instability of sunspot equilibria in real business cycle models under adaptive learning we examine the stability of equilibrium in sunspot driven real business cycle rbc models under adaptive learning we show that the general reduced form of this class of models can admit rational expectations equilibria that are both indeterminate and stable under adaptive learning indeterminacy of equilibrium allows for the possibility that non fundamental sunspot variable realizations can serve as the main driving force of the model and several researchers have put forward calibrated structural models where sunspot shocks play such a role we show analytically how the structural restrictions that researchers have imposed on this type of model lead to reduced form systems where equilibrium is indeterminate but always unstable under adaptive learning we thereby resolve a stability puzzle identified by evans and mcgough 2002

intergenerational economic mobility in the united states 1940 to 2000 we estimate trends in intergenerational economic mobility by matching men in the census to synthetic parents in the prior generation we find that mobility increased from 1950 to 1980 but has declined sharply since 1980 while our estimator places greater weight on location effects than the standard intergenerational coefficient the size of the bias appears to be small our preferred results suggest that earnings are regressing to the mean more slowly now than at any time since world war ii causing economic differences between families to become more persistent however current rates of positional mobility appear historically normal

production function regressions returns to scale and externalities a number of recent papers have used simple linear regressions in an attempt to identify market structure the extent of returns to scale and possible external effects in u s manufacturing industries the results obtained from these regressions have important implications for several branches of modern macroeconomics as a result the macro literature frequently cites specific numerical evidence from caballero and lyons 1992 and hall 1990 which suggests that there are quantitatively significant increasing returns to scale or external effects in u s manufacturing in contrast it is the argument of this paper that this evidence is not convincing the most robust evidence suggests that the typical u s manufacturing industry displays constant returns with no external effects on the other hand there is significant heterogeneity across industries

early decision and financial aid competition among need blind colleges and universities abstract this paper presents a stylized theoretical model of competition among need blind colleges and universities that implement early decision admissions under need blind admissions an applicant s financial aid status cannot affect their likelihood of admission in the model a need blind school can use early decision admissions as a screening mechanism to indirectly identify a student s ability to pay while superficially maintaining a need blind policy as a result in equilibrium non financial aid students are more likely to be admitted than financial aid students of comparable quality

slipping into and out of poverty the dynamics of spells this paper examines the dynamics of poverty previous analyses have examined either fluctuations in the male heads earnings or the frequency of poverty periods over a fixed time frame our approach depends on a definition of spells of poverty using this methodology we find that the majority of poor persons at any time are in the midst of a rather long spell of poverty the methodology also allows us to estimate that less than 40 percent of poverty spells begin because of a drop in the heads earnings while 60 percent of the spells end when the heads earnings increase thus researchers must focus on household formation decisions and on the behavior of secondary family members there has been a dramatic resurgence recently of discussion of the underclass the discussion is reminiscent of debates about poverty during the 1960s when the notions of a culture of poverty particularly as popularized by michael harrington s other america 1962 dominated both intellectual and policy thinking the idea of an underclass seems inconsistent however with much of the research on the dynamics of poverty during the 1970s that research using new longitudinal data seemed to show that the bulk of the poor were poor for only a few years the research also showed that the poor were a very heterogeneous group including a small minority of persistently poor the persistence of poverty is of interest both for understanding the phenomenon and for developing policy claims about dependency and separate life styles among the poor rest on assumptions about the long term nature of poverty questions

testing for indeterminacy an application to u s monetary policy reply this paper considers a prototypical new keynesian model in which the equilibrium is undetermined if monetary policy is passive the likelihood based estimation of dynamic equilibrium models is extended to allow for indeterminacies and sunspot fluctuations we construct posterior weights for the determinacy and indeterminacy region of the parameter space and estimates for the propagation of fundamental and sunspot shocks according to the estimated model u s monetary policy post 1982 is consistent with determinacy whereas the pre volcker policy is not we find that before 1979 indeterminacy substantially altered the propagation of shocks

