testing intertemporal budget constraints theory and applications to u s federal budget and current account deficits this paper extends previous tests of intertemporal budget balance and present value relationships by expanding the set of allowable deficit processes and by deriving a testable condition that is sufficient to ensure intertemporal budget balance as long as the expected discount rate is strictly positive using these tests the authors find that both the postwar federal budget deficit process and the process governing accumulation of u s assets by foreigners are consistent with intertemporal budget balance copyright 1991 by ohio state university press

sustainability of current account deficits in india an intertemporal perspective this study examines the sustainability of current account deficits cads and the validity of intertemporal budget constraint ibc in india the long run model is estimated on annual data for the period 1950 1951 to 2009 2010 the optimal single equation and maximum likelihood ml system estimates of the model provide a consistent support for the long run relationship between imports and exports the olsgh estimates provide no support and that ml system estimates a consistent support for cointegration in both the models estimated with one and two structural breaks in level the new cointegration breakdown tests generally suggest that the cointegration prevails from 1951 to 2010 the evidence supporting the cointegration between imports and exports overwhelms the evidence providing a mixed or no support for cointegration the estimates of slope parameter above zero and the dominant support for cointegration between imports and exports vindicate the validity of ibc and the sustainability of cads the shor

common trends the government s budget constraint and revenue smoothing abstract the requirement that the government s budget be balanced in present value terms is shown to be equivalent to the condition that government expenditures inclusive of interest tax receipts and seignorage be cointegrated the condition is in fact stronger requiring that the deficit inclusive of interest be stationary stationarity of the net of interest deficit is neither necessary nor sufficient for intertemporal budget balance however it does have implications for barro s tax smoothing hypothesis data for the period 1890 1986 are consistent with intertemporal budget balance but not with tax smoothing

detecting periodically collapsing bubbles a markov switching unit root test this paper addresses the problem of testing for the presence of a stochastic bubble in a time series in the case that the bubble is periodically collapsing so that the asset price keeps returning to the level implied by the market fundamentals as this is essentially a problem of identifying the collapsing periods from the expanding ones we propose using a generalization of the dickey fuller test procedure which makes use of the class of markov regime switching models the potential of the new methodology is illustrated via simulation and an empirical example is given copyright 1999 john wiley sons ltd

the u s evidence on optimal taxation over time abstract this paper considers a tax rule in which a uniform tax rate over time becomes optimal its implications are that 1 changes in the tax rate should arise only when there are changes in permanent government expenditures and 2 no variable other than permanent government expenditures should be of any value in predicting the tax rate these implications are tested using u s data for 1937 82 empirical results of the tests reveal that in addition to responding to permanent government expenditures the tax rate also responds to temporary defense purchases the general price level and a time trend

strong sustainability critical natural capital and the capability approach this article is an attempt to conceptually improve the notion of strong sustainability by creating a rapprochement between its core concept critical natural capital and the capability approach we first demonstrate that the capability approach constitutes a relevant framework for analysing the multiple links between human well being and critical natural capital second we demonstrate that the rapprochement between critical natural capital and the capability approach can form both the normative basis and the informational basis for a deliberative approach to human development which embraces a strong sustainability perspective this conceptual rapprochement as illustrated in our case study opens up avenues of research towards the practical implementation of human development projects from a strong sustainability perspective

assessing long term fiscal developments a new approach abstract we use a new approach to assess long term fiscal developments by analyzing the time varying behaviour of the two components of government spending and revenue responsiveness and persistence a feature not captured by automatic stabilisers we are able to infer about the sources of fiscal deterioration improvement drawing on quarterly data we estimate recursively these components within a system of government revenue and spending equations using a three stage least square method for eight european union countries plus the us the results suggest that significant changes in the fiscal stance including those related to the current crisis are reflected in the estimates of persistence and responsiveness

