target zones and interest rate variability abstract for narrow exchange rate bands and for reasonable parameter values the interest rate differential s asymptotic unconditional variability is increasing in the width of the exchange rate band whereas for wide exchange rate bands it is slowly decreasing in the exchange rate band the interest rate differential s instantaneous conditional variability is decreasing in the width of the exchange rate band a narrow target zone differs from a completely fixed exchange rate regime in that the interest rate differential s instantaneous standard deviation is high and even increases when the zone narrows

the effect of the medicaid home care benefit onlong term care choices of the elderly this paper analyses the impact of medicaid home care benefits on the probability of nursing home entry and the use of formal and informal home care by disabled elderly remaining in the community using data from the national long term care survey i find evidence that medicaid home care subsidies reduced the probability of nursing home entry among at risk elderly using formal home care among non institutionalized persons the subsidy increased the use of formal home care but led to substitution of informal with formal care for services that were non medical in nature i introduction long term care for the elderly has become an area of great interest for policymakers due to the increased number of aged americans and to the important role of government in financing and regulating their care the size of the population requiring long term care is expected to increase from about 7 million in 1988 to about 18 million by the year 2040 it is popularly believed that the elderly often lack family support and must enter nursing homes when they become chronically ill in actuality the majority of impaired elderly remain at home only 22 percent of the disabled elderly population is institutionalized and the remaining 78 percent lives in the community most receiving assistance from family members of those remaining in the community 27 percent receive formal home and community based care to augment their informal care while 3 percent receive formal services only special committee on aging 1988 private insurance rarely covers longterm care since many of the elderly cannot afford prolonged out of pocket expenditures on nursing home or home health care the public sector ends up paying for it public long term care expenditures account for 0 45 percent of gnp with most of these expenditures going towards nursing home care with rapid inflation in the health care sector policymakers have been driven to explore alternatives to nursing home care which are potentially less costly one of these alternatives is home and community based care while the idea of expanding publicly financed home and community based care programs has been enthusiastically received by the elderly and their families researchers have questioned its cost effectiveness raising two issues the first concern is that extended home care benefits may not lower nursing home use but will primarily benefit persons who would not have entered a nursing home anyway the second possibility is that home care benefits will reduce reliance on informal caregiving if recipients use the formal care to substitute for rather than supplement the unpaid care they were already receiving much of the research on how formal home care affects the provision of informal home care and the use of nursing home services has focused on all forms of formal care including care paid for out of pocket two such studies are those by newman et al 1988 and hanley et al 1991 their results are likely to differ from those of an explicit analysis of the effects of a home care subsidy for example a family will purchase formal home care services as a substitute for their own informally provided care only if the opportunity cost of caregiving is greater than the cost of the paid care on the other hand if the formal care is essentially free to the recipients their families are likely to substitute formal care for their informal services even if the cost of the formal care to society is greater than the family s opportunity cost of caregiving thus home care subsidies are likely to lead to greater substitution of formal for informal care than we would observe in the absence of subsidization it is therefore misleading to extrapolate from this previous line of research to infer the effects of expanded government home care programs research concentrating on the subsidy effect itself has often been conducted through demonstration projects

standard errors for the retransformation problem with heteroscedasticity abstract economists often estimate models with a log transformed dependent variable the results from the log transformed model are often retransformed back to the unlogged scale other studies have shown how to obtain consistent estimates on the original scale but have not provided variance equations for those estimates in this paper we derive the variance for three estimates the conditional mean of y the slope of y and the average slope of y on the retransformed scale we then illustrate our proposed procedures with skewed health expenditure data from a sample of medicaid eligible patients with severe mental illness

state and time contingent switches of exchange rate regime abstract recent papers have analysed the effects of britain s return to gold in 1925 one line of argument has been that the return to gold was a state contingent regime switch an alternative view is that it was time contingent this paper shows that these approaches are not mutually exclusive the solution for the exchange rate is derived in a model where a switch to a fixed rate takes place either when a state contingent trigger is reached or at a fixed time whichever is the sooner state contingent and time contingent elements are thus combined within the same model

financial risk protection from social health insurance this paper estimates the impact of social health insurance on financial risk by utilizing data from a natural experiment created by the phased roll out of a social health insurance program for the poor in india we estimate the distributional impact of insurance on of out of pocket costs and incorporate these results with a stylized expected utility model to compute associated welfare effects we adjust the standard model accounting for conditions of developing countries by incorporating consumption floors informal borrowing and asset selling which allow us to separate the value of financial risk reduction from consumption smoothing and asset protection results show that insurance reduces out of pocket costs particularly in higher quantiles of the distribution we find reductions in the frequency and amount of money borrowed for health reasons finally we find that the value of financial risk reduction outweighs total per household costs of the insurance program by two to five times

