exit behavior and retirement is constructed and estimated using the method of simulated moments the model and estimation method allow for both unobserved individual effects and unobserved job specific match effects the model is estimated using two different assumptions about individual discount factors first a static model with the discount factor equal to zero is estimated then a dynamic model with the discount factor equal to 95 is estimated in both models it is found that bad health age and lack of education increase the probability of retirement the dynamic model performs better than the static model and has different implications for retirement behavior the job specific effects are an important source of unobserved heterogeneity copyright 1991 by the econometric society

a note on strategyproofness in edgeworth box economies abstract this paper considers the problem of dividing a bundle of two private goods between two agents whose preferences are continuous convex and strictly increasing it is shown that every strategyproof scheme that is continuous in the preferences must let one agent choose his best bundle from some exogenous set

almost dominant strategy implementation exchange economies abstract we relax strategy proofness a form of dominant strategy implementation by allowing small gains from manipulation in 2 agent exchange economies this relaxation is shown to have a discontinuous effect on the range of efficient rules demonstrating a type of non robustness in previous impossibility results when gains are measured with respect to a single good and preferences are linear we characterize a particular rule as being the most equitable among all efficient rules satisfying the relaxation

the optimality of a simple market mechanism strategic behavior in a finite market can cause inefficiency in the allocation and market mechanisms differ in how successfully they limit this inefficiency a method for ranking algorithms in computer science is adapted here to rank market mechanisms according to how quickly inefficiency diminishes as the size of the market increases it is shown that trade at a single market clearing price in the k double auction is worst case asymptotic optimal among all plausible mechanisms evaluating mechanisms in their least favorable trading environments for each possible size of the market the k double auction is shown to force the worst case inefficiency to zero at the fastest possible rate

social security disability insurance applications awards and lifetime income flows this article provides new evidence about the impact of social security disability insurance on male labor force participation decisions based on estimates from a structural model of applications awards and state contingent lifetime income flows the lifetime framework makes it possible to consider long term opportunity costs associated with early labor force withdrawal and the disincentive to applications resulting from the statutory waiting period before benefits may be received estimation techniques account for the self selected nature of the pool of applicants when predicting the individual specific probability of acceptance and the opportunity costs of applying

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

temporary disability and economic incentives we investigate the impacts of economic incentives on the duration and outcome of temporary disability insurance tdi spells the analysis is based on a large quasi experiment taking place in norway involving a complete overhaul of the tdi benefit system our findings show that the labour supply of tdi claimants does respond to both the benefit level and the level of local labour demand the estimated elasticity of the transition rate to employment with respect to the benefit level is 0 33 we also find that the tdi benefit level significantly affects the transition rate to alternative social insurance programmes

habit formation in consumption and its implications for monetary policy models this paper explores a monetary policy model with habit formation for consumers in which consumers utility depends in part on current consumption relative to past consumption the empirical tests developed in the paper show that one can reject the hypothesis of no habit formation with tremendous condence largely because the habit formation model captures the gradual hump shaped response of real spending to various shocks the paper then embeds the habit consumption specication in a monetary policy model and nds that the responses of both spending and inflation to monetary policy actions are signicantly improved by this modication jel d12 e52 e43

solution and estimation of re macromodels with optimal policy macro models of monetary policy typically involve forward looking behavior except in rare circumstances we have to apply some numerical method to find the optimal policy and the rational expectations equilibrium this paper summarizes a few useful methods and shows how they can be combined with a kalman filter to estimate the deep model parameters with maximum likelihood simulations of a macro model with staggered price setting interest rate elastic output and optimal monetary policy illustrate the properties of this estimation approach

the rise in the disability rolls and the decline in unemployment between 1984 and 2001 the share of nonelderly adults receiving social security disability insurance income di rose by 60 percent to 5 3 million beneficiaries rapid program growth despite improving aggregate health appears to be explained by reduced screening stringency declining demand for less skilled workers and an unforeseen increase in the earnings replacement rate we estimate that the sum of these forces doubled the labor force exit propensity of displaced high school dropouts after 1984 lowering measured u s unemployment by one half a percentage point steady state calculations augur a further 40 percent increase in the rate of di receipt

