the macroeconomic effects of government debt in a stochastic growth model abstract this paper studies how government liabilities affect macroeconomic aggregates in a standard general equilibrium growth model there are two principal results i though it is often thought that fiscal deficits crowd out investment this paper shows that deficit financed cuts in distortionary income taxation may stimulate investment even if agents expect future taxes on capital income to be higher this result is dependent on the values of two key parameters the elasticity of labor supply and the degree of persistence in the government debt process ii the economy s response to an increase in government expenditure depends on how it is financed distortionary tax finance may lead to a decline in output consumption and investment in contrast deficit finance may increase output and consumption

deep habits price rigidities and the consumption response to government spending this paper inspects the deep habits mechanism originally used by ravn schmitt grohe and uribe 2006 to generate the positive comovement of public and private consumption observed in many var studies in their set up the price elasticity of demand is pro cyclical and it is optimal for the firm to lower the mark up while expanding production after the fiscal shock raising the demand for labor and the real wage consequently agents substitute consumption for leisure and overcome the negative wealth effect of the fiscal expansion here we show that increasing price stickiness reduces the impact of the fiscal shock on the real wage and hinders the rise of consumption if the degree of price stickiness is high enough consumption is crowded out this is in contrast to the role of price rigidities in the standard new keynesian model where they weaken the crowding out of consumption

housing choices and uncertainty the impact of stochastic events abstract in our model a household recognizes that family size is stochastic when making its tenure and housing consumption decisions it also recognizes that initial choices constrain later behavior because they affect the amount of savings simulations of the model show that housing consumption and the duration of stay in a residence are sensitive to whether the realization of the stochastic event is the expected value based on this observation we suggest that empirical housing studies should include both the expected and realized values of stochastic explanatory variables we find few behavioral responses to changes in the variance of an uncertain event even though increased uncertainty is passed through to after tax income and the user cost of owning a notable exception is that if a household knows that a change in an influential variable will occur but it does not know the direction of change it is more likely to rent initially

linear quadratic approximation external habit and targeting rules abstract we examine the linear quadratic approximation of nonlinear dynamic stochastic optimization problems a discrete time version of magill 1977a a local analysis of n sector capital accumulation under uncertainty journal of economic theory 15 2 211 219 is generalized to models with forward looking variables paying special attention to second order conditions this is the large distortions case in the literature we apply the approach to monetary policy in a dsge model with external habit in consumption we then develop a condition for target implementability a concept related to targeting rules finally we extend the approach to a comparison between cooperative and non cooperative equilibria in a two country model and show that the small distortions approximation is inappropriate for this exercise

the future price of houses mortgage market conditions and the returns to homeownership the purpose of this paper is to provide a simple framework in which to analyze the impact of a perfectly anticipated increase in the future selling price of houses on current house purchase decisions in the presence of capital market imperfections since implicitly it is the after tax selling price of houses that is considered this analysis is equivalent to one of a decrease in the capital gains tax on houses at retirement in this paper assumptions about homeownership mortgage markets and liquidity constraints are added to a life cycle model of asset accumulation taking the date of house purchase as exogenous it is shown that the impact of an exogenous increase in the expected future price of houses depends on current mortgage market conditions the future price of houses relative to the current price and the ratio of liquid assets to future labor income as well as preferences also a simple model of a market for houses is presented to analyze the impact of an increase in the expected future price of houses on the current market clearing price the mortgage market and the redistribution of the housing stock to consumers according to their wealth and liquidity characteristics in the life cycle model as exposited by franco modigliani and robert brumberg an increase in consumption in one period requires a decrease in consumption in another period when owner occupied housing is added to the model the tradeoff between consumption in different periods becomes more complex purchasing a larger house entails an increase in the consumption of housing services and an increase in assets held in the form of a house but a decrease in either nonhousing consumption or the holdings of an alternative asset or both the response of the consumer to price or income changes is also limited by financial market constraints capital market imperfections have been introduced into the life cycle model by a number of authors see for example lester thurow thayer watkins thomas russell clark wiseman and christopher pissarides and several authors have explicitly considered the impact of capital market imperfections on the house purchase decision see william dolde and james tobin william poole donald lessard and modigliani and dolde most similar to this study although developed independently roland artle and p varaiya s paper includes the theoretical incorporation of the house purchase decision into a life cycle model they consider the problem of choosing the date of house purchase while treating the level of consumption of housing services as exogenous in the life cycle model in this paper the consumer chooses the size of house to purchase at an exogenous date to use the life cycle model in the framework of a market of houses it is assumed that the stock of houses and the prices of all other goods including the rate of return on the alternative asset are fixed all consumers are identical except perhaps for initial wealth as noted by irving fisher p 325 in a world of perfect foresight and perfect markets the rates of return on all assets are equated in equilibrium if markets are perfect with the stock of houses and other prices fixed the present price of houses will rise by an amount equal to the present value of an exogenous increase in a future price of houses when mortgage market imperfections are introduced this relationship no longer holds and a future price increase may result in a redistribution of the current stock assistant professor of economics university of michigan this paper is an extension of a chapter of my doctoral thesis at the university of wisconsin madison the helpful comments of donald d hester charles a wilson hal varian and george borts are gratefully acknowledged