decriminalization and marijuana smoking prevalence evidence from australia this article uses the 2001 national drug strategy household survey to assess the impact of marijuana decriminalization policy on marijuana smoking prevalence in australia both parametric and nonparametric methods are used the parametric approach includes endogenous probit switching two part sample selection and standard dummy variable models while the nonparametric approach uses propensity score stratification matching specification analyses are also conducted a nonparametric kernel based test is constructed to select between parametric and nonparametric models and the likelihood ratio test is used to choose among parametric models our analyses favor the endogenous switching model where decriminalization increases the probability of smoking by 16 2

supply side and demand side cost sharing in deregulated social health insurance which is more effective abstract microeconomic theory predicts that if patients are fully insured and providers are paid fee for service utilization of medical services exceeds the efficient level moral hazard effect in switzerland both demand side and supply side cost sharing have been introduced to mitigate this problem analyzing a panel dataset of about 160 000 adults we find both types of cost sharing to be effective in curtailing the use of medical services however when moral hazard mitigation is traded off against risk selection the minimum deductible supply side cost sharing option ranks first followed by the medium deductible demand side alternative making the supply side option somewhat more effective

gender and the demand for medical care the consumption of a set of diverse medical services is analysed in an effort to determine the sources of high utilization by women unlike previous studies of gender and the demand for medical services the range of services investigate allows us to draw conclusions about the influence of physicians as agents we use a modified version of the almost ideal demand model in the emperical analysis which unlike the double log quadratic or linear demand models is consistent with constraints imposed by economic theory through decomposition of the variance it was found that if women reported the same series of health indicators as men their use of most services would fall below that of men

nonlinear nonparametric nonessential exchange rate estimation a wide variety of empirical exchange rate mo dels have been estimated over the years but despite the considerable energies that have been devoted to this work the economics profession has remarkably little to show for itself there is little evidence that conclusively links the bilateral exchange rates of typical oecd countries to fundamental macroeconomic determinants of exchange rates such as money output relative prices or interest differentials coefficient estimates are notoriously unstable and frequently mis signed compared with theoretical predictions exchange rate equations do not fit particularly well and forecast no better than the simplest naive alternatives recently a new class of exchange rate models was introduced by paul krugman 1988 these models provide a potential reason for the poor performance of traditional exchange rate models because they are nonlinear if the exchange rate actually depends in a nonlinear way on exogenous macroeconomic fundamentals linear exchange rate models may work poorly even though the exchange rate is closely linked to fundamentals in this paper we provide a brief sketch of some of this work as well as some preliminary evidence on the actual performance of these nonlinear models in our empirical analysis we use a nonparametric estimator that can handle a wide variety of nonlinear phenomena we examine fixed exchange rate regimes where nonlinearities should be quite easy to detect however we do not find strong empirical support for the hypothesis that the incorporation of nonlinear effects significantly improves models of exchange rate determination in section i we briefly review the theoretical literature on nonlinear target zone exchange rate models linking this work to the tests for intrinsic bubbles we draw heavily on recent papers by kenneth froot and maurice obstfeld 1989a b our methodology and data are discussed in section ii section iii contains new empirical tests for nonlinearities in exchange rate models

academic earmarks and the returns to lobbying abstract in this paper we estimate the returns to lobbying by universities to motivate our empirical work we develop a simple theoretical model of university lobbying for academic earmarks our statistical analysis shows that universities represented by a house appropriations committee hac or senate appropriations committee sac member spend less money on lobbying than those that are not represented in addition using instrumental variables estimations we show that universities without hac or sac representation may receive some benefit to lobbying for earmarks although in many estimations this benefit is not statistically different from zero however for universities with hac or sac representation a 10 percent increase in lobbying yields an additional 2 8 percent or 3 5 percent increase in earmarks respectively this suggests that there are large returns to lobbying for academic earmarks if a university is represented by a member of one the hac or sac but little or no return if not

target zones and exchange rate dynamics this paper develops a simple model of exchange rate behavior under a target zone regime it shows that the expectation that monetary policy will be adjusted to limit exchange rate variation affects exchange rate behavior even when the exchange rate lies inside the zone and is thus not being defended actively somewhat surprisingly the analysis of target zones turns out to have a strong formal similarity to problems in option pricing and investment under uncertainty

bayesian analysis of the two part model with endogeneity application to health care expenditure this paper studies the effect of managed care on medical expenditure using a model in which the insurance status is assumed to be endogenous insurance plan choice is modeled through the multinomial probit model the medical expenditure variable the outcome of interest has a significant proportion of zeros that are handled using the two part model extended to handle endogenous insurance the estimation approach is bayesian based on the gibbs sampler the model is applied to a sample of 20 460 individuals obtained from the medical expenditure panel survey the results provide substantial evidence of selectivity copyright 2006 john wiley sons ltd

censored quantile instrumental variable estimates of the price elasticity of expenditure on medical care efforts to control medical care costs depend critically on how individuals respond to prices i estimate the price elasticity of expenditure on medical care using a censored quantile instrumental variable cqiv estimator cqiv allows estimates to vary across the conditional expenditure distribution relaxes traditional censored model assumptions and addresses endogeneity with an instrumental variable my instrumental variable strategy uses a family member s injury to induce variation in an individual s own price across the conditional deciles of the expenditure distribution i find elasticities that vary from 0 76 to 1 49 which are an order of magnitude larger than previous estimates