more than total economic value how to combine economic valuation of biodiversity with ecological resilience abstract the assessment of total economic value has become a pragmatic and popular approach in nature valuation yet criticisms have been raised one major point of critique is that total economic value bases the monetary value of ecosystems purely on the flow of human benefits of services of ecosystems and consequently ignores questions of sustainable use of natural capital per se this paper explains why total economic value by itself is in principle an inadequate concept to guide sustainable use of ecosystems and gives an overview of essential ecological theory that needs to be taken into account in addition to total economic value to fully include ecosystem sustainability the paper concludes with a framework for combining ecological theory with economic valuation the key elements here are theoretical ecological insights about ecosystem resilience and portfolio theory which offers an economic perspective on investment in biodiversity portfolio theory puts total economic value in a framework where investment in biodiversity is expanded to cover functional diversity and mobile link species in order to maintain ecosystem resilience and so fosters sustainable use of ecosystems

stabilization policies in open economies with imperfect current information abstract in an open economy with perfect capital mobility the exchange rate and the interest rate may convey different information about current shocks in a model with one period wage contracts we explore the information content of the financial signals along with the optimal stabilization policy and how the two may be related some self fulfilling properties of the information structure are encountered and it is shown that the market clearing level of outputs is generally obtainable while full information output may only be obtained in special cases where it is a necessary condition that the agents believe the signals are informationally different

current account sustainability in the us what did we really know about it abstract we analyze the sustainability of the us current account ca deficit by means of unit root tests first we argue that there are several reasons to believe that the ca may follow a non linear mean reversion behavior under the null of stationarity using a non linear estar model we can reject the null of non stationarity favoring the sustainability hypothesis second we ask whether unit root tests are a useful indicator of sustainability by comparing in sample results for the 1960 2004 period to the developments observed up to the end of 2008 we find that the non linear model outperforms the linear and random walk models in terms of forecast performance the large shocks to the ca observed in the last five years induced a faster speed of mean reversion ensuring the necessary adjustment to meet the inter temporal budget constraint

building the consensus the moral space of earth measurement abstract we chart the moral space of earth measurement with the aim to develop practical tools to evaluate and improve earth measurement frameworks including environmental economic accounting and ecosystem services based on a survey of environmental ethics we develop four concepts that are fundamentally important to fostering agreement in debates over earth measurement frameworks among stakeholders with diverging belief systems the four concepts can thus be used as criteria to evaluate the completeness and defensibility of existing measurement frameworks the first two concepts the consideration of broad human values and long time frames follow the landmark work by bryan norton we further propose the adoption of the capital approach and precaution as the third and fourth concept respectively we conclude with suggestions for how current frameworks could be rendered more complete defensible and internationally acceptable

existence value and intrinsic value abstract in this paper the concept of existence value is related to the notion of intrinsic value current in environmental ethics the methods employed to measure existence value are discussed and thus the question is investigated as to whether these methods are a satisfactory means of taking non use value into account in practical decision making in particular i argue against jonathan aldred that not all bearers of intrinsic value satisfy his definition of existence value plausible counter examples include undiscovered and future bearers of such value section 2 i also raise difficulties for the two proposed measures of existence value willingness to pay and willingness to accept section 3 finally i conclude in section 4 that to base decision making on the valuations of valuers in a free market fails to give value its due a method is instead needed which unlike those associated with existence value more directly takes into account and weighs up the good or the interests of future human beings and of nonhuman entities

differential information and the role for an active stabilization policy the paper considers the possibility of pursuing a systematic monetary policy to overcome the coordination problems arising when agents have differential information it is shown that a monetary feedback rule involving current feedback but no prospective feedback can eliminate the information problem making the implications of the differential information immaterial for real allocations the paper also considers a private indexation scheme as a substitute for monetary policy and it is shown that these differ since indexation on currently known variables is neutral indexation of a prospective nature is however equivalent to a prospective feedback to the money supply