trends in intergenerational income mobility previous studies of recent u s trends in intergenerational income mobility have produced widely varying results partly because of large sampling errors by making more efficient use of the available information in the panel study of income dynamics we generate more reliable estimates of the recent time series variation in intergenerational mobility our results which pertain to the cohorts born between 1952 and 1975 do not reveal major changes in intergenerational mobility

centralization fiscal federalism and private school attendance a cge model is used to analyze the impact of public school financing on private school attendance the common perception that public school finance centralization will necessarily lead to greater private school attendance is not correct in such a model even when that centralization involves an extreme equalization as in california furthermore if centralization is less dramatic as in most states declines in private school attendance are even more pronounced this weakens the speculation that low exit rates to private schools in centralizing states imply that general public school quality does not drop as a result of such centralization

biases in standard measures of intergenerational income dependence abstract estimates of the most common mobility measure the intergenerational elasticity can be severely biased if snapshots are used to approximate lifetime income however little is known about biases in other popular dependence measures using long swedish income series we provide such evidence for log linear and rank correlations and rank based transition probabilities attenuation bias is considerably weaker in rank based measures life cycle bias is strongest in the elasticity moderate in log linear correlations and small in rank based measures however there are important exceptions persistence in the tails of the distribution is considerably higher and long distance downward mobility lower than estimates from short run income suggest

pay as you go social security and the distribution of altruistic transfers this paper studies the impact of an unfunded social security system on the distribution of altruistic transfers in a framework where savings are due to both life cycle and random altruistic motivations we show that the effect of social security on the distribution of these transfers depends crucially on the strength of the bequest motive in explaining savings behaviour we measure this strength by the expected weight that individuals attach to the utility of future generations on the one hand if the bequest motive is strong then an increase in the social security tax raises the bequests left by altruistic parents on the other hand when the importance of altruism in motivating savings is sufficiently low the increase in the social security tax could result in a reduction of the bequests left by altruistic parents under some conditions on the attitude of individuals toward risk and on the relative returns associated with private saving and social security some implications concerning the transitional effects of introducing an unfunded social security scheme are also discussed

adaptive learning and distributional dynamics in an incomplete markets model abstract recent research shows that several dsge models provide a closer fit to the data under adaptive learning this paper extends this research by introducing adaptive learning in the model of krusell and smith 1998 with uninsurable idiosyncratic risks and aggregate uncertainty a first contribution of this paper establishes that the equilibrium of this framework is stable under least squares learning the second contribution consists of showing that bounded rationality enhances the ability of this model to match the distribution of income in the us learning increases significantly the gini coefficients because of the opposite effects on consumption of the capital rich and of the capital poor agent the third contribution is an empirical exercise that shows that learning can account for increases in the income gini coefficient of up to 25 in a period of 28 years overall these findings suggest that adaptive learning has important distributional repercussions in this class of models

external effects in u s procyclical productivity abstract in this paper we highlight a new dimension of the aggregate procyclical productivity phenomenon we show that estimates of the degree of returns to scale are larger for manufacturing as a whole than for two digit industries since this difference must be due to factors that are only internalized at the most aggregate level we term it an external effect this result rules out explanations based on own input variation such as true increasing returns and unmeasured factor utilization tied to own activity as the sole explanations for aggregate procyclical productivity we explore several potential explanations of this external effect

does education expansion increase intergenerational mobility education expansion may lead to over education where the social connections of parents may exert more significant influence on the return to education of children with the assumption of a positive correlation between return on human capital and parental income in the presence of over education we show that i the expansion of education may cause horizontal inequity in education opportunities and inefficiency in human capital accumulation ii the positive correlation between return on human capital and parental income causes a more persistent intergenerational immobility iii an expansion of education especially higher education leads to more persistent intergenerational immobility

balanced budget rules distortionary taxes and aggregate instability a traditional argument against a balanced budget fiscal policy rule is that it amplifies business cycles by stimulating aggregate demand during booms via tax cuts and higher public expenditures and by reducing demand during recessions through a corresponding fiscal contraction this paper suggests an additional source of instability that may arise from this type of fiscal policy rule it shows that within the standard neoclassical growth model a balanced budget rule can make expectations of higher tax rates self fulfilling if the fiscal authority relies heavily on changes in labor income taxes to eliminate short run fiscal imbalances calibrated versions of the model show that indeterminacy occurs for income tax rates that are empirically plausible for the u s economy and other group of seven countries