on the generic nonoptimality of dominant strategy allocation mechanisms a general theorem that includes pure exchange economies it is shown that if an economy s participants cannot be separated into groups across which there are no potentially conflicting interests i e if the economy is indecomposable then every continuous truth dominant allocation mechanism will attain nonoptimal allocations on an open dense set of preference profiles classical edgeworth box exchange economies economies with no externalities and no production but with arbitrary numbers of consumers and goods as well as economies with public goods and economies with other kinds of externalities are all shown via simple arguments to be indecomposable the results are extended to cover nonrevelation mechanisms copyright 1990 by the econometric society

speed limit policies the output gap and optimal monetary policy in a standard new keynesian model a myopic central bank concerned with stabilizing inflation and changes in the output gap will implement a policy under discretion that replicates the optimal timeless perspective precommitment policy by stabilizing output gap changes the central bank imparts inertia into output and inflation that is absent under pure discretion even a fully optimizing i e non myopic central bank operating in a discretionary policy environment achieves better social outcomes if it focuses on inflation and changes in the output gap than are achieved under inflation targeting this abstract was borrowed from another version of this item

robust monetary policy with competing reference models abstract the existing literature on robust monetary policy rules has largely focused on the case in which the policymaker has a single reference model while the true economy lies within a specified neighborhood of the reference model in this paper we show that such rules may perform very poorly in the more general case in which non nested models represent competing perspectives about controversial issues such as expectations formation and inflation persistence using bayesian and minimax strategies we then consider whether any simple rule can provide robust performance across such divergent representations of the economy we find that a robust outcome is attainable only in cases where the objective function places substantial weight on stabilizing both output and inflation in contrast we are unable to find a robust policy rule when the sole policy objective is to stabilize inflation we analyze these results using a new diagnostic approach namely by quantifying the fault tolerance of each model economy with respect to deviations from optimal policy

disability insurance benefits and labor supply a critical input for assessing the optimal size of disability insurance programs is the elasticity of labor force participation with respect to the generosity of benefits unfortunately this parameter has been difficult to estimate in the context of the u s disability insurance program since all workers face an identical benefits schedule i surmount this problem by studying the experience of canada which operates two distinct disability insurance programs for quebec and for the rest of canada the latter program raised its benefits by 36 percent in january 1987 whereas benefits in quebec were constant i find a sizable labor supply response to the policy change my central estimates imply an elasticity of labor force nonparticipation with respect to disability insurance benefits of 0 28 0 36

maintaining price stability how long is the medium term using a small estimated forward looking model of the euro area economy this paper analyses the determinants of the optimal monetary policy horizon for maintaining price stability first the optimal policy horizon for a price level objective is generally longer than that for an inflation objective second the policy horizon becomes longer the greater the weight on other objectives like minimising output gap and interest rate variability third the optimal policy horizon is shorter the higher the degree of forward lookingness in the economy and the greater the slope of the phillips curve finally even if society cares only about inflation stabilisation it often pays to give the central bank a price level objective provided the horizon is optimally chosen to be somewhat longer

strategy proof risk sharing abstract we consider risk sharing problems with a single good and a finite number of states agents have a common prior and their preferences are represented in the expected utility form and are risk averse we study efficient and individually rational risk sharing rules satisfying strategy proofness the requirement that no one can ever benefit by misrepresenting his preference when aggregate certainty holds we show that fixed price selections from walrasian correspondence are the only rules satisfying efficiency individual rationality and strategy proofness however when aggregate uncertainty holds we show that there exists no rule satisfying the three requirements moreover in the two agents case we show that dictatorial rules are the only efficient and strategy proof rules dropping the common prior assumption in the model we show that this assumption is necessary and sufficient for the existence of rules satisfying the three main requirements in the two agents and aggregate certainty case

