aspects of labor market adjustments in japan this article discusses some aspects of labor market adjustments in japan that may be relevant to the low unemployment rate there japanese statistics treat kyugyosha persons not at work as being employed but some of these workers would be counted as unemployed in the united states the kyugyosha group appears to increase in size during downturns and decreases during upturns suggesting that temporarily laid off persons are an important part of this group japanese employers evidently rely less on employment adjustments and more on adjustments in hours of work and inventory while employers in the united states rely more on employment adjustments to deal with cyclical changes in product demand japanese manufacturing employment became less sensitive and hours of work more sensitive to demand shocks after the introduction of the employment insurance law in 1975

an empirical study on taiwan s current account 1961 90 in this paper a simple intertemporal current account model is developed for a small open economy with imperfect capital markets the model nests both perfect and imperfect international capital mobilities as its special cases the model is empirically examined using taiwan s annual data for the period between 1961 and 1990 our results show that the model is able to explain some historical movements of taiwan s trade balance however in contrast to many findings from previous studies for other countries the model is rejected one important feature of the rejection of the model is that the actual trade balance series is much more volatile than can be explained by the model this is especially so for the periods when world oil shocks occurred these results indicates that changes in the terms of trade which our simple model neglects might be important factors in taiwan s current determination

linear adjustment costs and seasonal labor demand evidence from retail trade firms standard models of dynamic labor demand rely on the presence of adjustment costs to explain the observed smoothness in employment patterns although the costs are often difficult to quantify the experience rating feature of the u s unemployment insurance ui system provides a measurable linear cost of adjustment using a unique data set with administrative data on over 8000 firms i estimate the effect of a ui induced linear adjustment cost on seasonal labor demand in retail trade i find strong support for the large role of adjustment costs in reducing the employment response of firms to seasonal fluctuations in demand

planning under incomplete information and the ratchet effect abstract central planning of production is usually performed under asymmetric information the firm in general has more information about its productive possibilities than the central planner from now on for short cp this justifies the use of incentives schemes in which the cp does not directly fix activity levels casual observation of such existing schemes suggests that the time dimensions is crucial for their working typically the cp revises the incentive scheme over time to take into account the information provided by the firm s performance managers of centrally planned economies as well as economists have long recognized that this revision induces firms to underproduce in order to avoid demanding schemes in the future this is the ratchet effect it is purpose of the present paper to study the ratchet effect under the non commitment assumption which we believe to be more realistic the inadequacy of conceptual tools made if difficult in the past to consider such an assumption now basic research on dynamic games with incomplete information recently resulted in new ideas which look particularly relevant for a theoretical analysis of the problem

comparing consumption based asset pricing models we make use of a recently developed method to estimate the intertemporal mar ginal rate of substitution consistent with the fluctuations of asset return data from the toronto stock exchange these estimates are then used to evaluate various parametric specifications for preferences often used in empirical studies of consumption and asset returns in contrast to existing studies we are able to perform a formal statistical comparison of these models we consider six extensions of the usual power utility model and we find that none can be said to be a demonstrable improvement on the standard model

markups aggregation and inventory adjustment in this paper i suggest a unified explanation for two puzzles in the inventory literature first estimates of inventory speeds of adjustment in aggregate data are very small relative to the apparent rapid reaction of stocks to unanticipated variations in sales second estimates of inventory speeds of adjustment in firm level data are significantly higher than in aggregate data the paper develops a multisector model where inventories are held to avoid stockouts and price markups vary along the business cycle the omission of countercyclical markup variations from inventory targets introduces a downward bias in estimates of adjustment speeds obtained from partial adjustment models when the cyclicality of markups differs across sectors this downward bias is shown to be more severe with aggregate rather than firm level data similar results apply not only to inventories but also to labor and prices montercarlo simulations of a calibrated version of the model suggest that these biases are quantitatively significant