racial differences in patterns of wealth accumulation making use of psid data for 1984 1989 and 1994 we examine race differences in patterns of asset accumulation our results indicate as expected that inheritances raise the rate of wealth accumulation of whites relative to that of african americans but while whites devote a greater share of their income to saving racial differences in saving rates are not significant once we control for income though our results may be period specific we also do not find evidence that the rate of return to capital is greater for whites than for african americans simulations suggest that african americans would have gained significant ground relative to whites during the period if they had inherited similar amounts saved at the same rate had comparable income levels and more speculatively had portfolios closer in composition to those of whites

regression toward mediocrity in economic stature this paper provides estimates of the correlation in lifetime earnings between fathers and sons intergenerational data from the national longitudinal survey are used earlier studies conducted for the united states report elasticities of children s earnings with respect to parent s earnings of 0 2 or less suggesting extensive integenerational mobility these estimates however are biased downward by error contaminated measures of lifetime economic status estimates presented in this paper correct for the problem of measurement error and find the intergenerational correlation in income to be on the order of 0 4 this suggests considerably less intergenerational mobility than previously believed jel j62

endogenous business cycles and the dynamics of output hours and consumption abstract this paper studies the business cycle fluctuations predicted by a two sector endogenous business cycle model with sector specific external increasing returns to scale it focuses on aspects of actual fluctuations that have been identified both as defining features of business cycles and as ones standard real business cycle models cannot explain for empirically realistic calibrations of the degree of returns to scale the results suggest that endogenous fluctuations do not provide the dynamic element that is missing in existing real business cycle models jel e32

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

intergenerational earnings mobility in norway levels and trends using longitudinal data for norwegian children born in 1950 1955 1960 and 1965 we find a relatively high degree of earnings mobility there is no tendency toward decreasing mobility over the cohorts conditioning on the position in the earnings distribution the analysis indicates quite high mobility in the middle of the distribution and somewhat more persistence at the top and bottom this approach also reveals increased mobility over time for sons but a less clear picture for daughters

expectational stability of sunspot equilibria in non convex economies we examine the stability under learning e stability of sunspot equilibria in non convex real business cycle models the production technology is cobbdouglas with externalities generated by factor inputs we establish that with a general utility function the well known benhabib farmer condition benhabib and farmer 1994 that the labor demand curve is upward sloping and steeper than the frisch labor supply curve is necessary for joint indeterminacy and e stability then with a separable utility function and allowing for negative externalities from capital inputs we discover large regions in parameter space corresponding to stable indeterminacy that is learnable sunspot equilibria these existence results overturn the conventional wisdom that sunspot equilibria in rbc type models are inherently unstable and provide concise closure to the stability puzzle of evans and mcgough 2005b

capacity utilization under increasing returns to scale abstract this paper overcomes an important objection against the empirical relevance of the benhabib farmer model as a potential account of actual business cycle fluctuations this is attributable to an elasticity effect and a returns to scale effect of capacity utilization these effects are closely related to the empirical puzzles that capital appears to play an insignificant role in explaining cyclical movements in output and that the estimated labor elasticity appears to be larger than labor s share due to these effects multiple equilibria and persistent fluctuations can easily occur in a growth model for externalities mild enough so that the aggregate labor demand curve is downward sloping analyses show that the propagation mechanism generated by capacity utilization under mild increasing returns is capable of explaining the periodic patterns of u s business cycles documented by watson journal of economic literature classification numbers e32 e22 c52