note on social choice allocation in exchange economies with many agents abstract we show that in pure exchange economies there exists no pareto efficient and strategy proof allocation mechanism that ensures positive consumption for all agents we also show that a pareto efficient strategy proof and non bossy allocation mechanism is dictatorial we further show that in three agent economies the allocation given by a pareto efficient strategy proof and non dictatorial mechanism depends only on one agent s preference who is always allocated zero consumption that is in three agent economies zhou s 1991 14 conjecture is true and any pareto efficient and strategy proof mechanism is of satterthwaite and sonnenschein s 1981 10 type

let them cheat abstract we consider the problem of fairly allocating a bundle of infinitely divisible goods among a group of agents with classical preferences we propose to measure an agent s sacrifice at an allocation by the size of the set of feasible bundles that the agent prefers to her consumption as a solution we select the allocations at which sacrifices are equal across agents and this common sacrifice is minimal we then turn to the manipulability of this solution in the tradition of hurwicz 1972 we identify under some mild assumptions on preferences the equilibrium allocations of the manipulation game associated with this solution when all commodities are normal for each preference profile each equal division constrained walrasian allocation is an equilibrium allocation conversely each equilibrium allocation is equal division constrained walrasian furthermore we show that if normality of goods is dropped then equilibrium allocations may not be equal division constrained walrasian

hybrid inflation and price level targeting in this paper we investigate the properties of monetary regimes that combine price level and inflation targeting we look both at an optimal control and at a simple rule characterisation of these regimes we derive numerical results by modelling the economy as a small scale open economy re model calibrated on uk data we conclude that 1 the relative merits of price level and inflation targeting as well as of mixes of these two depend on particular modelling and policy assumptions and 2 these merits do not always change gradually and or monotonically as we move from one regime to another

disability insurance benefits and labor supply some additional evidence this article examines the effects of a change in the canada quebec pension plan c qpp disability benefits on the labor supply of older canadian workers i obtain my estimates by exploiting a large increase in benefits that only occurred in the qpp program which only operates in quebec while benefits in the cpp program which operates in the rest of canada were unaffected unlike the existing estimates from the united states as well as earlier canadian obtained by gruber i find that disability benefits are not associated with a large increase in the nonparticipation of older men

labor force dynamics of older men this paper describes and analyzes movements of older men among labor force states in the united states using quarterly observations derived from the retirement history survey rhs the results indicate substantial undercounts in the biannual data indicating that the prevalence of labor force movements at older ages has been underestimated previously the results show that labor force dynamics at older ages are important including duration and spell occurrence dependence and work experience effects these effects are robust to nonparametric controls for unobserved heterogeneity the estimates indicate that social security benefits have strong effects on the timing of labor force transitions at older ages but that changes in social security benefit levels over time have not contributed much to the trend toward earlier labor force exit excerpt

optimal monetary policy in a regime switching economy the response to abrupt shifts in exchange rate dynamics abstract this paper examines the trade offs that a central bank faces when the exchange rate can experience sustained deviations from fundamentals and occasionally collapse the economy is modelled as switching randomly between different regimes according to time invariant transition probabilities we compute both the optimal regime switching control rule for this economy and optimised linear taylor rules in the two cases where the transition probabilities are known with certainty and where they are uncertain the simple algorithms used in the computation are also of independent interest as tools for the study of monetary policy under general forms of asymmetric additive and multiplicative uncertainty an interesting finding is that policies based on robust minmax values of the transition probabilities are usually more conservative

does disability insurance receipt discourage work using examiner assignment to estimate causal effects of ssdi receipt abstract we present the first causal estimates of the effect of social security disability insurance benefit receipt on labor supply using all program applicants we use administrative data to matc