u s fiscal policy and trade deficits a broad perspective the emergence of large government budget deficits and large international trade deficits stands out as the dominant feature of u s macroeconomic behavior since the early 1980s economists trained in the traditional keynesian theory have pointed to the budget deficit as the major cause of the trade deficit according to the mundell fleming model changes in the budget deficit trigger changes in the real interest rate the real exchange rate and the level of real income which in turn alter the trade balance others believing in the real world relevance of the ricardian equivalence proposition have argued that the deficits are not really twins but merely distant cousins if not entirely unrelated if ricardian equivalence holds shifts between taxes and borrowing have no effect on real interest rates or aggregate demand previous studies of the twin deficits have adopted a variety of approaches both theoretical and empirical theoretical treatments run the gamut from the standard mundell fleming model 18 to the ricardian model 7 to the atheoretical 1 2 3 4 12 14 17 empirical approaches range from simple single equation ols 5 6 16 to two stage least squares applied to a system of structural equations 18 to unconstrained var modeling 1 2 12 17 to cointegration 3 14 the variables used to measure the budget and trade deficits vary across studies as does the set of related variables included in the models the form in which the data are utilized e g as a ratio of gnp or as a first difference of levels also differs across studies not surprisingly a variety of results emerges table i provides a brief overview of a number of studies the estimated effects of budget deficits on the trade balance range from the substantial 12 to statistically insignificant 7 abell 1 2 finds the transmission mechanism to be primarily through interest and exchange rates while zietz and pemberton 18 find that channel to be insignificant in comparison to the domestic absorption channel yet some studies do not even include domestic income as a separate variable in their equations making cross study comparisons difficult thus it is impossible to draw with confidence any conclusions about the twin deficits relationship this confusion of results leads us to examine systematically the relationship between the two deficits using a multivariate model in this paper we report the results of a systematic analysis of the link between the deficits using a five variable system for the flexible exchange rate period 1973 1 to 1991 iv we begin with

employment and wage strategies of the firm over a business cycle abstract by using control theory we analyze the behaviour of a firm which expects a demand cycle and occupies a monopsonistic position on the labour market consequently the relative wage rate is used as a tool for regulating the flow of applicants and the rate of quits of employees the dynamic wage policy is governed by the demand trend but the marginal propensity of workers to quit and the level of hiring costs are also relevant factors in setting the wage rate the recession period is characterized by a relative wage decrease associated with voluntary quits rather than firing however the wage rate starts increasing when demand is still declining and labour hoarded

adaptive strategies of the firm through a business cycle abstract the paper examines the behaviour of a profit maximizing firm which forecasts a recession and which has at its disposal to regulate its level of equipment and its level of employment three control variables investment recruitment firing the selling price being held constant it shows that i the expectation of a recession by a firm is enough to launch a real recession in the demand for production factors equipment and recruitment ii by comparison with a situation in which the firm may manipulate the selling price price rigidities imply the occurrence of excess capacity in addition they do not allow the firm to delay firing and induce a stronger irregularity in recruitment and firing and iii depending on the characteristics of the firm and of the environment a unique model is compatible with a whole variety of behavioural patterns

buffer stocks and labor demand further evidence this paper presents estimates of a multivariate flexible accelerator model of labor demand hours and the number of production workers which shows that stocks of finished goods unfilled orders and materials inventories have significant impacts upon labor demand univariate time series models are used to capture expectations of the determinants of desired stocks new orders real wages and real raw materials prices and these magnitudes are found to follow a random walk without drift expected new orders and errors in forecasting new orders are found to have an important impact upon labor inputs real wage forecasting errors are found to be important for hours demand

the twin deficits phenomenon evidence from greece this paper explores the relationship between budget and trade deficits in a small open economy using annual data the purpose of the paper is to test empirically the validity and rationale of the keynesian proposition conventional view and the ricardian equivalence hypothesis the econometric methodology is based on cointegration analysis error correction modelling and granger trivariate causality the ecm empirical findings suggest that budget deficit has short and long run positive and significant causal effects on trade deficit

determination of employment with wage and price speculation the purpose of this paper is to investigate whether aggregate fluctuations in employment may be explained within a market clearing framework as intertemporal substitution in labor supply and demand an intertemporal substitution model for the firm is derived this model is estimated with a lucas rapping type supply equation empirical results with finnish data lend support to the intertemporal substitution model particularly concerning the demand function specification on the other hand the results for the supply equation are somewhat mixed being rather sensitive to the dynamic specification