consumer health information and the demand for medical care this paper is an empirical investigation of consumer health information using a new direct measure of information the econometric approach treats both information and physician visits as endogenous variables when estimating the demand for medical care the results show that information increases the probability that a consumer uses medical care but that conditional on use the quantity of care consumed is not related to information the results contradict specific implications of models where physicians can create or induce demand for their own services several results suggest that poorly informed consumers tend to underestimate the productivity of medical care in treating illness copyright 1990 by mit press

insurance moral hazard and chemical use in agriculture this paper examines how crop insurance affects corn farmers fertilizer and pesticide use in the u s midwest crop insurance might be expected to affect chemical use because of moral hazard insured farmers may undertake riskier production than do uninsured farmers results suggest that insurance exerts considerable influence on corn farmers chemical use decisions those purchasing insurance applied significantly more nitrogen per acre 19 spent more on pesticides 21 and treated more acreage with both herbicides and insecticides 7 and 63 than did those not purchasing insurance these results suggest that both fertilizer and pesticides may be risk increasing inputs

price dynamics under stochastic process switching some extensions and an application to emu abstract in this paper we solve a particular type of stochastic process switching problem where the date of switching is fixed and known but the terminal price may depend on past prices we derive closed form solutions for the price dynamics of the asset before the terminal date and deduce the variance and jump components of these dynamics at the announcement we subsequently extend the model to price dynamics prior to the announcement of the regime switch assuming that markets may have some expectations regarding the occurrence and or the type of the regime switch finally we apply the general model to discuss the implications of the chosen conversion modalities in the european monetary union emu conversion procedure

the euro and inflation uncertainty in the european monetary union in this paper we investigate empirically the relationship between inflation and inflation uncertainty in twelve emu countries we estimate a time varying parameter model with a garch specification for the conditional volatility of inflation in order to distinguish between short run structural and impulse and steady state uncertainty we then introduce a dummy variable to model the policy regime shift which occurred in 1999 with the introduction of the euro and its effects on the links between inflation and inflation uncertainty we find that steady state inflation has generally remained stable with the important exception of germany where the trend has become positive steady state inflation uncertainty and inflation persistence have both increased and the relationship between inflation and inflation uncertainty has broken down in many countries these findings cast doubt on the optimistic view taken by the ecb concerning its success in controlling inflation and suggest the need for improvements in its analytical framework

balance of payments crises and devaluation the collapse of a fixed exchange rate is typically marked by a sudden balance of payments crisis in which speculators fleeing from the domestic currency acquire a large portion of the central bank s foreign exchange holdings faced with such an attack the central bank often withdraws temporarily from the foreign exchange market allowing the exchange rate to float freely before devaluing and returning to a fixed rate regime this paper links the timing of the initial speculative attack to the magnitude of the expected devaluation and to the length of the transitional period off loating an implication of the analysis is that there exist devaluations so sharp and transition periods so short that acrisis must occur the moment the market first learns that the current exchange parity will eventually be altered for sufficiently long transition periods the floating exchange rate overshoots its new peg before appreciating back toward it for shorter periods the rate depreciates monotonically to its new fixed level accordingly the central bank s return tothe foreign exchange market can occasion a capital outflow or a capital inflow this abstract was borrowed from another version of this item

much ado about two reconsidering retransformation and the two part model in health econometrics in health economics applications involving outcomes y and covariates x it is often the case that the central inferential problems of interest involve e y x and its associated partial effects or elasticities many such outcomes have two fundamental statistical properties y 0 and the outcome y 0 is observed with sufficient frequency that the zeros cannot be ignored econometrically this paper 1 describes circumstances where the standard two part model with homoskedastic retransformation will fail to provide consistent inferences about important policy parameters and 2 demonstrates some alternative approaches that are likely to prove helpful in applications

physician ownership of complementary medical services abstract when physicians own complementary medical service facilities such as laboratories and imaging centers they gain financially by referring patients to these entities this creates an incentive for the physician to exploit patients trust by recommending more services than necessary using data from taiwan which introduced a separating policy that restricts physician ownership of pharmacies we estimate that where the policy was binding eliminating this incentive caused physicians to prescribe 7 1 less in drugs taking into account increases in complementary diagnostic services and that drugs are only a part of overall primary care spending the policy reduced total expenditures by 1 8 however a large number of clinics exploited a loophole in the law and either had at baseline or integrated pharmacies into their practices post policy making them exempt from the policy as a result the policy only reduced total drug expenditures by 2 1 and total primary care cost by 0 5