the welfare implications of increasing disability insurance benefit generosity abstract in order to evaluate whether workers are over or under insured through the disability insurance di program we develop a framework that allows us to simulate the benefits as well as the costs associated with marginal changes in payment generosity from a representative cross sectional sample of the population under the assumption that individuals are reasonably risk averse we find that the typical worker would value increased benefits somewhat above the average costs of providing them however whether the benefit increases tend to lower or raise utility when we average across all individuals in our sample is sensitive to assumptions that affect the relative marginal utility of income to disabled individuals

strategyproof collective choice in economic and political environments this paper surveys some recent results characterizing strategyproof collective choice rules when preferences satisfy conditions that are meaningful in economic or political environments

the effects of health wealth and wages on labour supply and retirement behaviour this paper estimates a life cycle model of labour supply retirement and savings behaviour in which future health status and wages are uncertain individuals face a fixed cost of work and cannot borrow against future labour pension or social security income the method of simulated moments is used to match the life cycle profiles of labour force participation hours worked and assets that are estimated from the data to those that are generated by the model the model establishes that the tax structure of the social security system and pensions are key determinants of the high observed job exit rates at ages 62 and 65 removing the tax wedge embedded in the social security earnings test for individuals aged 65 and older would delay job exit by almost one year by contrast social security benefit levels health and borrowing constraints are less important determinants of job exit at older ages for example reducing social security benefits by 20 would cause workers to delay exit from the labour force by only three months

how social security and medicare affect retirement behavior in a world of incomplete markets this paper provides an empirical analysis of how the u s social security and medicare insurance system affect the labor supply of older males in the presence of incomplete markets for loans annuities and health insurance we estimate a detailed dynamic programming dp model of the joint labor supply and social security acceptance decision focusing on a sample of males in the low to middle income brackets whose only pension is social security the dp model delivers a rich set of predictions about the dynamics of retirement behavior and comparisons of actual vs predicted behavior show that the dp model is able to account for wide variety of phenomena observed in the data including the pronounced peaks in the distribution of retirement ages at 62 and 65 the ages of early and normal eligibility for social security benefits respectively we identify a significant fraction of health insurance constrained individuals who have no form of retiree health insurance other than medicare and who can only obtain fairly priced private health insurance via their employer s group health plan the combination of significant individual risk aversion and a long tailed pareto distribution of health care expenditures implies that there is a significant security value for these individuals to remain employed until they are eligible for medicare coverage at age 65 overall our model suggests that a number of heretofore puzzling aspects of retirement behavior can be viewed as artifacts of particular details of the social security rules whose incentive effects are especially strong for lower income individuals and those who do not have access to fairly priced loans annuities and health insurance

monetary policy with uncertain parameters this thesis contains four chapters each of which examines different aspects of the uncertainty facing monetary policymakers monetary policy and market interest rates investigates how interest rates set on financial markets respond to policy actions taken by the monetary authorities the reaction of market rates is shown to depend crucially on market participants interpretation of the factors underlying the policy move these theoretical predictions find support in an empirical analysis of the u s financial markets predicting monetary policy using federal funds futures prices examines how prices of federal funds futures contracts can be used to predict policy moves by the federal reserve although the futures prices exhibit systematic variation across trading days and calendar months they are shown to be fairly successful in predicting the federal funds rate target that will prevailafter the next meeting of the federal open market committee from 1994 to 1998 monetary policy with uncertain parameters examines the effects of parameter uncertainty on the optimal monetary policy strategy under certain parameter configurations increasing uncertainty is shown to lead to more aggressive policy in contrast to the accepted wisdom should central banks be more aggressive examines why a certain class of monetary policy models leads to more aggressive policy prescriptions than what is observed in reality these counterfactual results are shown to be due to model restrictions rather than central banks being too cautious in their policy behavior an unrestricted model taking the dynamics of the economy and multiplicative parameter uncertainty into account leads to optimal policy prescriptions which are very close to observed federal reserve behavior