unionism mio the cyclical behavior of the labor tv rket in u s manufacturing t he traditional view of market dynamics implies that when demand varies intertemporal variation in quantities exchanged increases as prices become less flexible this reasoning leads to the proposition that wage and price rigidities are important contributors to cyclical fluctuations in output fischer 1977a and gray 1978 based formal macro models on this principle although this view is common it has little empirical support the coexistence of union and nonunion establishments engaged in similar activities contains potential for testing its merits economists have long maintained that in the short run union wages are less flexible than nonunion wages dunlop 1950 rees 1951 this difference should produce larger fluctuations in union employment and hours empirical studies have generally supported the union wage rigidity hypothesis lewis 1963 ashenfelter johnson and pencavel 1972 and hendricks 1981 2 but until recently lack of data precluded analysis of hours and employment definitive answers to the important questions concerning unions influence on cyclical behavior require yet unavailable information matching the behavior of firms and characteristics of workers but data from modem surveys have allowed considerable progress nevertheless it remains a challenge to determine how much of differences observed in the stability of labor utilization are attributable to differences in the stability of demand medoff 1979 and raisian 1979 report that cyclical variation of employment and hours is indeed greater for union labor but despite attempts to allay suspicion that their finding arises primarily from concentration of union members in cyclically sensitive industries both studies leave room for doubt raisian estimated functions relating an individual s wage and weeks worked in a year to a proxy for excess demand that year s unemployment rate in the worker s industry the technique is attractive but raisian s data included workers from the entire economy and the industries were broad aggregates thus differences in the union and nonunion groups compositions may play a large role medoff who confined his study to production workers in manufacturing and used data allowing finer partitions investigated the importance of composition more thoroughly but he did not estimate relationships between adjustments in employment or hours and a measure of demand furthermore his focus was principally on the composition of manhours adjustments rather than their size in this paper i combine the strongest features of the medoff and raisian studies in further examination of the influence of unionism on cyclical fluctuations using current population surveys u s department of commerce 1978 from may of 1973 75 my analysis covers production workers in manufacturing during a period of rising inflation and unemployment the heart of the analysis is a measure of residual employment that quantifies by three digit industry and year shortrun excess demand for labor i construct this variable from employment time series and use it to estimate union nonunion differences in the cyclical responses of unemployment hourly wage rates and hours worked the results are consistent with the view that increasing rigidity in wages amplifies cyclical fluctuations in the utilization of labor the wage regressions add further to the literature s already strong support for the union wage rigidity hypothesis the employment status and hours regressions imply that the sensitivities of employment received for publication august 12 1981 revision accepted for publication february 11 1983 federal reserve bank of dallas this paper is based on my ph d dissertation which was completed at ucla with financial assistance from the rand corporation and the department of labor comments by referees and by participants of labor workshops at ucla and the university of chicago as well as the computation assistance of brian mckee are gratefully acknowledged i am responsible for any remaining errors the views expressed should not be attributed to the federal reserve bank of dallas or the federal reserve system one study is gordon 1982 who concludes page 41 that macroeconomic instability in the united states has been aggravated by the unusually sluggish behavior of nominal wages in the postwar era 2see also johnson 1975 parsley 1980 and moore and raisian 1980

