tax and spend or spend and tax empirical evidence from greece spain portugal and ireland the paper examines empirically the relationship between government revenues and expenditures in four european countries greece spain ireland and portugal in relative terms all four may be considered as the poorest members of the european union yet they present a fairly diverse picture as far as their macroeconomic performance and fiscal position is concerned the empirical findings from cointegration and causality tests that are reported here indicate that in the case of greece and ireland tax and spending decisions are taken simultaneously by the fiscal authority the tax and spend hypothesis is supported in the case of spain while absence of any causal ordering between government expenditure and tax revenues has been established for portugal

disentangling the college wage premium estimating a model with endogenous education choices this article proposes and empirically implements a structural model of education choices and wage determination to quantitatively evaluate the contributions of productivity enhancement and ability signaling in the college wage premium the model is estimated under various distributional parameterizations using 1990 u s census 5 public use micro sample under these parameterizations i find that college education enhances attendees productivity by about 40 and productivity enhancement accounts for close to two thirds of the college wage premium

optimal nonparametric estimation of first price auctions this paper proposes a general approach and a computationally convenient estimation procedure for the structural analysis of auctioni data considering first price sealed bid auction models within the independent private value paradigm we show that the underlying distribution of bidders private values is identified from observed bids and the number of actual bidders without any parametric assumptions using the theoiy of minimax we establish the best rate of uniform convergence at which the latent density of private values can be estimated nonparametrically from available data we then propose a two step kernel based estimator that converges at the optimal rate

the long run relationship between productivity and capital abstract using panel cointegration techniques we show a cointegrating relationship exists between capital and productivity in 446 manufacturing industries panel dols and fmols estimates reveal that innovations to productivity increase and granger cause capital movements

using employer hiring behavior to test the educational signaling hypothesis this paper presents a test of the educational signaling hypothesis if employers use education as a signal in the hiring process they will rely more on education when less is otherwise known about applicants we nd that employers are more likely to lower educational standards when an informal more informative recruitment channel is used so we conclude that education is used as a signal in the hiring process

job market signaling and returns to education we compare two partially separating equilibria in a job market signaling model with unproductive education we find that in one of the two equilibria the fraction of the population with a threshold education level is higher even though the cost of education is higher moreover compared to the other equilibrium the population faces a higher threshold education level yet the educated attain lower wages the reason for this result is that the gross return to education can be higher despite the higher cost of education and a higher threshold

modelling money demand in germany in this paper an empirically stable money demand model for m3 in germany is presented the sample period 1975 94 includes german unification it is shown that this development has not substantially destabilized money demand parameter stability is extensively tested and not rejected applying encompassing tests this model encompasses two recent models but is not encompassed by them exogeneity of the explanatory variables is discussed and tested along the definitions given in engle hendry and richard 1983 there is evidence that inflation and long term interest rates are super exogenous with respect to the parameters of the demand for m3 model this result and the empirical long run money demand function presented in this paper may affect the applicability of the so called p star concept for german m3 1998 john wiley sons ltd

dynamic nonlinear income taxation with quasi hyperbolic discounting and no commitment this paper examines a dynamic model of nonlinear income taxation in which the government cannot commit to its future tax policy and individuals are quasi hyperbolic discounters who cannot commit to future consumption plans the government has both paternalistic and redistributive objectives and therefore uses its taxation powers to maximize a utilitarian social welfare function that reflects individuals true long run preferences under first best taxation quasi hyperbolic discounting exerts no effect on the level of social welfare attainable under second best taxation quasi hyperbolic discounting increases resp decreases the level of social welfare attainable when separating resp pooling taxation is optimal in stark contrast to previous studies this result implies that some individuals can actually be better off in the long run as a result of their short run impatience

tests for parameter instability in regressions with i 1 processes this article derives the large sample distributions of lagrange multiplier lm tests for parameter instability against several alternatives of interest in the context of cointegrated regression models the fully modified estimator of phillips and hansen is extended to cover general models with stochastic and deterministic trends the test statistics considered include the supf test of quandt as well as the lm tests of nyblom and of nabeya and tanaka it is found that the asymptotic distributions depend on the nature of the regressor processes that is if the regressors are stochastic or deterministic trends the distributions are noticeably different from the distributions when the data are weakly dependent it is also found that the lack of cointegration is a special case of the alternative hypothesis considered an unstable intercept so the tests proposed here may also be viewed as a test of the null of cointegration against the alternative of no cointegration the tests are applied to three data se