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

house prices borrowing constraints and monetary policy in the business cycle i develop a general equilibrium model with sticky prices credit constraints nominal loans and asset prices changes in asset prices modify agents borrowing capacity through collateral value changes in nominal prices affect real repayments through debt deflation monetary policy shocks move asset and nominal prices in the same direction and are amplified and propagated over time the financial accelerator is not constant across shocks nominal debt stabilises supply shocks making the economy less volatile when the central bank controls the interest rate i discuss the role of equity debt indexation and household and firm leverage in the propagation mechanism finally i find that monetary policy should not target asset prices as a means of reducing output and inflation volatility

economic and mechanical models of intergenerational transmission the author critically examines gary beckers attempt to integrate the theory of income distribution intragenerational differences with the theory of mobility intergenerational differences in an economic model of the family he assesses beckers claims of distinctiveness integration explanatory power and surprise and arrives at a rather skeptical view of the contribution that the core of microeconomics has made to this study of the family a reply by becker is included pp 514 8 excerpt

the role of the urban non urban cost of living difference in measured intergenerational earnings mobility abstract in light of a substantial compensating urban non urban wage gap a documented strong intergenerational persistence of urbanicity could produce a higher intergenerational association in nominal than in real earnings controlling interarea cost of living differences i find that the estimated elasticity for real earnings is less to a statistically significant degree

effects of trade unions on the earnings differential between males and females canadian evidence this paper examines whether trade unions have affected the earnings gap between male and female workers in canada based on a sample of 4 093 individuals derived from the survey of union membership the results of regression analysis suggest that unions have increased the relative earnings of male workers even after the difference in the level of unionization between males and females is accounted for the results also indicate that the relative wage effect differs substantially between the public and private sectors

should central banks respond to movements in asset prices in recent decades asset booms and busts have been important factors in macroeconomic fluctuations in both industrial and developing countries in light of this experience how if at all should central bankers respond to asset price volatility we have addressed this issue in previous work bernanke and gertler 1999 the context of our earlier study was the relatively new but increasingly popular monetary policy framework known as inflation targeting see e g bernanke and frederic mishkin 1997 in an inflation targeting framework publicly announced medium term inflation targets provide a nominal anchor for monetary policy while allowing the central bank some flexibility to help stabilize the real economy in the short run the inflation targeting approach gives a specific answer to the question of how central bankers should respond to asset prices changes in asset prices should affect monetary policy only to the extent that they affect the central bank s forecast of inflation to a first approximation once the predictive content of asset prices for inflation has been accounted for there should be no additional response of monetary policy to assetprice fluctuations in use now for about a decade inflationtargeting has generally performed well in practice however so far this approach has not often been stress tested by large swings in asset prices our earlier research employed simulations of a small calibrated macroeconomic model to examine how an inflation targeting policy defined as one in which the central bank s instrument interest rate responds primarily to changes in expected inflation might fare in the face of a boom and bust cycle in asset prices we found that an aggressive inflationtargeting policy rule in our simulations one in which the coefficient relating the instrument interest rate to expected inflation is 2 0 substantially stabilizes both output and inflation in scenarios in which a bubble in stock prices develops and then collapses as well as in scenarios in which technology shocks drive stock prices intuitively inflation targeting central banks automatically accommodate productivity gains that lift stock prices while offsetting purely speculative increases or decreases in stock values whose primary effects are through aggregate demand conditional on a strong policy response to expected inflation we found little if any additional gains from allowing an independent response of central bank policy to the level of asset prices in our view there are good reasons outside of our formal model to worry about attempts by central banks to influence asset prices including the fact that as history has shown the effects of such attempts on market psychology are dangerously unpredictable hence we concluded that inflationtargeting central banks need not respond to asset prices except insofar as they affect the inflation forecast in the spirit of recent work on robust control the exercises in our earlier paper analyzed the performance of policy rules in worst case discussants robert shiller yale university glenn rudebusch federal reserve bank of san francisco kenneth rogoff harvard university

estimating the effects of unions on wage inequality in a panel data model with comparative advantage and nonrandom selection this article considers the estimation of the structure of wages in union and nonunion sectors it proposes an estimator that extends standard panel data techniques to the case in which the return to the permanent component of the error term is differently rewarded in the two sectors the econometric model is used to estimate the effect of unions on both the level and the variance of wages in canada the findings indicate that unions increase the average wage of workers and compress the returns to observable measures of skill and to a time invariant unobservable measure of skill