the effect of labor unions on investment in training a dynamic model control over the amount of training required of new entrants is a potentially important tool available to many craft unions this is often exercised through licensing based on schooling and apprenticeship requirements and on passing special examinations the standards are to a large extent determined and monitored by the incumbent practitioners thus physicians are required to train in various forms of schooling internship and residence for up to eight years architects need five years of schooling and three years of apprenticeship accountants require four years of college and one year of apprenticeship less widely known are the schooling and apprenticeship requirements of barbers plumbers and mine foremen which require up to five or six years of investment finally most craft unions require apprenticeship periods of two to four years see kolberg 1976

cyclical effects of government s employment and goods purchases distinguishing between the goods purchase and employee compensation components of government spending is important shocks to government goods purchases and shocks to government employment have the opposite effects on private output private employment and private investment moreover with this distinction in place quantitative analysis reveals that government spending is no longer a significant driving source of the u s business cycle on the contrary the components of government spending are procyclical in the u s data primarily because of their positive responses to the output fluctuations generated by technology shocks copyright 1998 by economics department of the university of pennsylvania and the osaka university institute of social and economic research association

monopolistic competition increasing returns to scale and the importance of productivity shocks abstract the neoclassical growth model is extended to incorporate monopolistic competition and increasing returns to scale implications for the measurement of productivity change through the solow residual are studied it is found that for this extension productivity fluctuations continue to account for a substantial fraction of output volatility the model cannot account for volatility of employment

current real business cycle theories and aggregate labor market fluctuations hours worked and the return to working are weakly correlated traditionally the ability to account for this fact has been a litmus test for macroeconomic models existing real business cycle models fail this test dramatically we modify prototypical real business cycle models by allowing government consumption shocks to influence labor market dynamics this modification can in principle bring the models into closer conformity with the data our empirical results indicate that it does

the elusive costs and the immaterial gains of fiscal constraints we study whether fiscal restrictions affect volatilities and correlations of macrovariables and the probability of excessive debt for a sample of 48 us states fiscal constraints are characterized with a number of indicators and volatilities and correlations are computed in several ways the second moments of macroeconomic variables in states with different fiscal constraints are economically and statistically similar excessive debt and the mechanism linking budget deficit and excessive debts are independent of whether tight or loose fiscal constraints are in place creative budget accounting may account for the results

why does private consumption rise after a government spending shock recent empirical evidence suggests that private consumption is crowded in by government spending this outcome violates existing macroeconomic theory according to which the negative wealth effect brought about by a rise in public expenditure should decrease consumption

a structural model of the demand for owner occupied housing abstract the goal of the analysis in this paper is to estimate a structural model of the demand for owner occupied housing in our framework the buyer selects the value of the house the size of the mortgage and the length of stay in the house we estimate a housing demand equation which includes both the length of stay and the loan to value ratio as endogenous variables one empirical result of interest is that the income elasticity of demand for housing found in the structural housing demand equation is much larger than the value estimated in the reduced form we also point out some occasions when it is important to distinguish between a reduced form and a structural model of housing choices