are bond financed deficits inflationary a ricardian analysis this paper considers the possible theoretical validity of the following monetarist hypothesis that a constant positive government budget deficit can be maintained permanently and without inflation if it is financed by the issue of bonds rather than money the question is studied in a discrete time perfect foresight version of the competitive equilibrium model of sidrauski modified by the inclusion of government bonds as a third asset it is shown that the monetarist hypothesis is invalid if the deficit is defined exclusive of interest payments but that it is valid under the conventional definition it is also shown that the stock of bonds can grow indefinitely at a rate in excess of the rate of output growth provided that the difference is less than the rate of time preference these formal conclusions do not take account of possible limitations on taxing capacity arising from default incentives that tend to grow with the stock of bonds

payments for ecosystem services as commodity fetishism abstract payments for ecosystem services pes economically reward resource managers for the provision of ecosystem services and are thus characterised by i an ecological function subject to trade ii the establishment of a standard unit of exchange iii and supply demand and intermediation flows between those who sell and buy ecosystem services this paper departs from the term commodity fetishism broadly understood as the masking of the social relationships underlying the process of production to illuminate three invisibilities in the commodification of ecosystem services firstly we argue that narrowing down the complexity of ecosystems to a single service has serious technical difficulties and ethical implications on the way we relate to and perceive nature secondly the commodification of ecosystem services denies the multiplicity of values which can be attributed to these services since it requires that a single exchange value is adopted for trading finally we suggest that the process of production exchange and consumption of ecosystem services is characterised by power asymmetries which may contribute to reproducing rather than addressing existing inequalities in the access to natural resources and services

on the limitations of government borrowing a framework for empiricaltesting this paper seeks to distinguish empirically between two views on the limitations of government borrowing according to one view nothing precludes the government from running a permanent budget deficit paying interest due on the growing debt load simply by issuing new debt an alternative perspective holds that creditors would be unwilling to purchase government debt unless the government made a credible commitment to balance its budget in present value terms we show that distinguishing between these possibilities is mathematically equivalent to testing whether a continuing currency inflation might be fueled by speculation alone or is instead driven solely by economic fundamentals empirical tests which have been developed for this economic question lead us to conclude that postwar u s deficits are largely consistent with the proposition that the government budget must be balanced in present value terms this abstract was borrowed from another version of this item

critical natural capital revisited ecological resilience and sustainable development abstract the maintenance of critical natural capital is an important objective of sustainable development critical natural capital represents a multidimensional concept as it mirrors the different frameworks of various scientific disciplines and social groups in valuing nature this article revisits the concept of critical natural capital and examines its relation to the concept of ecological resilience i propose that ecological resilience can help a great deal in specifying the ecological criticality of specific renewable parts of the natural capital more specifically i suggest that the degree of ecological resilience is inversely related to the degree of threat ecosystems are prone to the concept of ecological resilience may complement other measures such as integrity or vulnerability in estimating the degree of threat specific ecosystems are exposed to the empirical estimates of ecological resilience add a further criterion in order to build a comprehensive and clear conception of critical natural capital

markov switching models and the unit root hypothesis in real us gdp abstract i find that real us gdp is better characterized as a trend stationary markov switching process than as having a regime dependent unit root i examine the effects of both assumptions on the analysis of business cycle features and their implications for the persistence of the dynamic response of output to a random disturbance

effective demand differential information and the multiplier the paper develops a rigorous model of the interaction between employment income and demand it is shown that when agents are differently informed about the income generated in the economy aggregate demand shocks create a keynesian type unemployment moreover the model explains nominal wage price stickiness and a multiplier effect so as to imply that a larger burden of adjustment is taken by quantities rather than prices copyright 1987 by royal economic society

a century of current account dynamics abstract recent globalization trends have refocused attention on the historical evolution of international capital mobility over the long run the issue is examined here using time series analysis of current account dynamics for fifteen countries since circa 1850 the inter war period emerges as an era of low capital mobility and only recently can we observe a tentative return to the degree of capital mobility witnessed during the late nineteenth century the analysis of saving and investment dynamics also helps make sense of the frequently observed high correlation of saving and investment rates in historical data