wage and price dynamics in china we study wage price dynamics in mainland china with a novel data set using province level data from 1994 to 2010 we find that the growth in labour costs in china is not passed through fully to final prices neither in the tradable goods sector nor in the economy as a whole this probably reflects the strong pressure on profit margins from a highly competitive environment especially in manufactured goods these findings have potential implications for global price developments given china s relevance in global supply chains

social culture and economic performance the connection between obtaining higher paying jobs and undertaking some seemingly irrelevant activity is interpreted as social culture in the context of a society trying to adopt a new technology i show that by allowing the firms to give preferential treatment to workers based on some cultural activity the society can partially overcome an informational free riding problem therefore social culture may affect the economic performance by altering the effective production technology of the economy jel p17 z1 what is social culture what is the role of social culture in economic performance in a provocative article kenneth arrow 1971 argued that norms of social behavior including ethical and moral codes are reactions of society to compensate for market failure somewhat surprisingly this idea of the role of social culture has not been further pursued in the literature in this paper i take arrow s viewpoint seriously and construct a simple model to examine the possibility that social culture may alleviate market failure i consider a society that is deciding whether to adopt a new technology three important assumptions are made about the economy first adoption decisions are made by entrepreneurs or firms but the operators of the new technology are workers second the new technology can be successfully operated only when the worker has invested in some imperfectly observable requisite skills and third it is costly for the workers

testing the monetary model of exchange rate determination new evidence from a century of data abstract we test the long run monetary model of exchange rate determination for a collection of 14 industrialized countries using data spanning the late nineteenth or early twentieth century to the late twentieth century interestingly we find support for a simple form of the long run monetary model in over half of the countries we consider for these countries we estimate vector error correction models to investigate the adjustment process to the long run monetary equilibrium in the spirit of meese and rogoff journal of international economics 14 1983 3 24 we also compare nominal exchange rate forecasts based on monetary fundamentals to those based on a naive random walk model

the impact of economic growth on co2 emissions in azerbaijan abstract this paper investigates the relationship between the economic growth and co2 emissions in azerbaijan a cointegration analysis is conducted over the period 1992 2013 for getting more robust results johansen ardlbt dols fmols and ccr methods are employed to explore cointegration and estimate long run coefficients we use cubic quadratic and linear specifications and conclude that the last one is an adequate representation for the impact of the economic growth on co2 emissions in azerbaijan the results from the different cointegration methods are consistent with each other and show that the economic growth has a positive and statistically significant impact on the emissions in the long run implying that the ekc hypothesis does not hold for azerbaijan the income elasticity of co2 emissions using different methods is found to be between 0 7 and 0 8 moreover we find that any short run imbalance can be adjusted towards the long run equilibrium path within less than one year the paper concludes that measures to increase energy efficiency carbon pricing instruments in production and international domestic trade activities and nationwide social awareness programs to instruct about the negative consequences of pollution can be considered as relevant environmental policies aimed at reducing carbon emissions

human capital versus sorting the effects of compulsory attendance laws under the educational sorting hypothesis a state compulsory school attendance law will increase the educational attainment of high ability workers who are not directly affected hy the law under the human capital hypothesis such laws affect only those individuals whose hehavior is directly constrained we find that compulsory attendance laws do increase enrollment rates in age groups they do not affect directly thus our results contradict the human capital hypothesis and are consistent with the sorting hypothesis i introduction the last decade has seen considerable debate between supporters of the human capital and sorting models of education the former assert that the effect of education on wages reflects increased productivity the latter maintain that it reflects at least in part correlation between education and unobserved ability workers use education to signal their ability while employers use education to screen workers despite the importance of the debate no fully convincing tests of the hypotheses have been developed in fact many members of the profession maintain at least privately that these hypotheses cannot be tested against each other and that the debate must therefore be relegated to the realm of ideology in this paper we show that the models can be tested against each other by examining the effects of state compulsory school attendance laws we show that under the human capital hypotheis such laws will affect the educational attainment only of those who in the absence of the law would have left school prior to the minimum school leaving age on the other hand under the sorting hypothesis the effects of the law will percolate through the system increasing educational attainment even among workers not directly constrained by the law our results are consistent with the predictions of the sorting model