twin sons of different mothers the long and the short of the twin deficits debate i introduction the relationship between the government budget deficit and the current account deficit has been a contentious subject in empirical macroeconomics for at least the past 20 yr papers have variously found a positive link no link and three recent pieces even find a negative link between the two there are however some things that almost all these studies have in common for example they ignore the possibility of structural breaks in the series when examining their time series properties most previous studies treat the variables under study as being integrated of order 1 which is to say as having a unit root this is a hard assumption to square with the fact that the variables are measured as fractions of gross domestic product gdp and have over the last half century at least shown no inclination toward typical unit root behavior by contrast in three recent pieces corsetti and muller 2006 kim and roubini 2008 muller 2006 the two series are simply treated as pure stationary processes without any pretesting which obviously conflicts with results from the traditional unit root tests in this article we show that both the budget deficit and the current account deficit are stationary around an occasionally shifting mean which is to say that they have structural breaks but are stationary after allowing for those breaks since it is well known that traditional unit root tests have little power when the underlying data contain structural breaks this explains the puzzling finding that the budget deficit and the current account deficit expressed as fractions of gdp test out as i 1 series in practice our findings also cast doubt on the validity of assuming the two series are purely stationary processes given our framework a simple test for the existence of a long run equilibrium relationship between budget and current account deficits is to compare the number and timing of their structural shifts we find that the two series are not closely related either in their number of breaks or in their timing of structural shifts we thus conclude that over the long run genetically the deficits are not twins another factor that existing studies have in common is their treatment of the error structure of the model as homoskedastic despite relatively clear visual evidence of volatility clustering conditional heteroskedasticity in least squares residuals when we consider the short run dynamics of the demeaned variables through a vector autoregression var analysis we show that the error covariance of this var model is significantly conditionally heteroskedastic and go on to specifically account for this phenomenon with a var generalized autoregressive conditional heteroskedasticity garch model we consider a trivariate model that also includes the real interest rate here we find a significant and sizeable positive short run effect of budget deficit innovations on the current account deficit in both the impulse response functions and the variance decompositions of the model our answer to the question of the paternity of the two deficits thus depends on the horizon studied each series has structural breaks that are largely independent of each other so they are not twins at all over the long run however once we allow for these secular shifts the short run dynamics reveal a very strong family resemblance indeed the rest of the article is organized as follows in section ii we review some of the existing empirical literature section iii discusses the time series properties of the data and presents our results about the long run evidence on the twin deficits question section iv sets out our var garch model and presents our results on short run twin deficits behavior section v is a brief conclusion ii an overview of the empirical literature the relationship between current account deficits and government budget deficits has been a subject of extensive study

a dynamic model of investment and capacity utilization this paper develops a dynamic optimizing model of a firm with quasi fixed factors subject to adjustment costs the utilization rates of the quasi fixed factors are chosen optimally by the firm and the rates of investment in the quasi fixed factors are based on the shadow prices of these factors in the spirit of tobin s q theory of investment capital investment is shown to be negatively related to capital utilization along the path to the steady state however in response to unanticipated demand shocks capital utilization and investment are positively related

an examination of flexible spending accounts this paper develops a framework for analyzing flexible spending account fsa participation and usage we explore patterns of fsa usage using data from a benefits firm for 1996 including an examination of types of fsa expenditures and their timing we estimate some simple econometric models of the participation decision and also the decision of how much to put into an fsa several pieces of evidence suggest that much of an fsa election amount is based on foreknowledge of expenditures we also find that participants tend to spend their election amount early thus obtaining an interest free loan

transitory and permanent disturbances and the current account an empirical analysis in the intertemporal framework the intertemporal models of current account determination demonstrate that in the analysis of the current account balance of a country it is important to distinguish between transitory and permanent disturbances in income and relative prices this paper attempts to decompose the observed data on income and real exchange rate into transitory and permanent components and then uses the decomposed series to test the empirical validity of the predictions of the intertemporal models evidence from the united states and japan provide very limited support for the intertemporal models in terms of the effects of transitory and permanent changes in income on current account balance for both us and japan the study finds that permanent changes in real exchange rate have significant effects on the current account balance statistical tests find no evidence of hysteresis in the trading relations of the two countries

a theory of the consumption function with and without liquidity constraints fifteen years ago milton friedman s 1957 treatise a theory of the consumption function seemed badly dated dynamic optimization theory had not been employed much in economics when friedman wrote and utility theory was still comparatively primitive so his statement of the permanent income hypothesis never actually specified a formal mathematical model of behavior derived explicitly from utility maximization instead friedman relied at crucial points on intuition and verbal descriptions of behavior although these descriptions sounded plausible when other economists subsequently found multiperiod maximizing models that could be solved explicitly the implications of those models differed sharply from friedman s intuitive description of his model furthermore empirical tests in the 1970s and 1980s often rejected these rigorous versions of the permanent income hypothesis in favor of an alternative hypothesis that many households simply spent all of their current income today with the benefit of a further round of mathematical and computational advances friedman s 1957 original analysis looks more prescient than primitive it turns out that when there is meaningful uncertainty in future labor income the optimal behavior of moderately impatient consumers is much better described by friedman s original statement of the permanent income hypothesis than by the later explicit maximizing versions furthermore in a remarkable irony much of the empirical evidence that rejected the permanent income hypothesis as specified in tests of the 1970s and 1980s is actually consistent both with friedman s original description of the model and with the new version with serious uncertainty there are four key differences between the explicit maximizing models