new keynesian versus old keynesian government spending multipliers renewed interest in fiscal policy has increased the use of quantitative models to evaluate policy because of modelling uncertainty it is essential that policy evaluations be robust to alternative assumptions we find that models currently being used in practice to evaluate fiscal policy stimulus proposals are not robust government spending multipliers in an alternative empirically estimated and widely cited new keynesian model are much smaller than in these old keynesian models the estimated stimulus is extremely small with gdp and employment effects only one sixth as large and with private sector employment impacts likely to be even smaller we investigate the sensitivity of our findings with regard to the response of monetary policy the zero bound on nominal interest rates and the inclusion of an empirically relevant degree of rule of thumb behaviour in the new keynesian model in addition we relate our findings using estimated structural macroeconomic models to the recent literature using reduced form regression techniques

home ownership and unemployment in the us in this paper we scrutinise oswald s evidence that home ownership and unemployment are correlated across the us states in order to abstract from state fixed effects in levels we analyse the cross sectional variation in changes in home ownership and unemployment rates between 1970 and 1990 after duplicating nearly oswald s result we illustrate the importance of weighting the state observations by the fraction of total us households in 1970 that resided in the respective states and of abstracting from the ageing of the population between 1970 and 1990 this causes oswald s correlation to to disappear secondly we estimate the relationship for six different age classes and for household heads and total population we find that the relationship is non existent for both young households and old households but exists for middle aged households young households have accumulated little wealth and have had less time to become attached to the geographical area than middle aged households and thus are more

efficient labor contracts with employment risk this article analyzes efficient employment agreements where the demand for consumption insurance can be satisfied by noncontractual means we assume that workers can save and that consumption is determined by a strong form of the permanent income hypothesis under conditions of asymmetric information about exogenous shocks to labor demand we derive a unique compensation schedule that efficiently guides decisions by both workers and employers efficient employment outcomes are generated without a need for third party enforcement or monitoring and workers choose a consumption policy that leaves them indifferent among realizations of labor demand within this solution it is both costless and efficient for workers to delegate employment decisions to the firm within the context of the model we analyze implications for the equilibrium distribution of wages and for empirical studies of labor supply

effective tax rates in macroeconomics cross country estimates of tax rates on factor incomes and consumption abstract this paper proposes a method for computing tax rates using national accounts and revenue statistics using this method we construct time series of tax rates for large industrial countries the method identifies the revenue raised by different taxes at the general government level and defines aggregate measures of the corresponding tax bases this method yields estimates of effective tax rates on factor incomes and consumption consistent with the tax distortions faced by a representative agent in a general equilibrium framework these tax rates compare favorably with existing estimates of marginal tax rates and highlight important international differences in tax policy

capital inflows and the u s housing boom we estimate an open economy vector autoregressive var model to study the effect of capital inflow shocks on the u s housing market we look at different external shocks that generate capital inflows to the u s in particular saving glut shocks and foreign monetary policy expansions the shocks are identified with theoretically robust sign restrictions derived from an open economy dynamic stochastic general equilibrium dsge model our findings suggest that capital inflows that result from saving glut shocks have a positive and persistent effect on real house prices and real residential investment

price differentials in monetary unions the role of fiscal shocks we study the effect of regional expenditure and revenue shocks on price differentials for 47 us states and 9 eu countries we identify shocks using sign restrictions on the dynamics of expenditures revenues deficits and output and construct two estimates for structural price differentials dynamics one for the average and one for each unit which optimally weight information contained in the data for all units on average expansionary fiscal disturbances produce positive while distortionary balance budget shocks produce negative price differential responses the negative price differentials responses in some units is partially explained by spillovers and labour supply effects

seniority and efficiency the role of seniority in efficient compensation and employment arrangements between a firm and its labor pool is examined seniority is treated as an endogenous factor in a dynamic model with uncertainty nonseparability over time in preferences and production emerges as a pivotal aspect of seniority provisions in efficient allocations the analysis focuses on two dynamic factors that have been emphasized in the literature nonseparable worker preferences in leisure and a learning by doing process of human capital accumulation copyright 1992 by the editors of the scandinavian journal of economics

job duration seniority and earnings an important stylized fact about labor markets is that workers with longer seniority with their current employer have higher earnings than other workers with the same total labor market experience this study shows that workers in longer jobs earn more throughout than workers in a series of shorter jobs and that the measured positive cross sectional return seniority is largely a statistical artifact due to the correlation of seniority with an omitted variable representing the quality of the worker the job or the worker employer match the implication is tha t earnings do not in fact rise very much with seniority copyright 1987 by american economic association