determinants of health care decisions insurance utilization and expenditures abstract this paper studies three interrelated health care decisions insurance utilization and expenditures the model treats insurance as an endogenous variable with respect to both utilization and expenditures addresses potential selection issues and takes into account that the decisions to use health care and the level of treatment are determined by different decision makers we employ semiparametric methods to avoid making distributional assumptions using the medical expenditure panel survey 2005 data the semiparametric approach predicts insurance to increase the level of expenditures by 48 a number in accord with an important experimental study and less than half that obtained using parametric methods

volatility regime switching in european exchange rates prior to monetary unification abstract several theoretical models suggest that the mere announcement of entering a currency union in the future triggers instantaneous changes in exchange rate volatility first this paper develops a markov switching framework by which in fact volatility regime switching in foreign exchange rates can be detected for all currencies in the run up to the european monetary union emu second the paper attributes the currency specific volatility regime switches to decisive economic institutional and political factors prior to emu all in all the empirical results suggest that for future emu accession countries volatility regime switching models provide a useful tool for a broad range of financial applications e g for the pricing of currency options or for the construction of emu probability calculators

a strategy for launching the euro abstract this paper analyzes the constraints european union law places on the 1 january 1999 choices of irrevocably fixed conversion rates between the euro and the currencies of emu members states current eu legislation notably the maastricht treaty requires that the bilateral currency conversion factors implied by the 1 january 1999 choices equal closing market exchange rates on 31 december 1998 given that legal constraint there still exist several strategies for choosing the relative prices of emu member currencies against the euro unfortunately most of these have potentially damaging side effects one approach based on official stage 2 offers of contingent euro forward contracts with value dates at the start of stage 3 allows a highly credible preannouncement of the bilateral currency conversion factors to be set at the start of emu that approach assumes however that no prospective emu members can withdraw between their selection in may 1998 and the start of stage 3

estimates of the demand for ethical pharmaceutical drugs across countries and time the aggregate demand for ethical pharmaceutical drugs using country level data for seven countries pooled across an eight year period is estimated the regression analysis reveals that the net price paid by consumers has a negative effect on the average number of prescriptions per capita while income has a positive effect moreover the parameter estimates suggest thst the demand is relatively elastic in most countries and that the income elasticity is greater than one

shifted deductibles for high risks more effective in reducing moral hazard than traditional deductibles in health insurance a traditional deductible i e with a deductible range 0 d is in theory not effective in reducing moral hazard for individuals who know ex ante that their expenditures will exceed the deductible amount d e g those with a chronic disease to increase the effectiveness this paper proposes to shift the deductible range to si si d with starting point si depending on relevant risk characteristics of individual i in an empirical illustration we assume the optimal shift to be such that the variance in out of pocket expenditures is maximized results indicate that for the 10 percent highest risks in our data the optimal starting point of a 1000 deductible is to be found far beyond 1200 which corresponds with a deductible range of 1200 2200 or further we conclude that compared to traditional deductibles shifted deductibles with a risk adjusted starting point lower out of pocket expenditures and may further reduce moral hazard

selection on observed and unobserved variables assessing the effectiveness of catholic schools in this paper we measure the effect of catholic high school attendance on educational attainment and test scores because we do not have a good instrumental variable for catholic school attendance we develop new estimation methods based on the idea that the amount of selection on the observed explanatory variables in a model provides a guide to the amount of selection on the unobservables we also propose an informal way to assess selectivity bias based on measuring the ratio of selection on unobservables to selection on observables that would be required if one is to attribute the entire effect of catholic school attendance to selection bias we use our methods to estimate the effect of attending a catholic high school on a variety of outcomes our main conclusion is that catholic high schools substantially increase the probability of graduating from high school and more tentatively attending college we find little evidence of an effect on test scores

ordinary least squares and sample selection models of health care demand monte carlo comparison this article examines alternative econometric models for health care demand estimation the analysis compares the rand health insurance study two part model with sample selection model estimators in a monte carlo simulation experiment designed to approximate individual level health care demand conditions the underlying variable distributions are taken from cross sectional data for a swiss 1981 population survey three sets of error distribution assumptions are examined bivariate normal normal logistic and cauchy despite theoretical concerns with the two part model it outperforms the sample selection model in terms of mean squared error of parameter estimate

income distribution and consumer demand for health services the case of prescribed medicines in the usa the relationship between pharmaceutical expenditures and income is analysed for a sample of 7981 patients insured with a private plan extracted from the american national medical expenditures survey the influence of factors such as health status characteristics of group versus nongroup health plans and job stability profile on the income effect in the use of prescribed medicine is investigated it is found that the effect of income on pharmaceutical consumption is negative probably clinical and epidemiological factors as well as economic factors are taken into account in a measure such as income different income groups reflect therefore different patterns of use of pharmaceutical services the income effect is larger in the case of group plans than nongroup plans for patients with a poor health status the positive effect of health insurance on the remaining disposable income seems to lead to positive income effect on pharmaceutical use finally a positive income effect on drug use is observed for p