intertemporal substitution and the role of monetary policy new classical macroeconomists have asserted that once one ignores the consequences of sustained expected inflation or what is normally referred to as the tobin effect or inflation tax monetary policy is invariably ineffective both in the long and short run this view is not correct it will be shown that inflation tax free monetary policy rules can have strong stabilisation effects in rational expectations models with intertemporal substitution the best way to eliminate possible inflation tax effects of monetary growth is to assume that as in barro s i976 model the long run expected rate of growth of the money supply is zero more generally if one were concerned exclusively with the effectiveness of stabilisation policy in the new classical sense i e the capability of influencing deviations of actual equilibrium output from its full information level it would be sufficient to postulate that money transfers are simply proportional to pre existing money holdings the a priori exclusion of the tobin effect as a pre requisite for the new classical doctrine is clearly stated in lucas i98i

rational expectations and the role of countercyclical monetary policy the potential role for systematic monetary policy to dampen fluctuations around the natural rate is examined in barro s 1976 model the source of the non neutrality is the effect of nonpermanent changes in the money supply on the inflation rate the real return to money which induces labor leisure substitutions when these non permanent changes take the form of future reactions to imperfectly perceived current disturbances they affect the deviation from the natural rate

on the relation between ecosystem services intrinsic value existence value and economic valuation various attempts have been made to amalgamate the concepts of intrinsic value and ecosystem services often with a stop over at the economic concept of existence value these attempts are based on a confusion of concepts however in this article two types of non use values are distinguished warm glow value related to the satisfaction people may derive from altruism towards nature and existence value related to the satisfaction people may derive from the mere knowledge that nature exists and originating in the human need for self transcendence as benefits to humans warm glow and existence values can be considered ecosystem services neither warm glow value nor existence value represents benefits to nature itself however intrinsic value lies outside the scope of the wide palette of ecosystem services although the concept of ecosystem services does not cover benefits to nature and the intrinsic value of such benefits intrinsic value is not necessarily incompatible with economic valuation although a deontological ethics does not allow economic valuation of nature as an end in itself consequentialism does in consequentialism however intrinsic value is not attributed to nature itself but to benefits to nature these benefits can be economically valued on the basis of benefit transfer

us deficit sustainability a new approach based on multiple endogenous breaks recent empirical work has questioned the consistency of us fiscal policy with an intertemporal budget constraint empirical results have tended to indicate that the deficit process has undergone at least one structural shift during recent decades with the deficit becoming either unsustainable or sustainable in only a weak sense in the post shift period in this paper we re examine sustainability using a new approach based on a cointegration model with multiple endogenous breaks a bayesian methodology is applied incorporating markov chain monte carlo simulators in contrast to previous analyses we find evidence of a sustainable deficit process over the 1947 1992 period despite the occurrence of breaks during the 1970s and 1980s copyright 2000 john wiley sons ltd

public debt in brazil sustentability and its implications abstract this paper tests sustainability of brazilian public debt in the period 1991 to 2009 and analyzes implications of requiring that the brazilian fiscal policy be primarily committed to the sustainability of the public debt the retrospective analysis utilizes a set of unit root tests and avoids some of the criticism leveled at previous studies by using data which has not previously been used for this purpose and concludes that the public debt was sustainable in the period we consider the prospective analysis is based on the dsge model proposed by jodi gali et al 2007 calibrated for brazil using the conclusions of the retrospective analysis for the fiscal parameters the scenarios produced with the help of the model show that maintaining the sustainability of the public debt is consistent with the monetary policy of inflation targeting we also conclude that it is possible to reduce interest rates to levels below those prevalent at the end of 2010 simultaneously maintaining the stability of the trajectory of the public debt