general revenue sharing and public sector unions abstract in this paper i find that in the context of a large intergovernmental general revenue sharing program implemented from 1972 to 1986 cities increased expenditures one for one with federal grants which is suggestive of a large flypaper effect furthermore i find that cities in states with pro union collective bargaining laws spent more than half of the transfers on increased wages while cities in states without such laws spent a greater fraction on increased government services these latter findings suggest that public sector unions play an important role in determining the usage and impact of intergovernmental grants

optimal simple and implementable monetary and fiscal rules welfare maximizing monetary and fiscal policy rules are studied in a model with sticky prices money and distortionary taxation the ramsey optimal policy is used as a point of comparison the main findings are the size of the inflation coefficient in the interest rate rule plays a minor role for welfare it matters only insofar as it affects the determinacy of equilibrium optimal monetary policy features a muted response to output interest rate rules that feature a positive response to output can lead to significant welfare losses the welfare gains from interest rate smoothing are negligible optimal fiscal policy is passive the optimal monetary and fiscal rule combination attains virtually the same level of welfare as the ramsey optimal policy

the macroeconomic effects of distortionary taxation abstract prescott 1986 estimates that technology shocks account for 75 of the fluctuations in the postwar u s economy this paper reestimates the contribution of technological change for a standard business cycle model that includes a public sector and fiscal disturbances i find that a significant fraction of the variance of aggregate consumption investment output capital stock and hours of work can be explained by disturbances in labor and capital tax rates and government consumption i also use the model to quantify the welfare costs of capital and labor taxation for both the time series and welfare calculations maximum likelihood estimates of taste technology and policy parameters are used

the effects of fiscal shocks on employment and the real wage we study the transmission of fiscal shocks in the labor market we employ a structural var and base identification on the restrictions that shocks to government consumption investment and employment must raise output and deficits these restrictions hold in both prototype real business cycle rbc and new keynesian models shocks to government consumption and investment increase real wages and employment contemporaneously both at state level and in the aggregate the dynamics in response to employment shocks are mixed increases in government employment raise the real wage and total employment in the aggregate however in one third of the states they reduce total employment

sample selection and biases in local house value indices abstract analysis of cross sectional or intertemporal variations in house values among localities requires reliable house value indices however prior studies applying the hedonic method to transaction data have reported price series that may be biased our paper investigates a possible cause of bias and uses a censored regression technique extended to an intertemporal model to derive an unbiased index we apply our method to 1971 1991 data from the miami florida msa and find evidence in time varying amounts of bias our results suggest that prior studies using the hedonic method and samples consisting only of sold houses have understated the intertemporal variability of house prices

intertemporal preferences and labor supply in this paper the authors examine whether nonseparable preference structures ar e important in characterizing life cycle labor supply using longitud inal data on prime age males from the panel study of income dynamics they estimate a model of life cycle leisure and consumption under un certainty in which intertemporal preferences are allowed to be nonsep arable in leisure the model tests several alternative specifications considered in the literature they investigate the robustness of the ir findings to certain forms of population heterogeneity and types of model misspecification across alternative specifications the autho rs find that the standard assumption of intertemporally separable pre ferences for leisure is not consistent with the data copyright 1988 by the econometric society

a fiscal stimulus with deep habits and optimal monetary policy abstract a new keynesian model with deep habits and optimal monetary policy delivers a larger than 1 fiscal multiplier and consumption crowding in optimized taylor type rules dominate a conventional taylor rule consumption is crowded out if the taylor rule is suboptimal or if commitment is absent

housing demand and disequilibrium abstract researchers have recently begun relying heavily on samples of recent movers to estimate housing demand parameters estimates from mover equilibrium and disequilibrium samples are compared to determine whether significant differences exist the results suggest that income elasticities are not affected by the sample distinctions but demographic effects vary across the different subsamples

can government purchases stimulate the economy this essay briefly reviews the state of knowledge about the government spending multiplier drawing on theoretical work aggregate empirical estimates from the united states as well as cross locality estimates i assess the likely range of multiplier values for the experiment most relevant to the stimulus package debate a temporary deficit financed increase in government purchases i conclude that the multiplier for this type of spending is probably between 0 8 and 1 5 jel e23 e62 h50