can government demand stimulate private investment evidence from u s federal procurement abstract demand shocks lower firm financing premiums by increasing the present value of cash flow thereby easing firm financing constraints we study the effects of unanticipated federal spending shocks on firm investment in the united states using a novel panel dataset that combines federal procurement contracts with key financial firm level information consistent with the financial accelerator model our results suggest that 1 dollar of federal purchases increases capital investment of financially constrained firms by 10 to 13 cents over a horizon of 4 quarters but has no effect on investment of unconstrained firms

accounting for us current account deficits an empirical investigation the sources of us current account deficits are investigated using a number of macroeconomic variables and a vector error correction model the variables are those typically emphasized by the traditional income expenditure approach and the intertemporal ricardian approach the results indicate that macroeconomic variables explain the current account reasonably well and the evidence seems to support the traditional approach where budget deficits and increases in real interest rates and terms of trade are associated with current account deficits

interest rates and expected future budget deficits in the united states several recent empirical studies have found no evidence of a positive association between interest rates and current and past budget deficits one possible explanation for this finding is that interest rates are related much more to the expectation of future budget deficits than to current and past budget deficits in this paper i investigate whether this explanation is valid finding no evidence that it is section ii briefly formulates and discusses the hypothesis under consideration stating some of its implications section iii presents the results of regressing the commercial paper rate moody s aaa bond rate and the ex post real commercial paper rate on current and past government spending budget deficits and real money supplies the regressions have been fitted to the entire sample of monthly data spanning the period between june 1908 and march 1984 and to 11

current account and budget deficits twins or distant cousins the paper develops a two country micro theoretic model consistent with the ricardian equivalence hypothesis reh specifically tax increases used to retire government debt will not affect private spending or the current account balance however increases in government spending regard less of the means of finance can be expected to induce a current account deficit an unconstrained vector autoregres sion shows some patterns in the recent u s data which appear to be inconsistent with the reh rigorous testing of the model however does not allow us to reject the indepen dence of the record federal government budget and current account deficits

using cost observation to regulate firms the paper emphasizes the use of accounting data in regulatory or procurement contracts when the supplier 1 has superior information about the cost of the project and 2 invests in cost reduction the main result states that under risk neutrality the supplier announces an expected cost and is given an incentive contract linear in cost overruns this optimal contract moves toward a fixed price contract as the announced cost decreases an investment choice is then introduced and the use of a rate of return regulation is studied

the political economy of deficit spending in nine industrialized parliamentary democracies the role of fiscal institutions this article analyzes the influence of four sets of factors on deficit spending in 9 industrialized parliamentary democracies during 1958 1990 this article analyzes the influence of these factors and introduces and tests the importance of an additional potential influence on the size of a country s fiscal deficit the strength of fiscal bureaucracy it is argued that the stronger a country s fiscal bureaucracy the lower its deficit ceteris paribus empirically the authors find that the state of a nation s economy heavily affects its deficit little systematic relationship is found between the ideology of the ruling political party and a nation s deficit or between the political strength of the ruling party and deficits in contrast to the findings of roubini and sachs finally it is found that the strength of a country s fiscal bureaucracy is an important influence on the deficit in these 9 industrialized parliamentary democracies

excess labour and the business cycle a comparative study of japan germany the united kingdom and the united states against the background of firm specific human capital theory this paper investigates empirically the relative propensity of manufacturing industries in japan germany the united kingdom and the united states to hold excess labour over the business cycle both stock and utilization dimensions of the labour input are integrated into the study throughout discussion is linked to earlier research that has analysed the relative international performance of the japanese labour market

budget deficit persistence and the twin deficits hypothesis abstract this paper gauges the twin deficits hypothesis i e a positive causal relationship between the external and budget deficits this relationship is measured by the responses of the external deficit to changes in the budget deficit induced by blanchard s model these responses are positively affected by the birth rate and by the degree of persistence of the budget deficit empirical results for the canadian and us economies reveal that although the relevant birth rates are small the great persistence of the budget deficits yields responses that are numerically large and statistically positive this contrasts with previous tests of the twin deficits hypothesis which have never formally taken into account the stochastic properties of the budget deficit