disability benefit generosity and labor force withdrawal abstract a key component for estimating the optimal size and structure of disability insurance di programs is the elasticity of di claiming with respect to benefit generosity yet in many countries including the united states all workers face identical benefit schedules which are a function of one s labor market history making it difficult to separate the effect of the benefit level from the effect of unobserved preferences for work on individuals claiming decisions to circumvent this problem we exploit exogenous variation in di benefits in austria arising from several reforms to its di and old age pension system in the 1990s and 2000s we use comprehensive administrative social security records data on the universe of austrian workers to compute benefit levels under six different regimes allowing us to identify and precisely estimate the elasticity of di claiming with respect to benefit generosity we find that over this time period a 1 increase in potential di benefits was associated with a 1 2 increase in di claiming

targeting nominal income growth or inflation within a simple new keynesian model emphasizing forward looking behavior of private agents i evaluate optimal nominal income growth targeting versus optimal inflation targeting when the economy is mainly subject to shocks that do not involve monetary policy trade offs for society inflation targeting is preferable otherwise nominal income growth targeting may be superior because it induces inertial policy making which improves the inflation output gap trade off somewhat paradoxically inflation targeting may be relatively less favorable the more society dislikes inflation and the more persistent are the effects of inflation generating shocks jel e42 e52 f58

a structural retirement model the life cycle model analyzed here constrains most work on the main job to be full time partial retirement entails a wage reduction and frequently a job change maximum likelihood estimates of utility function parameters are designed to incorporate information on the age of leaving full time work and the age of full retirement the model closely tracks retirement behavior including peaks in retirement activity at 62 and 65 the paper explores the relation of these peaks to nonlinearities in the budget constraint created by various retirement programs policy analyses based on this and on earlier models with simpler structures are compared the retirement choice is one of the more prominent manifestations of life cycle behavior the decision is the result of an interplay between an individual s preferences and a set of incentives which change in complicated ways as the individual progresses through his or her late 50 s and 60 s the purpose of this study is to formulate and estimate a structural model which incorporates in a fundamental way this interplay between lifetime preferences and incentives and to illustrate how such a model may be used to investigate retirement behavior a structural model of this type is essential for analyzing potential policy changes which can be expected to affect incentives in varying ways over a number of years in the life cycle the current study incorporates two structural features which have frequently been omitted from previous studies first the model requires that an individual who wishes to reduce work effort below full time must accept a reduced hourly wage rate in order to do so this reflects empirical evidence from micro data sets which indicates that around one third of older individuals engage in part time work at one time or another and that regardless of whether or not these older workers change jobs to obtain part time work they usually take wage cuts as compared to their previous full time work 2 the fact that an individual is willing to accept a lower wage rate in return for the opportunity to work fewer than full time hours contains important information about the preferences of the

strategy proof and symmetric social choice functions for public good economies we study economies with one private good and one pure public good and consider the following axioms of social choice functions strategy proofness says that no agent can benefit by misrepresenting his preferences regardless of whether the other agents misrepresent or not and whatever his preferences are symmetry says that if two agents have the same preference they must be treated equally anonymity says that when the preferences of two agents are switched their consumption bundles are also switched individual rationality says that a social choice function never assigns an allocation which makes some agent worse off than he would be by consuming no public good and paying nothing in theorem 1 we characterize the class of strategy proof budget balancing and symmetric social choice functions assuming convexity of the cost function of the public good in theorem 2 we characterize the class of strategy proof budget balancing and anonymous social choice functions in theorem 3 we characterize the class of strategy proof budget balancing symmetric and individually rational social choice functions

restricted coasean bargaining we investigate the efficiency of coasean bargaining when restrictions are placed on the set of feasible bargaining outcomes when property rights are costly to defend appropriate we find bargaining restrictions may be pareto superior to unconstrainedvoluntary exchange under cost uncertainty over the harmful activity we show an efficient configuration of restrictions must balance the potential reduction in appropriation costs with the possibility of allocatively inefficient bargaining restrictions for an all pay auction we find conditions where precluding bargaining is always ex ante preferable to unrestricted bargaining for cases where the restrictions are contested we show conditions for the continuing existence of welfare improvements