housing consumption and permanent income in developing countries estimates from panel data in el salvador the estimation of the parameters of housing demand equations occupies a prominent place in the urban economics literature of developed countries see de leeuw 4 and mayo 20 for thorough reviews of the state of the empirical art most research has focused on income and price elasticities of housing demand using both aggregated and micro level data the main conclusions of those studies which do not suffer from aggregation or other biases seem to be that a on average for a large segment of the population including both renters and owners permanent income elasticities are well below one b permanent income elasticities for owners ranging mostly from 0 5 to 0 7 in mayo s review are slightly higher than estimates for renters which ranged mostly from 0 3 to 0 5 c as predicted by the theory the permanent income demand elasticity generally exceeds that of current

what does a technology shock do a var analysis with model based sign restrictions abstract this paper estimates the effects of technology shocks in var models of the u s identified by imposing restrictions on the sign of impulse responses these restrictions are consistent with the implications of a popular class of dsge models with both real and nominal frictions and with sufficiently wide ranges for their parameters this identification strategy thus substitutes theoretically motivated restrictions for the atheoretical assumptions on the time series properties of the data that are key to long run restrictions stochastic technology improvements persistently increase real wages consumption investment and output in the data hours worked are very likely to increase displaying a hump shaped pattern contrary to most of the related var evidence results are not sensitive to a number of specification assumptions including those on the stationarity properties of variables

government purchases reloaded informational insufficiency and heterogeneity in fiscal vars using a large bayesian var we approximate the flow of information received by economic agents to investigate the effects of changes to government purchases we document robust evidence that informational insufficiency in conventional models explains inconsistent results across samples and commonly employed identifications in recursive structural vars and expectational vars furthermore we report heterogeneous effects of components of government purchases while aggregate government purchases do not appear to produce strong stimulative effects with output multiplier around 0 7 government investment components have multipliers well above unity state and local consumption which captures investment in education and health elicits a strong response

do wages rise with job seniority many previous studies have found a strong positive effect of job seniority tenure on wages this paper re examines the evidence using a simple instrumental variables scheme to deal with the fact that tenure is likely to be related to unobserved individual and job characteristics that affect the wage we use the variation of tenure over a given job match as the principal instrumental variable for tenure the variation in tenure over the job is uncorrelated by construction with the fixed individual and job match specific components of the error term of the wage equation our main finding is that the partial effect of tenure on wages is small and that general labour market experience and job shopping account for most wage growth over a career the strong cross section relationship between tenure and wages is due primarily to heterogeneity bias prior researchers see mincer and jovanovic 1981 bartel and borjas 1981 borjas 1981 cline 1979 and mellow 1981 and many others have established that job seniority has a strong positive relationship with wage rates in a cross section or a cross section time series of individuals in this paper we re evaluate the evidence concerning the partial effects on wages of job seniority tenure and total labour market experience the extent to which wages rise with tenure is important for several reasons first and foremost the wage tenure profile is a fundamental question about the structure of earnings over careers second the wage tenure profile is a key determinant of the extent to which the earnings power of individuals is tied to specific jobs and it is important for assessment of the losses suffered by displaced workers hamermesh 1984 third evidence that wages rise with job tenure has been used to explain the decline in quits with tenure since the wage growth on the current job lowers the probability that the worker will locate a superior alternative a growing theoretical literature surveyed in parsons 1984 has taken the evidence of a strong wage tenure profile at face value and sought to provide an explanation for the relationship the most prominent explanation is the theory of specific human capital oi 1962 becker 1962 mincer 1974 parsons 1972 kuratani 1973 and hashimoto 1980 in which the growth of wages with tenure holding experience constant is attributed to the worker s share of investments in firm specific skills more recently lazear 1981 has presented a supervision model of wage growth in which firms defer compensation as a means of inducing workers not to shirk freeman 1977 and harris and holmstrom 1982 provide an explanation for wage growth based on an insurance motive salop and salop 1976 nickell 1976 and guasch and weiss 1982 present adverse selection models of wage growth in which firms use a wage tenure profile as a

do government purchases affect unemployment we estimate the effect of government purchases on unemployment in 20 oecd countries for the period 1980 2007 an increase in government purchases equal to one percent of gdp is found to reduce unemployment by about 0 3 percentage points in the same year the effect is greater and more persistent under less employment friendly labour market institutions and greater and more persistent under a fixed exchange rate regime than under a floating regime the effect is also greater in downturns than in booms the effect on unemployment reflects a corresponding positive effect of increased government purchases on the employment to population rate this article is protected by copyright all rights reserved