inventories layoffs and the short run demand for labor this paper presents a theoretical and empirical analysis of the short run employment layoff and inventory strategies of firms on average more than two thirds of all layoffs in american manufacturing end in a rehire by the employer of origin martin feldstein 1975 david lilien 1980 these temporary layoffs have recently accounted for about half of all ongoing employer initiated spells of unemployment in that sector see table 1 and have led to a revised interpretation both of the involuntary nature of these separations costas azariadis 1975 feldstein 1976 martin baily 1977 and of the durability of employment relationships evidently a significant proportion of unemployed workers know that the conditions that generated their separations are temporary and so they expect to be recalled within some reasonable time the point of departure for this paper is in interpreting these findings as evidence of a privately and socially efficient stock of excess capacity held against contingent future demands that is as an inventory of a productive input this view leads to empirically refutable hypotheses regarding both the role of temporary layoffs and the circumstances under which they will be important in particular both excess capacity idle resources and inventories are devices by which firms may economize on the costs of rapid adjustments when faced with unstable market conditions george stigler 1939 in such an environment the demands for layoffs and for other buffer stocks are jointly determined elements of long run technology the choice among alternative stocks will depend on relative profitabilities and firms may choose to hold stocks of inputs as a substitute for inventory accumulation especially if the costs of varying capacity or of storage are important this reasoning implies that i the structure of short run employment and layoff decisions will vary across firms and industries and ii differences in these structures will be systematically related to the role of inventories in firms dynamic strategies some perspective is warranted at least since charles holt et al 1960 economists have recognized the production smoothing role of inventories and the necessity of predicting future demand in making current decisions david belsley 1969 gerald childs 1967 michael ward 1978 similarly one of the contributions of recent work on implicit labor contracts is in viewing the exchange of labor services as a bilateral and durable commitment both these lines of analysis are concerned with the methods firms use to respond to fluctuating demand yet the underlying interrelated nature of employment and inventory decisions has rarely been recognized roger miller 1968 m ishaq nadiri and sherwin rosen 1973 r g crawford 1979 robert hall 1972 this paper aims to provide a framework for evaluating these decisions and in so doing to explain some interesting features of observed labor markets the notion of substitution between inventories of human and physical capital suggests a more disaggregated look at the data table 2 shows the importance of temporary layoffs in the distribution of unemployment among manufacturing industries it reports layoff and total unemployment rates for twelve representative industries over the period 197376 and average layoff rates and recall frequencies for 1958 76 among all 21 twodigit manufacturing industries the correlation between layoff and rehire rates is 6 and the table illustrates this evidently industries with larger than normal layoff rates also tend to have larger rehire frequencies from firm initiated spells of unemployment this university of chicago i am indebted to gary becker robert cotterman sherwin rosen jose scheinkman michael ward finis welch the managing editor and an anonymous referee for discussions and comments at various stages the usual disclaimer applies

on employer specific information and internal labor markets the human capital literature of which becker s 2 paper is the seminal work stresses the productivity enhancing effects of schooling and on the job training later work by spence 21 and others emphasizes the fact that it is difficult for employers to ascertain the productivity of potential employees and suggests that activities such as schooling may provide employers with signals as to workers productivities in the signalling literature it is assumed that information generated concerning an individual s abilities is general in that it is known to all potential employers yet the information that an employer gathers concerning his workers abilities is not likely to be completely transferable to other employers as a consequence as rosen 18 249 points out there are limitations on the ability of the price system to achieve efficient assignments if the price system is incomplete there is a role for entrepreneurial activity of assembling an optimal work force this paper analyzes the employment relations that arise when employers information concerning new workers abilities is incomplete until after a period of employment the acquisition of such employer specific information is shown to lead to what has been referred to in the literature as internal labor markets internal labor markets as identified by dunlop 5 32 are the complex of rules which determine the movement of workers among job classifications within administrative units these movements may be transfers promotions demotions or layoffs to the exterior labor markets doeringer and piore 3 emphasize skill specificity and on the job training as the key factors in the emergence of the internal labor market along similar lines williamson wachter and harris 22 point out that job idiosyncracy can result in employment relations with attributes like those of internal labor markets by way of contrast this paper emphasizes the role of employer specific information in generating internal labor markets the theory provides an explanation as to why employers dismiss current employees at the same time that new employees are hired evidence that dismissal rates are not insignificant is presented in section iv the theory also provides a new rationale for long term em