the impact of stricter criteria for disability insurance on labor force participation this paper studies the effect of a large scale policy change in the austrian disability insurance program which tightened eligibility criteria for men above a certain age using administrative data on the universe of austrian private sector employees the results of difference in difference regressions suggest a substantial and statistically significant decline in disability enrollment of 6 to 7 4 percentage points and an increase in employment of 1 6 to 3 4 percentage points the policy change had important spillover effects into the unemployment and sickness insurance program specifically the share of individuals receiving unemployment benefits increased by 3 5 to 3 9 percentage points and the share receiving sickness insurance benefits by roughly 0 7 percentage points

does raising the early retirement age increase employment of older workers two pension reforms in austria increased the early retirement age era from 60 to 62 for men and from 55 to 58 25 for women we find that raising the era increased employment by 9 75 percentage points among affected men and by 11 percentage points among affected women the reforms had large spillover effects on the unemployment insurance program but negligible effects on disability insurance claims specifically unemployment increased by 12 5 percentage points among men and by 11 8 percentage points among women the employment response was largest among high wage and healthy workers while low wage and less healthy workers either continued to retire early via disability benefits or bridged the gap to the era via unemployment benefits taking spillover effects and additional tax revenues into account we find that for a typical birth year cohort a one year increase in the era resulted in a reduction of net government expenditures of 107 million euros for men and of 122 million euros for women

nash equilibrium and welfare optimality if is a set of social alternatives a social choice rule scr assigns a subset of a to each potential profile of individuals preferences over a where the subset is interpreted as the set of welfare optima a game form or mechanism implements the social choice rule if for any potential profile of preferences 1 any welfare optimum can arise as a nash equilibrium of the game form implying in particular that a nash equilibrium exists and 2 all nash equilibria are welfare optimal the main result of this paper establishes that any scr that satisfies two properties monotonicity and no veto power can be implemented by a game form if there are three or more individuals the proof is constructive

inefficiency of strategy proof rules for pure exchange economies abstract in his pioneering article in decision and organization c b mcguire and r radner eds pp 297 336 north holland amsterdam 1972 hurwicz establishes that there is no strategy proof pareto efficient and individually rational rule for pure exchange economies with two agents and two goods provided that the domain includes a sufficiently wide class of classical preferences in this article we extend his result to pure exchange economies with any finite number of agents and goods we establish that i there is no strategy proof pareto efficient and individually rational rule on the class of classical homothetic and smooth preferences and ii there is no strategy proof pareto efficient and symmetric rule on the same class of preferences journal of economic literature classification numbers d78 d71 c72

the performance of forecast based monetary policy rules under model uncertainty we investigate the performance of forecast based monetary policy rules using five macroeconomic models that reflect a wide range of views on aggregate dynamics we identify the key characteristics of rules that are robust to model uncertainty such rules respond to the one year ahead inflation forecast and to the current output gap and incorporate a substantial degree of policy inertia in contrast rules with longer forecast horizons are less robust and are prone to generating indeterminacy in light of these results we identify a robust benchmark rule that performs very well in all five models over a wide range of policy preferences