does rising productivity explain seniority rules for layoffs seniority rules for layoffs are a widespread feature of the union and nonunion workplace many explanations have been offered for their existence some emphasize the role of unions but others argue that seniority rules can promote economic efficiency in this context the rules are simple easy to implement and widely regarded as fair they may help control turnover and conserve valuable investments in specific capital they may also be a response to the higher reliability of more experienced workers or they may reflect the higher value young workers place on their time at home or at search in this company a new explanation is hardly needed and this note will not provide one rather i will show that one of the most commonly accepted explanations is based on an assumption that is quite unrealistic one of the most plausible explanations for seniority rules seems to follow directly from human capital theory 2 senior workers having had more time to invest in on the job training are likely to be more productive the seniority rule may therefore be a convenient rule of thumb which ensures that on average it is the less productive workers who are let go while the more productive ones are hoarded until business picks up this argument has been given added weight by some results from implicit contract theory when workers differ in skill levels but share the same value of time at home efficient contracts will always lay off the unskilled workers before the skilled ones the natural corollary again seems to be that where senior workers are more skilled they should be last to go 3 i show in this paper however that when skill grows with experience as human capital models predict this corollary is false in fact human capital growth by itself predicts that it is the most senior workers who should be laid off first previous writers have missed this result because they have implicitly and unrealistically assumed that workers continue to gain productive skills while sitting at home on layoff my analysis will also shed light on some aspects of collective bargaining contracts and on the phenomenon of early retirement the results are first derived in the context of an implicit contract model which is stripped of all but the barest essentials subsequently the robustness of the conclusions is examined in a series of extensions finally some implications of the analysis are discussed

unemployment fiscal multipliers we estimate the effects of fiscal policy on the labor market in us data an increase in government spending of 1 percent of gdp generates output and unemployment multipliers respectively of about 1 2 percent at one year and 0 6 percentage points at the peak each percentage point increase in gdp produces an increase in employment of about 1 3 million jobs total hours employment and the job finding probability all rise whereas the separation rate falls a standard neoclassical model augmented with search and matching frictions in the labor market largely fails in reproducing the size of the output multiplier whereas it can produce a realistic unemployment multiplier but only under a special parameterization extending the model to strengthen the complementarity in preferences to include unemployment benefits real wage rigidity and or debt financing with distortionary taxation only worsens the picture new keynesian features only marginally magnify the size of the multipliers when complementarity is coupled with price stickiness however the magnification effect can be large

is public expenditure productive abstract this paper considers the relationship between aggregate productivity and stock and flow government spending variables the empirical results indicate that i the nonmilitary public capital stock is dramatically more important in determining productivity than is either the flow of nonmilitary or military spending ii military capital bears little relation to productivity and iii a core infrastructure of streets highways airports mass transit sewers water systems etc has most explanatory power for productivity the paper also suggests an important role for the net public capital stock in the productivity slowdown of the last fifteen years

what are the effects of fiscal policy shocks we propose and apply a new approach for analyzing the effects of fiscal policy using vector autoregressions specifically we use sign restrictions to identify a government revenue shock as well as a government spending shock while controlling for a generic business cycle shock and a monetary policy shock we explicitly allow for the possibility of announcement effects i e that a current fiscal policy shock changes fiscal policy variables in the future but not at present we construct the impulse responses to three linear combinations of these fiscal shocks corresponding to the three scenarios of deficit spending deficit financed tax cuts and a balanced budget spending expansion we apply the method to us quarterly data from 1955 to 2000 we find that deficit financed tax cuts work best among these three scenarios to improve gdp with a maximal present value multiplier of five dollars of total additional gdp per each dollar of the total cut in government revenue 5 years after the shock copyright 2009 john wiley sons ltd

output fluctuations and fiscal policy u s state and local governments 1978 1994 abstract we study the cyclical properties of u s state and local government fiscal policy the budget surpluses of both are procyclical over short and medium term horizons procyclical surpluses are the result of strongly procyclical revenue and weakly procyclical expenditure these results hold whether aggregate u s wide fluctuations are controlled for or not federal grants to state and local governments are procyclical but this is due to aggregate output fluctuations with respect to state level output fluctuations federal grants are countercyclical the budget surpluses of trust funds and utilities are also procyclical but there is no evidence that this effect is stronger in states where balanced budget rules are tighter the cyclical patterns of state and local budget surpluses are affected by various political institutions for example budget surpluses are less procyclical in conservative states in an election year that occurs in good times state governments refrain from accumulating a larger surplus in bad times no such asymmetry between election and non election years is apparent