educational opportunity and income inequality affordable higher education is and has been a key element of social policy in the united states with broad bipartisan support financial aid has substantially increased the number of people who complete university generally thought to be a good thing we show however that making education more affordable can increase income inequality the mechanism that drives our results is a combination of credit constraints and the signaling role of education first explored by spence 1973 when borrowing for education is difficult lack of a college education could mean that one is either of low ability or of high ability but with low financial resources when government programs make borrowing easier or tuition more affordable high ability persons become educated and leave the uneducated pool driving down the wage for unskilled workers and raising the skill premium

the role of natural gas consumption and trade in tunisia s output this paper examines the impact of natural gas consumption real gross fixed capital formation and trade on the real gdp in case of tunisia over the period of 1980 2010 we used auto regressive distributed lag ardl bounds testing approach to test the existence of long run relationship between the variables the vector error correction method vecm granger approach is applied to test the direction of causal relation between the series our findings indicate the existence of long run relationship among the variables natural gas consumption real gross fixed capital formation and trade add in economic growth natural gas consumption real gross fixed capital formation and real trade granger cause real gdp these findings open up new insights for policy makers to formulate a comprehensive energy policy to sustain economic growth for long run

does the human capital educational sorting debate matter for development policy if education increases human capital subsidizing education can generate economic growth and combat poverty estimates of its return suggest that education is a good social investment in sorting models the return reflects in part the information about productivity revealed by the worker s education thus the social and private returns diverge it might appear that if we believe the sorting model we should be less swayed by evidence that estimated returns to education exceed the social discount rate and therefore less likely to support education based development policies this conclusion is shown to be incorrect this abstract was borrowed from another version of this item

financial aid borrowing constraints and college attendance evidence from structural estimates the idea that borrowing constraints may preclude low income youth from attending college is widespread here i will review some recent work on the importance of borrowing constraints and the impact of financial aid programs i e guaranteed student loans and tuition subsidies designed to counteract them this work suggests that borrowing constraints have little effect on college attendance decisions there is evidence that tuition subsidies play a modest role in reducing inequality in schooling and earnings most inequality however appears to be driven by unequal human capital accumulation prior to college going age empirical work on college attendance decisions has consistently produced two findings i parents income helps predict college attendance even conditional on other observed characteristics of youth and ii the effect of tuition on the probability of college attendance is greater for children from low income families there is some mixed evidence that iii the rate of return to education is higher for low income youth these findings are commonly viewed as strong evidence for borrowing constraints recent work by stephen cameron and james heckman 1998 challenges these findings furthermore other recent work keane and kenneth wolpin 2001 shows that they are compatible with a model in which liquidity constraints have a negligible impact on college attendance rates to understand this work it is useful to consider a very simple discrete choice model of college attendance decisions the model has the following features

global economic activity and crude oil prices a cointegration analysis abstract this paper empirically investigates the cointegrating relationship between crude oil prices and global economic activity the kilian economic index is used as an indicator of global economic activity based on a supply demand framework and the cointegration theory we find that real futures prices of crude oil are cointegrated with the kilian economic index and a trade weighted us dollar index and crude oil prices are influenced significantly by fluctuations in the kilian economic index through both long run equilibrium conditions and short run impacts we also develop an empirically stable data coherent and single equation error correction model ecm which has sensible economic properties empirical results based on the ecm show that the adjustment implied by a permanent change in the kilian economic index is a relatively drawn out process

co integrating var models and economic policy this paper surveys some relevant contributions to the economic literature on co integrating vector autoregressive var models vector error correction mechanisms vecms emphasizing their usefulness for economic policy it further discusses some theoretical aspects that are necessary for a complete understanding of their potential the theoretical introduction of the co integrating var model is followed by an illustration of its applications to monetary policy fiscal policy and exchanges rates as well as in establishing the effects of structural bilateral shocks between countries the so called global var or gvar models special attention is paid to the vecm capacities of being used in conjunction with dynamic stochastic general equilibrium models and of jointly specifying the short and long run dynamics thus representing the steady state of economic systems by means of the co integration relations and the short run dynamics around it