are stationarity and cointegration restrictions really necessary for the intertemporal budget constraint abstract time series related to fiscal and external deficits are commonly subjected to stationarity and cointegration tests to assess if the deficits are sustainable such tests are incapable of rejecting sustainability the intertemporal budget constraint proves to be satisfied if either the debt series or the revenue and with interest spending series are integrated of arbitrarily high order i e stationary after differencing arbitrarily often revenues and spending do not have to be cointegrated rejections of low order difference stationarity and of cointegration are thus consistent with the intertemporal budget constraint error correction type policy reaction functions are suggested as more promising for understanding deficit problems

monetary policy and the information content of prices rational expectations and cleared markets lead to the proposition that feedback monetary policy is irrelevant to real activity as in the analyses of sargent and wallace however if agents are differentially informed and have access to a common price then prospective monetary policy actions future feedback to imperfectly known current circumstances can alter real activity by changing the information content of prices

importance and threat as determining factors for criticality of natural capital abstract an important issue in the debate about the use and conservation of natural ecosystems is the degree to which these ecosystems and their functions should be considered critical this paper presents some guidelines to determine the criticality of natural capital based on two main criteria the first criterion is the importance of natural ecosystems ecological socio cultural and economic and the second is the degree of threat based on the quantity and quality of the remaining natural areas in a given region it is argued that the two criteria are complementary and need to be taken into account simultaneously when determining the criticality of natural capital finally the paper presents and discusses some possibilities for the development of a critical natural capital index for europe

an investigation of ricardian equivalence in a common trends model abstract to empirically discriminate between ricardian and non ricardian behaviour we have to use a method that distinguishes between expected and unexpected as well as permanent and transitory changes in taxes and government consumption one method that provides these distinctions between different types of changes is the common trends framework used in this paper which is a var model with cointegrating constraints in the empirical study of us data there is some support for the ricardian hypothesis but there are also some deviations from its predictions however the differences do not lend support to a keynesian view of budget deficits but rather to the view of expansionary fiscal contractions this can be motivated theoretically by uncertainty about future taxes in combination with prudent households

assessing the sustainability of external imbalances in the european union we assess the sustainability of the current account ca balance net international investment position niip and net external debt ned in a sample of 22 eu countries using two complementary approaches first we employ time series stationarity tests of current account balance to gdp ratios as well as cointegration tests of exports and imports of goods and services second we assess the level of trade balance that stabilises the niip and the ned we find that there is sustainability of the ca balance in eight countries niip in five countries and ned in 10 countries whereas there is evidence of a lack of sustainability in five debtor nations and three creditor nations both approaches are consistent with each other given the relationship between flows and stocks the existence of structural breaks and valuation effects via exchange rate and interest rate changes

heterogeneous information and the theory of the business cycle the inability to observe the money supply and price level has been an essential ingredient of informational based equilibrium models of cycles here we assume these data are available but show that heterogeneous information about the productivity of capital can lead to a monetary theory of fluctuations in equilibrium each agent s investment depends on the difference between his own productivity and the perceived real rate in the presence of money demand shocks the nominal rate is noisy signal of the real rate this leads to greater fluctuations in output than if all agents had the same information

red signals current account deficits and sustainability abstract this paper proposes a method to asses the potential problems of sustainability of a country s sovereign debt we claim that the relevant variables used for this analysis are typically subject to changes that are associated with changes in macroeconomics policies we propose a procedure for identifying periods under which the current account accumulates at a non stationary rate our approach is based on imposing identifying restrictions on markov switching type models empirical applications of the procedure to argentina brazil japan uk and usa are examined and discussed

the tax smoothing hypothesis evidence from sweden 1952 1999 this paper tests barro s 1979 tax smoothing hypothesis using swedish central government data for the period 1952 1999 according to the tax smoothing hypothesis the government sets the budget surplus equal to expected changes in government expenditure when expenditure is expected to increase the government runs a budget surplus and when expenditure is expected to fall the government runs a budget deficit the empirical evidence suggests that the model provides a useful benchmark and that tax smoothing behavior can explain about 60 percent of the variability in the swedish central government budget surplus