quantifying and sustaining welfare gains from monetary commitment abstract our objectives are to quantify the stabilization welfare gains from commitment to examine how commitment to an optimal rule can be sustained as an equilibrium to find a simple interest rate rule that approximates the optimal commitment one we utilize an empirical micro founded euro area dsge model a quadratic approximation of household utility as the welfare criterion employing a nominal interest rate lower bound in contrast to previous studies we find significant commitment stabilization gains of around a 0 4 0 5 equivalent permanent consumption increase and with higher price stickiness gains over 2 we find that a simple optimized commitment rule responding to inflation and the real wage mimics the optimal one

has fiscal policy helped stabilize the postwar u s economy abstract in this paper i consider whether postwar fiscal policy has helped stabilize the u s economy i do this by adding to the stochastic growth model fiscal policy feedback rules estimated from postwar data these rules allow fiscal policies to respond to current and lagged output and labor hours i use the estimated policy rules to see if postwar fiscal policy reduces output volatility and or lengthens expansions and shortens recessions i find that fiscal policy in general provides little stability on either count i also find that the endogenous feedback links by themselves can provide some stabilization

fiscal policy in the new neoclassical synthesis we analytically derive the cyclical effects of fiscal policy shocks in a new neoclassical synthesis model price stickiness has the consequence that a rise in government demand affects labor demand while at the same time the usual wealth effect boosts labor supply the strength of the demand effect depends on the response of the real interest rate governed by the monetary policy regime when the central bank controls money growth fiscal expansions are deflationary and might even be contractionary whereas output wages and inflation can increase when the rise in the real interest rate is dampened by an interest rate rule however price stickiness alone is not sufficient to explain a rise in consumption as predicted by keynesian theory

theory and estimation in the economics of housing demand the main purpose of this paper is to review recent theoretical and empirical developments in the economics of housing demand in particular we ask what is known concerning the permanent income elasticity of housing demand vis a vis the current or measured income elasticity what is known concerning price elasticities what is the appropriate functional form for housing demand equations what is the role of demographic variables what is known concerning dynamic aspects of housing demand what appear to be the major sources of bias in existing estimates of demand equations

alternative value estimates of owner occupied housing evidence on sample selection bias and systematic errors abstract numerous econometric models have used various estimates of housing value as dependent variables the three most common measures in order of descending popularity have been homeowner estimates sales price and assessed value each of these measures has limitations the use of sales price can cause sample selection bias while owner and tax assessor estimates are subject to measurement error this study investigates the magnitude of the selection bias associated with sales price samples and whether the errors in owner and assessor estimates are systematically related to independent variables typically included in estimated equations our most important conclusion is that the use of owner estimates may cause bias in the estimated coefficients on many independent variables

fiscal policy in general equilibrium this paper studies four classic fiscal policy experiments within a quantitatively restricted neoclassical model the authors main findings are as follows 1 permanent changes in government purchases can lead to short run and long run output multipliers that exceed one 2 permanent changes in government purchases induce larger effects than temporary changes 3 the financing decision is quantitatively more important than the resource cost of changes in government purchases and 4 public investment has dramatic effects on private output and investment these findings stem from important dynamic interactions of capital and labor absent in earlier equilibrium analyses of fiscal policy copyright 1993 by american economic association

changing macroeconomic dynamics at the zero lower bound this article develops a change point var model that isolates four major macroeconomic regimes in the us since the 1960s the model identifies shocks to demand supply monetary policy and spread yield using restrictions from a general equilibrium model the analysis discloses important changes to the statistical properties of key macroeconomic variables and their responses to the identified shocks during the crisis period spread shocks became more important for movements in unemployment and inflation a counterfactual exercise evaluates the importance of lower bond yield spread during the crises and suggests that the fed s large scale asset purchases helped lower the unemployment rate by about 0 6 percentage points while boosting inflation by about 1 percentage point