exchange rate dynamics under state contingent stochastic process switching this paper offers a closed form solution of a process switching problem i e switching the exchange rate regime from free floating to a completely fixed one an example of such regime change is the adoption of the euro in contrast to previous studies on the subject this paper analyzes a specific case when foreign exchange market participants consider both the euro locking rate and locking date as uncertain preceding the locking the exchange rate is determined by three factors fundamental market expectations for the euro locking rate and date the model is used to examine the conditions under which the exchange rate volatility is mitigated by the prospect of locking

stochastic process switching and the return to gold 1925 the authors analyze and estimate the effect on the dollar sterling exchange rate in the early 1920s of anticipations of the return to the gold standard at prewar parity in the united kingdom these measures are consistent with a class of models of the exchange rate that includes a version of the monetary model and with any fundamentals that follow a random walk with drift contrary to some contemporary views the appreciation of sterling prior to april 1925 appears to have been due to fundamentals such as restrictive monetary policy rather than to the expectation of a change in regime copyright 1990 by royal economic society

academic probation student performance and strategic course taking we use a regression discontinuity design to study how academic probation affects outcomes and course taking behaviors at a large public university in the united states consistent with past work students placed on probation improve their grade point average gpa in the subsequent semester we document that part of this gpa improvement is attributable to strategic course taking and there is significant heterogeneity in these behaviors across race non minority students placed on probation attempt fewer credits easier courses and are more likely to withdraw from courses in the following term in contrast underrepresented minorities exhibit few of these behaviors consistent with past work that suggests black and hispanic students are less likely to possess helpful institutional knowledge and use available support systems such as academic counseling jel i20 i23

alternative models of choice under uncertainty and demand for health insurance the authors test a standard expected utility model and alternative models about how people evaluate risky prospects using data about individuals preferences among health insurance plans a model that assumes people evaluate gains and losses relative to a reference rather than final outcomes treat gains and losses asymmetrically and process certain and uncertain outcomes separately provides a better fit than the standard utility model these findings suggest inertia in health insurance plan choice and that individuals are more responsive to decreases than to increases in the price of insurance copyright 1996 by mit press

health insurance and the demand for medical care evidence from a randomized experiment we estimate how cost sharing the portion of the bill the patient pays affects the demand for medical services the data come from a randomized experiment a catastrophic insurance plan reduces expenditures 31 percent relative to zero out of pocket price the price elasticity is approximately 0 2 we reject the hypothesis that less favorable coverage of outpatient services increases total expenditure for example by deterring preventive care or inducing hospitalization

dynamics of the exchange rate in anticipation of pegging abstract this paper studies an economy in which agents expect the current floating rate regime to be interrupted on a specific future date by a transitional fixed rate policy when the new peg is not revealed in advance the path of the floating rate in anticipation of pegging is determined by the interaction between what agents perceive to be the objectives and the constraints of the central bank the paper highlights the role of the pegging date the duration of the fixed rate interval the quantity of reserves available to the authorities and the nature of policies expected after pegging is terminated

speculative anticipations of sterling s return to gold was keynes wrong the view held by keynes that there was a speculative appreciation of sterling prior to its return to the gold standard has been challenged by gregor smith and todd smith who argue that expectations of return must have weakened the currency the authors demonstrate that the positive but decreasing trend displayed in the exchange rate data is consistent with a pattern of autoregressive convergence in fundamentals and that this continues to be true when there is a positive speculative element based on expectations of an early return hence the key features of the data seem compatible with keynes s views copyright 1994 by royal economic society

demand for medical care by the elderly a finite mixture approach summary in this article we develop a finite mixture negative binomial count model that accommodates unobserved heterogeneity in an intuitive and analytically tractable manner this model the standard negative binomial model and its hurdle extension are estimated for six measures of medical care demand by the elderly using a sample from the 1987 national medical expenditure survey the finite mixture model is preferred overall by statistical model selection criteria two points of support adequately describe the distribution of the unobserved heterogeneity suggesting two latent populations the healthy and the ill whose fitted distributions diaer substantially from each other 1997 by john wiley sons ltd

estimating the degree of interventionist policies in the run up to emu based on a theoretical monetary exchange rate model in continuous time this article establishes a sequential estimation framework which is capable of indicating central bank intervention in the run up to a currency union using daily pre european monetary union pre emu exchange rate data for the countries of the current euro zone we find mixed evidence of active pre emu intervention policies so called institutional frontloading strategies our estimation framework is highly relevant to economic and political agents operating in financial markets of the upcoming emu accession countries

on the effect of income and relative price on demand for health care ec evidence this paper demonstrates that the relative price of health care could be used to explain the conflicting results of the empirical studies which attempt to measure the income elasticity of demand our empirical results based on a conventional model and cross national data set for the ec show that whereas health care may be labelled as a luxury good the large income effect can be interpreted as merely offsetting the price effect