fiscal year ends and nonlinear incentive contracts the effect on business seasonality salesperson and executive compensation contracts typically specify a nonlinear relationship between firm revenues and pay these agents therefore have incentive to manipulate prices influence the timing of customer purchases and vary effort over their firms fiscal years this paper empirically establishes results consistent with agents focusing on performance over the fiscal year most notably in addition to varying with the calendar business cycle manufacturing firms sales are higher at the end of the fiscal year and lower at the beginning than they are in the middle further evidence is found in fiscal year price movements and patterns in the industry variation of fiscal year effects

do expiring budgets lead to wasteful year end spending evidence from federal procurement many organizations fund their spending out of a fixed budget that expires at year s end faced with uncertainty over future spending demands these organizations have an incentive to build a buffer stock of funds over the front end of the budget cycle when demand does not materialize they then rush to spend these funds on lower quality projects at the end of the year we test these predictions using data on procurement spending by the u s federal government using data on all federal contracts from 2004 through 2009 we document that spending spikes in all major federal agencies during the 52nd week of the year as the agencies rush to exhaust expiring budget authority spending in the last week of the year is 4 9 times higher than the rest of the year weekly average we examine the relative quality of year end spending using a newly available dataset that tracks the quality of 130 billion in information technology i t projects made by federal agencies consistent with the model average project quality falls at the end of the year quality scores in the last week of the year are 2 2 to 5 6 times more likely to be below the central value to explore the impact of allowing agencies to roll unused spending over into subsequent fiscal years we study the i t contracts of an agency with special authority to roll over unused funding we show that there is only a small end of year i t spending spike in this agency and that the one major i t contract this agency issued in the 52nd week of the year has a quality rating that is well above average

fiscal policy and trade adjustment are the deficits really twins i introduction the unprecedented increase of both the fiscal and trade deficits in the united states during the 1980s led many observers to posit a causal linkage a sizable contingent of economists believe that the twin deficits concept aptly characterizes the recent relationship between federal budgetary policy and the u s trade balance in this view increased federal fiscal deficits during the 1980s were a primary cause of the massive u s trade deficits experienced as the decade unfolded however this posited causal relationship does not command universal acceptance in this paper we examine data on u s trade and federal fiscal measures along with exchange and interest rates to uncover the empirical relationship between them and to discover whether fiscal policy plays an essential role in the adjustment of the massive u s trade imbalance the twin deficits concept asserts that the deficits are twins because they are related in the following manner increased government deficits are thought to put incipient upward pressure on real interest rates this induces incipient capital in flows that lift or appreciate the real exchange value of the currency which erodes competitiveness and after a time lag results in increased trade deficits a number of recent papers examine the relationship between budget and trade deficits each contributes important insights but nothing approaching a consensus has yet emerged miller and russek 1989 find evidence of a secular relationship between the deficits under two of the three statistical techniques they employ bernheim 1988 concludes that the government deficit is a prime determinant of u s trade deficits whereas evans 1989 enders and lee 1990 and dewald and ulan 1990 find no such causal impact of fiscal deficits darrat 1988 and abell 1990 report somewhat mixed results the conflicting results in the existing literature stem from wide differences in the empirical techniques data measures and samples employed further we have found in the literature and in our work reported below that the use of differenced data versus data in level form has a major impact on the results produced and inferences drawn recent empirical literature suggests that stationarity of data is a crucial element in model specification thus the question of whether or not to difference the data should be addressed before estimation and inference classical inference about stationarity of data suffers from what sims 1988 refers to as a discontinuity in the asymptotic theory hence the classical tests used in much of the previous literature have low power to reject the null hypothesis of nonstationarity in levels bayesian inference does not suffer from this problem therefore we generate posterior probabilities using monte carlo integration that estimate probabilities that suggest whether the data are better analyzed in level or difference form despite somewhat contrasting results the classical augmented dickey fuller tests and the bayesian probability estimates both suggest that a difference specification is inappropriate we analyze empirically a five variable nonstructural vector autoregressive var model the model includes both a federal government balance and a government purchases measure to summarize fiscal policy along with these two variables and a trade balance measure we constructed real interest rate and real exchange rate variables spanning a quarterly data sample from 1961 to 1989 we estimate the model in both levels and difference form using the level specification we find strong support for the twin deficit notion that government deficits are a cause of trade deficits whereas in differences we find no such relationship furthermore the results from our monte carlo work imply that the model specified in levels is likely most appropriate for estimation and inference ii contrasting theoretical frameworks the presence of both deficits in a variant of the basic savings investment identity may provide a useful reference as in bernheim 1988 and branson 1985 for discussing the hypothesized causal relationship embodied in popular twin deficits stories 1 tdef gdef i s