semiparametric reduced form estimation of tuition subsidies the goal of this paper is to use a semiparametric reduced form model to estimate the effects of various tuition subsidies this approach expands on the tuition subsidy example in ichimura and taber 2000 in a number of dimensions it has become common practice in the empirical literature to refer to any nonstructural empirical analysis as reduced form this is not the traditional sense of the phrase a classic reduced form analysis see e g marschak 1953 first specifies a structural model and then derives the reduced form parameters in terms of the structural parameters while many recent studies have asserted to taking a reduced form approach the structural parameters while many recent studies have asserted to taking a reduced form approach the structural model which the reduced form model should correspond is rarely specified we explicitly specify a structural model and use the implied reduced form structure to estimate the effect of tuition subsidy policies specifying the underlying model has the advantage of being explicit about the assumptions that justify the analysis this avoids rosenzweig and wolpin s 2000 criticism of work on natural natural experiments that often leaves these conditions implicit our structural model is based on the model studied by keane and wolpin 1999 it is highly nonlinear and allows for more unobserved heterogeneity than the typical simultaneous equations framework that most previous work has used in reduced form estimation using hte specified structural model we examine the assumptions discussed in ichimura and taber 2000 to justify reduced form estimation of the policy effects this abstract was borrowed from another version of this item

effects of exchange rate variations on bilateral trade with a vehicle currency evidence from china and singapore abstract using a testable gravity type bilateral trade model derived from an underlying demand and supply model this paper explores the effects of exchange rate variations on bilateral trade in an exchange rate regime with a vehicle currency the introduction of the vehicle currency allows us to figure out whether variations in the trade volume due to the fluctuation of the bilateral exchange rate are primarily due to changes in demand or in supply or both more specifically in this theoretical framework the appreciation of one country s currency against the vehicle currency is expected to promote its imports but the effect of revaluation of the country s currency against the vehicle currency on its exports is ambiguous moreover high volatility of the exchange rate of one country s currency against the vehicle currency is also expected to depress its import volume from the empirical point of view the decomposition of the bilateral exchange rate of two currencies into the bilateral rates of these two currencies against the vehicle currency provides a new alternative to avoid the econometric problem of potential reverse causality in assessing the effects through compiling a novel monthly bilateral trade dataset between china and singapore over 21 years or 252 months we empirically test the predictions of our model which get robust support from the results

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

non stationary demand forecasting by cross sectional aggregation in this paper the relative effectiveness of top down td versus bottom up bu approaches is compared for cross sectionally forecasting aggregate and sub aggregate demand we assume that the sub aggregate demand follows a non stationary integrated moving average ima process of order one and a single exponential smoothing ses procedure is used to extrapolate future requirements such demand processes are often encountered in practice and ses is one of the standard estimators used in industry in addition to being the optimal estimator for an ima process theoretical variances of forecast error are derived for the bu and td approach in order to contrast the relevant forecasting performances the theoretical analysis is supported by an extensive numerical investigation at both the aggregate and sub aggregate level in addition to empirically validating our findings on a real dataset from a european superstore the results demonstrate the increased benefit resulting from cross sectional forecasting in a non stationary environment than in a stationary one valuable insights are offered to demand planners and the paper closes with an agenda for further research in this area

intergenerational income mobility in the united states social scientists and policy analysts have long expressed concern about the extent of intergenerational income mobility in the united states but remarkably little empirical evidence is available the few existing estimates of the intergenerational correlation in income have been biased downward by measurement error unrepresentative samples or both new estimates based on intergenerational data from the panel study of income dynamics imply that the intergenerational correlation in long run income is at least 0 4 indicating dramatically less mobility than suggested by earlier research copyright 1992 by american economic association