rational expectations econometric analysis of changes in regime an investigation of the term structure of interest rates abstract this paper is of interest both for its methodological contribution of new tools for analyzing rational expectations models and for its substantive conclusions concerning the term structure of interest rates during the monetary experiment of october 1979 the paper studies systems subject to changes in regime interpreted here as occasional discrete shifts in the parameters governing the time series behavior of exogenous economic variables the specification is shown to be quite tractable both theoretically and empirically the technique is used to analyze yields on three month treasury bills and ten year treasury bonds during 1962 to 1987 a constant parameter linear model for short term rates is shown to be inconsistent both with the univariate time series properties of short rates and with the observed bivariate relation between long and short rates under the expectations hypothesis of the term structure an alternative nonlinear model that admits the possibility of changes in regime affords a much better description of the univariate process for short rates moreover the cross equation restrictions implied by the expectations hypothesis of the term structure are consistent with the nonlinear specification indeed the residuals of the restricted relation have a standard error of only 0 8 basis points this is a third less than that of a completely unrestricted linear regression of long rates on short rates and compares with an unconditional standard deviation of long rates of 142 basis points i conclude that once the recognition by bond traders of changes in regime is taken into account the expectations hypothesis of the term structure of interest rates holds up fairly well for these data

exchange rate dynamics in anticipation of time contingent regime switching modelling the effects of a possible delay abstract the procedure of fixing a currently floating exchange rate at a given and publicly announced future date has a broad range of applications based on a continuous time monetary exchange rate model with flexible prices this paper analyzes exchange rate dynamics during the transition from floating to fixed rates in a situation in which market participants are uncertain about adherence to the fixing date and in which they take account of a possible delay in the regime switch the closed form solutions derived here allow us to quantify announcement effects as well as effects on the exchange rate variance caused by news that significantly changes the market s assessment of uncertainty

heaping induced bias in regression discontinuity designs heaping induced bias in rd designs this study uses monte carlo simulations to demonstrate that regression discontinuity designs arrive at biased estimates when attributes related to outcomes predict heaping in the running variable after showing that our usual diagnostics may not be well suited to identifying this type of problem we provide alternatives and then discuss the usefulness of different approaches to addressing the bias we then consider these issues in multiple non simulated environments

does regulation drive out competition in pharmaceutical markets abstract most countries regulate pharmaceutical prices either directly or indirectly on the assumption that competition is at best weak in this industry this paper tests the hypothesis that regulation of manufacturer prices and retail pharmacy margins undermines price competition we use data from seven countries for 1992 to examine price competition between generic competitors different manufacturers of the same compound and therapeutic substitutes similar compounds under different regulatory regimes we find that price competition between generic competitors is significant in unregulated or less regulated markets united states united kingdom canada and germany but that regulation undermines generic competition in strict regulatory systems france italy and japan regulation of retail pharmacy further constrains competition in france germany and italy regulation thus undermines the potential for significant savings on off patent drugs which account for a large and growing share of drug

setting health plan premiums to ensure efficient quality in health care minimum variance optimal risk adjustment abstract risk adjustment refers to the practice of paying health plans a premium per person or per family based on a formula using risk adjusters such as age or gender and weights on those adjusters one role of risk adjustment is to make sure plans have an incentive to accept all potential enrollees another role at least as important in our view is to lead health plans to choose the efficient level of quality of care for the various services they offer most of the research and policy literature on risk adjustment focuses on the first problem this paper proposes a new way to calculate weights in a risk adjustment formula that contends with both problems for a given set of adjusters we identify the weights that minimize the variance in plan predictable health care costs that are not explained by risk adjustment addressing the access problem subject to the payments satisfying conditions for an optimal risk adjuster making sure plans provide the efficient quality we call the formula minimum variance optimal risk adjustment mvora

on biases in the measurement of foreign exchange risk premiums abstract the hypothesis that the forward rate is an unbiased predictor of the future spot rate has been consistently rejected in recent empirical studies this paper examines several sources of measurement error and misspecification that might induce biases in such studies although previous inferences are shown to be robust to a failure to construct true returns and to omitted variable bias arising from conditional heteroskedasticity in spot rates we show that the parameters were not stable over the 1975 89 sample period estimation that allows for endogenous regime shifts in the parameters demonstrates that deviations from unbiasedness were more severe in the 1980s jel f31

real exchange rates and switching regimes abstract we suggest that the real exchange rate between the major currencies in the post bretton woods period can be described by a stationary 2 state markov switching ar 1 model based on the forecast performance we find that this model outperforms two competing models where the real exchange rate is nonstationary we also find that the existence of different regimes as in the markov switching model is consistent with the common finding of unit roots in real exchange rates

ageing chronic conditions and the evolution of future drugs expenditure a five year micro simulation from 2004 to 2029 the healthy ageing assumptions may lead to substantial changes in paths of aggregate health care expenditure notably catastrophic expenditure of people at the end of the life but clear assessments of involved amounts are not available when we specifically consider ambulatory care as drug expenditure generally offered to chronically ill people we estimate the effects of epidemiological and life expectancy changes on french health expenditure until 2029 by applying a markovian micro simulation model from a nationally representative database the originality of these simulations holds in using an aggregate indicator of morbidity mortality capturing vital risk and making it possible to adapt the quantification of life expectancies by taking into account the presence of severe chronic pathologies we forecast future national drugs expenditure under different epidemiological scenarios of chronic morbidity trend scenario healthy ageing scenario and medical progress scenario for the population aged 25