the effects of public spending externalities abstract we conduct a positive analysis on the effects of externalities produced by government spending to this effect we estimate using u s data an rbc model with two salient features first we allow government consumption to directly affect the marginal utility of consumption second we allow public capital to shift the productivity of private factors we provide an identification analysis that supports the strategy adopted for estimating the parameters governing these two channels on one hand private and government consumption are robustly estimated to be substitute goods because of substitutability labor supply reacts little to a government consumption shock so the estimated output multiplier is much lower than in models with separabilities on the other hand our results point towards public investment being unproductive

fiscal shocks and their consequences this paper investigates the response of hours worked and real wages to fiscal policy shocks in the post world war ii us we identify these shocks with exogenous changes in military purchases and argue that they lead to a persistent increase in government purchases and tax rates on capital and labor income and a persistent rise in aggregate hours worked as well as declines in real wages the shocks are also associated with short lived rises in aggregate investment and small movements in private consumption we describe and implement a methodology for assessing whether standard neoclassical models can account for the consequences of a fiscal policy shock simple versions of the neoclassical model can account for the qualitative effects of a fiscal shock once we allow for habit formation and investment adjustment costs the model can also account reasonably well for the quantitative effects of a fiscal shock

a fiscal stimulus and jobless recovery we analyze the effects of a government spending expansion in a dynamic stochastic general equilibrium model with mortensen pissarides labor market frictions deep habits in private and public consumption investment adjustment costs a constant elasticity of substitution ces production function and adjustments in employment at both intensive and extensive margins the combination of deep habits and ces technology is crucial the presence of deep habits magnifies the responses of macroeconomic variables to a fiscal stimulus while an elasticity of substitution between capital and labor in the range of available estimates allows the model to produce a scenario compatible with the observed jobless recovery

union wages temporary lay offs and seniority it is widely believed that the seniority system in conjunction with the collective bargaining process contributes significantly to the determination of the unemployment level in unionized sectors causa i empiricism suggests that real wage demands often remain buoyant in these sectors in the face of seemingly high rates of unemployment among union members james medoff 1979 p 380 convincingly documents the evidence that adjustment through lay offs is substantially greater in unionized firms than in comparable non unionized firms the usual but somewhat informal explanation is that the outcome of union voting is greatly influenced by senior workers who are fairly certain that they will not be laid off when normal shifts in the industry s demand for labour occur 2 these inframarginal workers are believed to vote for higher wage settlements than they would if their own jobs were not so secure

government spending entry and the consumption crowding in puzzle this article documents empirically that net firm entry robustly rises after a u s government spending expansion we use this new finding to test the empirical validity of various model features that have been proposed to generate consumption crowding in after positive expenditure shocks endogenous entry models typically fail to generate the observed joint increase in consumption and entry model features that dampen the wealth effect such as rule of thumb households or complementarity between labor and consumption in preferences tend to reduce entry we show that utility or productivity enhancing public spending can reconcile the model with our documented fact and performs well empirically

fiscal policy and occupational employment dynamics we document substantial heterogeneity in occupational employment dynamics in response to government spending shocks in the united states employment rises most strongly in service sales and office pink collar occupations by contrast employment in blue collar occupations is hardly affected by fiscal policy we provide evidence that occupation specific changes in labor demand are key for understanding these findings we develop a business cycle model that explains the heterogeneous occupational employment dynamics as a consequence of composition effects due to heterogeneous employment changes across industries and occupation specific within industry employment shifts due to differences in the short run substitutability between labor and capital services across occupations

fiscal policy pricing frictions and monetary accommodation this paper empirically investigates whether the theoretical conditions for government expenditure expansions to be effective hold for the data we ask whether the necessary conditions for fiscal effectiveness are relevant on average and in special circumstances that capture features of the recent crisis fiscal policy can be an effective countercyclical tool if monetary policy accommodates the fiscal expansion if expectations about future output growth and inflation are constant and if structural relationships are invariant to the policy change recent expansions are unlikely to produce large output multipliers or have important debt or inflation effects credible deficit and debt reduction schemes can produce sizeable output multipliers fabio canova and evi pappa

fiscal policy and lending relationships this paper studies how fiscal policy affects loan market conditions in the us first it conducts a structural vector autoregression analysis showing that the bank spread responds negatively to an expansionary government spending shock while lending increases second it illustrates that these results are mimicked by a dynamic stochastic general equilibrium model where the bank spread is endogenized via the inclusion of a banking sector exploiting lending relationships third it shows that lending relationships represent a friction that generates a financial accelerator effect in the transmission of the fiscal shock