equilibrium adjustment with endogenous information and inventories the paper analyzes the interaction of information acquisition and inventory flexibility with industry adjustment to imperfectly perceived cost and demand disturbances improved information about disturbances reduces the extent to which disturbances are unperceived and dampens the use of inventories reduced inventory flexibility induces firms to devote more resources to acquiring information about disturbances the analysis demonstrates how equilibrium price and output adjustment depend endogenously on the degree of inventory flexibility and other structural parameters influencing the acquisition of information in this paper we analyze how endogenous information acquisition and inventory flexibility influence price and output adjustment in a competitive industry we focus on the potential substitutability of information acquisition for inventory flexibility when disturbances are imperfectly perceived by individual firms the analysis highlights the general issue of how market adjustment depends on structural parameters that influence agents incentives to acquire information there are several reasons why information acquisition may play a role in market adjustment first the rapid development of information technology has enabled firms to gather and process data relevant to production and sales decisions from a greater number of external and internal sources this trend has reduced the costs of forecasting and monitoring factors influencing production and demand conditions for the individual firm relative to those of its competitors as well as for the industry as a whole in particular it has permitted quicker awareness of changing customer demand as well as greater control of the flow of inputs and intermediate goods during the production process this implies that the resources devoted to information acquisition and processing have come to play an important role in firm decisions 2 second improved information about demand and cost conditions may affect the function of inventories inventory adjustment allows a firm s production costs to be smoothed in response to anticipated movements in demand and costs and to be buffered against unanticipated disturbances see ashley and orr 1985 thus

government financing decisions and asset returns abstract this paper presents an empirical investigation of the relation between government financing decisions and asset returns in particular the focus is on whether a substitution of debt financing for tax financing of a given level of expenditures is associated with an increase in interest rates the paper brings a different perspective to empirical investigations of government fiscal policies by examining the response of asset prices in an efficient capital market to such policies rather than focusing on aggregate consumption behavior the results are consistent with the idea that asset prices are unrelated to how the government finances its expenditures the results however also indicate that the capital market is not indifferent with respect to the level of government expenditures as higher interest rates are associated with increases in government purchases

on recalls layoffs variable hours and labor adjustment costs abstract the paper analyzes the employment policy of a firm that can vary both hours and the level of employment the analysis differs from previous work in the adjustment cost literature in that the firm is able to change its employment not only through hires layoffs and quits but also by recalls of employees who were previously laid off thus we introduce the possibility of the firm inventorying the labor input it is shown that this labor inventory potential is necessary if the firm is to ever lay off workers further it is demonstrated that linear rather than strictly convex adjustment costs are then required if the firm is to always recall employees who were previously laid off prior to hiring new workers

on the concavity of the consumption function at least since keynes 1935 many economists have had the intuition that the marginal propensity to consume out of wealth declines as wealth increases nonetheless standard perfect certainty and certainty equivalent versions of intertemporal optimizing models of consumption imply a marginal propensity to consume that is unrelated to the level of household wealth we show that adding income uncertainty to the standard optimization problem induces a concave consumption function in which as keynes suggested the marginal propensity to consume out of wealth or transitory income declines with the level of wealth

inventories rational expectations and economic activities abstract this paper examines the role of inventories when adjustments in output involve fixed employment costs such as hiring and training costs these costs force the firm to use inventories to stabilize output fluctuations contrary to the blinder fisher model unanticipated aggregate disturbances in the present model may have no subsequent impacts on the economy the exchange between mccallum and blinder frydman are also discussed in this context