intergenerational persistence of earnings the role of early and college education recent empirical evidence from the united states indicates a high degree of persistence in earnings across generations designing effective public policies to increase social mobility requires identifying and measuring the major sources of persistence and inequality in earnings we provide a quantitative model of intergenerational human capital transmission that focuses on three sources innate ability early education and college education we find that approximately one half of the intergenerational correlation in earnings is accounted for by parental investment in education in particular early education we show that these results have important implications for education policy

monetary policy and stable indeterminacy with inertia abstract we examine existence and stability under learning of sunspot equilibria in a new keynesian model incorporating inertia indeterminacy remains prevalent stable sunspots abound and inertia in is and aggregate supply as relations do not significantly impact the policy region containing stable sunspots

family economics and macro behavior in this 1987 presidential address to the american economic association the author explores the contributions of the field of family economics to macroeconomic analysis the focus is on family behavior as an active endogenous factor that both affects and is affected by the evolution of the economy much of the time is spent on long term economic growth although i also discuss short and long cycles in economic activity and the interaction between overlapping generations through social security transmission of inequality and in other ways many conclusions in these and presumably other macro areas change radically when family choices get the attention they deserve excerpt

parental wealth and adult children s welfare in marriage abstract many studies find that parental resources importantly determine children s human capital schooling returns and earnings the collective household approach suggests that in addition parental resources of marital partners may importantly affect resource distributions within marriage this paper presents empirical results consistent with this framework they suggest that parental wealth continues to play roles in augmenting welfare of children into adulthood beyond provision of human capital in early life cycle stages or direct financial aid during adulthood and that actual transfers from parents to adult children do not fully measure influences of parental wealth on behaviors and welfare of adult children

unobservable family and individual contributions to the distributions of income and wealth this paper uses combinations of full brothers half brothers and fathers and sons to measure the effect of common family background on a household s income and wealth while the data are drawn from a nineteenth century population the intraclass correlation for income ranges from 13 to 18 which is similar to that found in modern samples intraclass correlations for wealth are significantly higher 18 35 than are those for income intraclass correlations of half brothers compared to those for full brothers suggest that fathers play a dominant role in the transmission of the common family effect when unobserved background is decomposed into individual and family effects the individual effect dominates the family effect for income while the family effect dominates the individual effect for wealth

more equal but less mobile education financing and intergenerational mobility in italy and in the us a centralised and egalitarian school system reduces the cost of education for poor families and so it should reduce income inequality and make intergenerational mobility easier in this paper we provide evidence that italy compared to the usa displays less income inequality as expected given the type of school system but also less intergenera tional upward mobility between occupations and between education levels we explore some of the reasons which can explain this puzzling result and conclude that in a world in which family background is important for labor market success a centralised and egalitarian tertiary education does not necessarily help poor children and may take away from them a fundamental tool to prove their talent and to compete with rich children 1999 elsevier science s a all rights reserved

real time rational expectations and indeterminacy abstract this paper uses the technique of lubik and schorfheide lubik t schorfheide f 2004 testing for indeterminacy an application to u s monetary policy the american economic review 94 1 190 217 to test for indeterminacy in a new keynesian model using real time instead of revised data on the output gap the results suggest indeterminacy both before 1979 and after 1982

canadian union nonunion wage differentials using extensive canadian longitudinal data from the years 1969 71 the authors estimate union nonunion wage differentials of 12 14 percent for 1969 and 13 16 percent for 1970 these estimates are not adjusted for selectivity because three different tests to identify selectivity yield no evidence of selectivity bias the authors argue that although testing for selectivity is often essential selectivity adjustments have resulted in greatly inflated estimates of union nonunion wage differentials in some studies and should therefore be used with caution

snapshots versus movies empirical studies of the intergenerational inheritance of economic status should use observations on complete lifetime status profiles of parents and children to be consistent with underlying theory but they cannot only snapshots rather than movies on status are currently available in samples estimates of the degree of intergenerational inheritance may therefore be subject to lifecycle biases the paper investigates these in the context of a lifecycle earnings model and shows that these biases may be large that their direction varies and that correction methods suggested hitherto have questionable reliability until more complete data sets become available researchers should be more temperate in the conclusions they draw