price and welfare effects of a pharmaceutical substitution reform the price effects of the swedish pharmaceutical substitution reform are analyzed using data for a panel of all pharmaceutical product sold in sweden in 1997 2007 the price reduction due to the reform was estimated to average 10 and was found to be significantly larger for brand name pharmaceuticals than for generics the results also imply that the reform amplified the effect that generic entry has on brand name prices by a factor of 10 results of a demand estimation imply that the price reductions increased total pharmaceutical consumption by 8 and consumer welfare by sek 2 7 billion annually

grade inflation and course choice a conflict exists between the incentives offered to students and the institutional goal of increased science and math education students make their course choices in response to a powerful set of incentives grades these incentives have been systematically distorted by the grade inflation of the past 25 years as a consequence of inflation many universities have split into high and low grading departments economics along with chemistry and math tends to be low grading art english philosophy psychology and political science tend to be high grading this paper presents evidence from nine colleges and universities that grade inflation has led to a divergence among departments in grading policies we then discuss the results of an econometric study we conducted at williams college of the influence of grading policies on course choice the impact that differences in grading policies across departments have on the distribution of enrollments was also estimated and policy implications of the findings are discussed

the potential impact of tobacco biopharming the case of human serum albumin biopharming stands to significantly expand the uses of many agricultural crops this article examines the potential size and distribution of welfare gains from biopharming transgenic tobacco as a source of human serum albumin hsa using an economic surplus model under imperfect competition the results suggest that hsa from transgenic tobacco will generate annual profits for the innovating firm of between 25 million and 49 million on the other hand consumers are unlikely to benefit during the patent life of the product given the innovator s market power

household use of agricultural chemicals for soil pest management and own labor for yard work in spite of its potential health and environmental risks and contribution to agribusiness the use of agricultural chemicals for yard care has not been well studied in our discrete continuous choice model estimated with data from a national survey a household chooses how much money if any to initially spend on types of agricultural chemicals and applicators and how much time to subsequently spend on other yard work households in big cities or with large gardens are more likely to use organic chemicals the probability that a household chooses a mix of do it yourself and hired applications of synthetic chemicals increases with income age and the presence of preschoolers among households that apply only synthetic chemicals without hired help those with young children with higher incomes in big cities and with male heads spend more on the chemicals the time that such households spend on other yard work increases with expenditures on the chemicals cancellation of a pesticide registration might create an extra private cost for households with young children even though the ban might reduce external costs

on the determination of the us aggregate health care expenditure per capita real health care expenditure is examined against three major groups of explanatory variables economic demographic and health stock and it is found that the three groups of variables have an impact on real health care spending other subcategories such as real private and government health care pharmaceutical dental home nursing ambulatory personal medical consumption and in patient expenditures have also been examined and have been found to be affected by the explanatory variables for several subcomponents there is evidence of supplier inducement of the demographic group of variables the ageing population had an impact only on the per capita real overall and private health care outlay and pharmaceutical spending also cointegrating relationships were found and consistent estimators of the elasticities found

higher cognitive ability is associated with lower entries in a p beauty contest abstract beauty contests are well studied dominance solvable games that generate two interesting results first most behavior does not conform to the unique nash equilibrium second there is considerable unexplained heterogeneity in behavior in this work we explore the relationship between beauty contest behavior and cognitive ability we find that subjects with high cognitive ability exhibit behavior that is closer to the nash equilibrium

the threat of cream skimming in the post reform nhs the allocation of budgets to general practitioners to enable them to purchase selected hospital services has been one of the most imaginative elements of the recent national health service reforms in britain however reliance on historic costs budgeting has weakened the efficiency incentives of fund holding while perpetuating the large variations in resource use endemic in general practice on the other hand policy changes aimed to introduce elements of capitation funding although welcome raise the spectre of cream skimming the paper explores the potential for protection against cream skimming offered by incorporating chronic health factors into the formula

a causal interpretation of extensive and intensive margin effects in generalized tobit models the usual decomposition of effects in corner solution models into extensive and intensive margins is generally incompatible with a causal interpretation this paper proposes a decomposition based on the joint distribution of potential outcomes which is meaningful in a causal sense the difference between decompositions can be substantial and yield diametrically opposed results as shown in a standard tobit model example in a generalized tobit application exploring the effect of reducing firm entry regulation on bilateral trade flows between countries estimates suggest that using the usual decomposition would overstate the contribution of the extensive margin by around 15

private insurance subsidies and public health care markets evidence from canada in this study i examine the effects of government subsidies to employer provided health insurance on the decision to purchase insurance and on utilization of publicly funded health services using unique variation in tax subsidies across canadian provinces as an instrument i estimate the effects of these subsidies on the demand for supplemental health insurance and their extended effects on the decision to use publicly funded health services my results show that government subsidies through tax exemptions have significant effects on the decision to purchase insurance furthermore additional insurance policies lead to moral hazard in the use of publicly funded health services jel classification h2 h4 11