social security unanticipated benefit increases and the timing of retirement between 1969 and 1972 real u s social security retirement benefits rose by 20 the rise was unanticipated and followed over 15 years of relatively constant real benefits this paper proposes a model of retirement behaviour in which workers respond differently although in a theoretically consistent manner to the anticipated and unanticipated components of the social security benefit they can receive upon retirement the retirement age decision in the presence of unanticipated benefit changes is shown to be a special case of utility maximization under a nonlinear budget constraint the model is estimated using the longitudinal retirement history survey between 1969 and 1973 real social security benefits for u s workers with fixed earnings histories were raised by more than 20 these increases were the first significant increases in social security since the early 1950 s at the same time that retirement benefits were rising the trend toward early retirement among older american men accelerated in the period from 1965 to 1970 the labour force participation rate of men aged 55 to 64 fell 1 6 percentage points from 84x6 to 83 0 but in the five years after 1970 the rate fell an additional 7 4 points to 75 6 the participation rate of men over 65 fell by 1 1 points in the five years after 1965 but by 5 2 points during the mid 1970 s 1 not surprisingly a large share of this labour force decline has been attributed to the effects of the social security increases enacted in 1969 and 1972 the purpose of this paper is to determine the precise effect of the unanticipated benefit increases on the timing of retirement the effect of social security on the age at retirement has been the subject of lively debate in recent years the literature has been reviewed in two recent papers by mitchell and fields 1982 and hurd 1983 who reach nearly opposite conclusions about the lessons that can be drawn from past empirical research mitchell and fields find that no definite judgment can be reached about the effects of social security on retirement while hurd argues that more careful studies have all found a significant and meaningful effect of social security on early retirement certainly the earlier studies by boskin 1977 and boskin and hurd 1978 found very large social security effects with boskin concluding that the social security system has been the major factor in the explosion in earlier retirement boskin 1977 p 1 very recent studies by burkhauser and quinn 1983 burtless and moffitt 1984 diamond and hausman 1984 fields and mitchell 1984 and hausman and wise 1985 have found smaller social security effects however none of them dealt explicitly with the rapid rise in real benefits during the early 1970 s the approach taken in this paper differs significantly from that in the earlier research just cited the proposed econometric model takes full account of the nonlinear relationship between goods consumption and the age at retirement introduced by social security

disability insurance and the great recession the u s social security disability insurance ssdi program is designed to provide income support to workers who become unable to work because of a severe long lasting disability at present nearly nine million former workers receive ssdi benefits following several decades of rapid growth as the program has expanded observers have debated the degree to which this program growth is due to on the one hand past policy changes and anticipated growth in the insured population or on the other hand declining returns to labor force participation among low skilled workers underscoring the important role of labor markets is the evidence that ssdi payments in appalachia responded counter cyclically to local earnings shocks caused by the coal boom and bust of the 1970s and 1980s black daniel and sanders 2002 more recently linder and burdick 2013 show that the unemployment rate was positively associated with disability benefit claiming during and after the 2001 recession a finding that ssdi receipt is sensitive to economic cycles is of concern for several reasons the first is that there is little evidence that the incidence of severe disability is itself countercyclical because of this ssdi is designed to insure against permanent earnings shocks due to onset of disability and not transitory earnings shocks due to labor market conditions its strict eligibility rules lengthy application processing times and implicit work disincentives reflect this purpose and indeed very few ssdi beneficiaries ever return to substantial labor market activity it is thus problematic if displaced and discouraged workers turn to the ssdi program when they are in need of temporary assistance since they are unlikely to ever return to work once the labor market recovers one explanation for these business cycle effects is that they are driven by conditional applicants that is workers with health impairments who would prefer to remain in the labor force but who would apply for ssdi benefits if they lost their present job autor and duggan 2003 because applying for public ssdi benefits in the united states requires that one s earnings are below the threshold defining substantial gainful activity sga the opportunity cost of applying for benefits is reduced when one becomes unemployed thus not only should there be more ssdi applicants during economic downturns there should be notable compositional differences between those who apply during economic expansions and those who apply during economic recessions using survey data coe and rutledge 2013 find that ssdi applicants during recessions have higher past earnings and more recent work experience see also lindner and burdick 2013 in this study we use administrative data to estimate the effect of labor market conditions as measured by the unemployment rate on the number of ssdi applications the number and composition of initial allowances and denials and the timing of applications relative to disability onset we analyze the period of the great recession and compare this period with business cycle effects over the past two decades from 1992 through 2012 our analysis isolates the quantity and composition of applicants who are induced to apply for ssdi benefits when labor market opportunities decline and therefore provides important new evidence about the group for whom ssdi application is a substitute for labor force participation and their impact on the ssdi program