confidence crashes and animal spirits this article is an attempt to reformulate what i take to be two key insights from keyness general theory keynes 1936 the first is that there is something profoundly different about the labour market from most other markets in the economy the second is that the beliefs of participants in the asset markets have an independent influence on economic activity in the language of modern dynamic general equilibrium theory we would say that there is a continuum of labour market equilibria and that beliefs about the value of the stock market select an equilibrium the general theory contains many ideas some of which are internally inconsistent and keynes did not try to reconcile his theory with walrasian economics that task was carried out by a group of interpreters including hansen 1936 and hicks 1937 the current dominant paradigm new keynesian economics originated with the third edition of samuelson s 1955 undergraduate textbook in which he introduced the idea of the neoclassical synthesis according to this doctrine the economy is keynesian in the short run but classical in the long run the short run is defined as the period over which not all prices have had time to adjust to their walrasian levels this article introduces a different interpretation of the key ideas from the general theory 1 although my work is inspired by keynesian economics this article is not about the history of thought i offer a way of formulating the idea that market economies are not inherently self stabilising without assuming that prices or wages are prevented from adjusting to their equilibrium levels by some kind of friction instead i claim that high persistent unemployment is a potentially permanent feature of a market economy in a steady state equilibrium

are sunspots learnable an experimental investigation in a simple macroeconomic model abstract we conduct experiments with human subjects in a model with a positive production externality in which productivity is a nondecreasing function of the average level of employment of other firms the model has three steady states and a sunspot equilibrium that fluctuates between the high and low steady states steady states are payoff ranked low values give lower profits than higher values we investigate whether subjects can learn a sunspot equilibrium we observe coordination on the extrinsic announcements in our experimental economies cases of apparent convergence to the low and high steady states are also observed

learning by doing short sightedness and indeterminacy this article introduces firm specific learning by doing into a real business cycle rbc model this assumption results in indeterminacy of the wage over a large portion of the parameter space when firms use sufficiently high discount factors and when newly employed labour is relatively unproductive when firms and households use the same discount factor the effects of indeterminacy are limited to adding volatility to the wage rate if these discount factors differ however then indeterminacy also destabilises newly employed labour and total hours this result helps to explain the high amount of volatility that newly employed labour exhibits in the us data

the effect of unionization on the gender earnings gap in canada 1971 1981 the male female earnings differential in canada is investigated with particular attention to the effect of trade unions on the gender earnings gap an augmented version of the human capital theory based earnings equation is used as the empirical framework of the study gender specific earnings equations are estimated using cross sectional aggregate data for metropolitan cities and regions in canada for 1971 and 1981 the empirical results for 1971 indicate that unionization increases the annual earnings of males more than of females whereas the 1981 results indicate that trade unions decrease the male female earnings gap however the latter evidence is not statistically significant the study suggests that the increase in female participation in trade unions was an important factor in reducing the gender earnings gap over the period 1971 1981

real business cycles and the animal spirits hypothesis abstract we calibrate a quantitative equilibrium macroeconomic model with an aggregate technology that is subject to increasing returns and show that this model may display fluctuations at business cycle frequencies even when there are no shocks to the fundamentals of the economy these fluctuations are due to the self fulfilling beliefs of investors which we call animal spirits we compare the impulse response functions predicted by our model and by two other more standard models with a four variable vector autoregression on u s data our animal spirits economy is the most successful of the three at matching broad features of the dynamic responses in the data journal of economic literature classification numbers e00 e3 e32

intergenerational health mobility an empirical approach based on the echp despite the importance of the study of health mobility few attempts have been made to measure intergenerational mobility not only in the european union but also in other countries such as united states this article is focused on the study of intergenerational health mobility using data from the european community household panel echp in particular the relationships between self assessed health of parents and their sons are analysed the evidence obtained suggests that in spain sons reported health depends significantly on the self assessed health of their fathers