a markov model of switching regime arch in this article i present a new approach to model more realistically the variability of financial time series i develop a markov arch model that incorporates the features of both hamilton s switching regime model and engle s autoregressive conditional heteroscedasticity arch model to examine the issue of volatility persistence in the monthly excess returns of the three month treasury bill the issue can be resolved by taking into account occasional shifts in the asymptotic variance of the markov arch process that cause the spurious persistence of the volatility process i identify two periods during which there is a regime shift the 1974 2 1974 8 period associated with the oil shock and the 1979 9 1982 8 period associated with the federal reserve s policy change the variance approached asymptotically in these two episodes is more than 10 times as high as the asymptotic variance for the remainder of the sample i conclude that regime shifts have a greater impact on the properties of the data and i ca

a model of exchange rate dynamics this model treats the exchange rate as an asset price that depends on expectations concerning exogenous real and monetary factors that will affect relative prices and absolute price levels in future periods changes in exchange rates reflect both expected changes in these exogenous factors and changes in expectations occasioned by new information the model explains the random component in exchange rate behavior the source of divergences from purchasing power parity the anticipatory response of exchange rates to future expected disturbances and the causes of exchange rate overshooting

equilibrium exchange rates in transition economies taking stock of the issues in this paper we present an overview of a number of issues relating to the equilibrium exchange rates of transition economies of the former soviet bloc in particular we present a critical overview of the various methods available for calculating equilibrium exchange rates and discuss how useful they are likely to be for the transition economies amongst our findings is the result that the trend appreciation usually observed for the exchange rates of these economies is affected by factors other than the usual balassa samuelson effect such as the behaviour of the real exchange rate of the open sector and regulated prices we then consider three main sources of uncertainty relating to the implementation of an equilibrium exchange rate model namely differences in the theoretical underpinnings differences in the econometric estimation techniques and differences relating to the time series and cross sectional dimensions of the data the ensuing three dimensional space of real misalignments is probably a useful tool in determining the direction of a possible misalignment rather than its precise size copyright blackwell publishers ltd 2006

a comparison of alternative models for the demand for medical care we have tested alternative models of the demand for medical care using experimental data the estimated response of demand to insurance plan is sensitive to the model used we therefore use a split sample analysis and find that a model that more closely approximates distributional assumptions and uses a nonparametric retransformation factor performs better in terms of mean squared forecast error simpler models are inferior either because they are not robust to outliers e g anova anocova or because they are inconsistent when strong distributional assumptions are violated e g a two parameter box cox transformation

fundamentals uncertainty bubbles and exchange rate dynamics abstract using a monetary model of exchange rate determination we study exchange rate dynamics with bubbles which depend on stochastic market fundamentals these dynamics can be either stochastically stable or unstable and either monotonic or non monotonic including cyclic in an extreme case they converge with probability one and exhibit cyclic movements implications for the analysis of time dependent regime shifts are also explored exchange rates with bubbles are likely to appear less volatile than the fundamentals in finite samples both the variance bounds and cointegration tests might thus be ineffective in testing the absence of bubbles under fundamentals uncertainty

exchange rate discounting abstract economists often describe nominal exchange rates as forward looking so that they reflect discounted expected future fundamentals this study applies a method for identifying the discount rate involved without knowing or measuring fundamentals identification arises from assumptions on the stochastic process followed by fundamentals combined with non linearity arising from expected future regime changes two applications yield evidence against the present value model in the form of discount rates which are negative and statistically significant

the term structure of interest rate differentials in a target zone theory and swedish data abstract the term structure of interest rate differentials is derived in a model of a small open economy with a target zone exchange rate regime for given time to maturity the interest rate differential is decreasing in the exchange rate and for given exchange rate the interest rate differential s absolute value and its instantaneous variability are both decreasing in the time to maturity devaluation realignment risks are incorporated and imply upward shifts of the interest rate differentials several implications of the theory are found to be broadly consistent with data on swedish exchange rates and interest differentials for the period 1986 1989

the heckman correction for sample selection and its critique this paper gives a short overview of monte carlo studies on the usefulness of heckman s 1976 1979 two step estimator for estimating selection models such models occur frequently in empirical work especially in microeconometrics when estimating wage equations or consumer expenditures it is shown that exploratory work to check for collinearity problems is strongly recommended before deciding on which estimator to apply in the absence of collinearity problems the full information maximum likelihood estimator is preferable to the limited information two step method of heckman although the latter also gives reasonable results if however collinearity problems prevail subsample ols or the two part model is the most robust amongst the simple to calculate estimators

transition probabilities in a problem of stochastic process switching extant solutions for state contingent process switching use first passage time densities or differential equations we alternatively employ transition probabilities these conditional likelihood functions also have obvious appeal for econometric analyses as well as derivative pricing and decision making under absorption and extinction