signaling in higher education the effect of access to elite colleges on choice of major i introduction it is a well established fact that more educated individuals earn higher wages there are two primary theories for the source of this education wage premium the first is the human capital accumulation or full information model in which education directly enhances productivity and thereby increases an individual s wages the second is the signaling model of the labor market first proposed by spence 1973 wherein the monetary returns to schooling are partially explained by information asymmetries between individuals and employers these two models lead to strikingly similar labor market predictions which has made testing between them difficult i provide a new test of the signaling model against the full information model using individuals choices of college major this test is novel in that it focuses on the quality of an individual s education as a potential signal rather than the quantity of education furthermore while other tests have focused on high school students or other specific groups e g general education diploma takers in tyler et al 2000 and mba students in hussey 2012 this test sheds light onto the decision making process of college going students in a full information model productivity is costlessly observed by both the individual and the employer each individual chooses her optimal level of education to improve productivity and wages given her ability and the marginal cost of schooling in the signaling framework information is asymmetric such that employers cannot perfectly observe individual ability or true productivity employers use education levels to infer expected productivity while each individual chooses her level of schooling to signal a higher innate ability and potential productivity to employers the equilibrium result in both models is that higher ability individuals obtain more education and accordingly earn higher wages while the equilibria in both models appear similar the extent to which individuals sort on ability depends on the amount of information asymmetry in the labor market under the signaling model the individual s social and private returns to education do not necessarily coincide the private return is a combined effect of the social return from increased productivity and the signaling effect of being identified perhaps falsely as a high ability individual this disparity between private and social returns could lead to an inefficient allocation of schooling in the competitive labor market the implication that investment in schooling might lead to a deadweight loss for society has prompted many attempts to distinguish between these two theories bedard 2001 hussey 2012 lang and kropp 1986 riley 1979 wolpin 1977 and to measure what portion of the returns to schooling is attributable to signaling effects altonji and pierret 1997 2001 clark and martorell 2014 fang 2006 tyler et al 2000 however the empirical evidence differentiating the two models has been fairly limited and testing between the full information and signaling models of education has proven difficult i propose a new model applying the signaling framework of spence 1973 to the postsecondary environment in this model major field of study can be used by individuals to signal unobserved ability and productivity to employers i show that this leads to a prediction that geographic areas with high access to elite colleges result in fewer science technology engineering and mathematics stem majors among lower ability students at nonelite colleges this is distinct from the prediction of a full information model where the level of access to elite schools should only affect those high ability individuals who are eligible to attend an elite school using data from the national center for education statistics baccalaureate beyond survey and the geographic variation in access to elite schools across the united states i find evidence that is consistent with the signaling model prediction

analysis of order up to level inventory systems with compound poisson demand abstract we analyse a single echelon single item inventory system where the demand and the lead time are stochastic demand is modelled as a compound poisson process and the stock is controlled according to a continuous time order up to out level policy we propose a method for determining the optimal out level for cost oriented inventory systems where unfilled demands are backordered we first establish an analytical characterization of the optimal out level the actual calculation is based on a numerical procedure the accuracy of which can be set as highly as desired by means of a numerical investigation we show that the method is very efficient in calculating the optimal out level we compare our results with those obtained using an approximation proposed in the literature and we show that there is a significant difference in accuracy for slow moving items our work allows insights to be gained on stock control related issues for both fast and slow moving stock keeping units skus

exploring consumption based asset pricing model with stochastic trend forcing processes using canadian data the consumption based asset pricing model is studied defined in terms of nondurable and durable goods consumption a two stage estimation procedure is used which takes account of the presence of common stochastic trends in the forcing processes this method yields more reasonable estimates of the preference parameters than the previous studies did and the asset pricing equation is not rejected by the data moreover the preference specification adopted in this paper allows a number of useful economic information to be obtained the additive separability assumption and the cobb douglas functional form of the utility function are ruled complements in the sense of edgeworth and pareto

a heuristic algorithm for solving large location inventory problems with demand uncertainty abstract in this paper we analyze a location inventory problem for the design of large supply chain networks with uncertain demand we give a continuous non linear formulation that integrates location allocation and inventory decisions and includes the costs of transportation cycle inventory safety stock ordering and facility opening then relying on the fact that the model becomes linear when certain variables are fixed we propose a heuristic algorithm that solves the resulting linear program and uses the solution to improve the variable estimations for the next iteration in order to show the efficiency of the algorithm we compare our results with those of the conic quadratic formulation of the problem computational experiments show that the heuristic algorithm can be efficiently used to find fast and close to optimal solutions for large supply chain networks finally we provide managerial insights regarding the ways in which demand uncertainty risk pooling and safety stocks at retailers affect the design of a supply chain

short term uncertainty in long term energy system models a case study of wind power in denmark when wind power constitutes a larger share of the electricity production mix credible and reliable modelling of its operation in long term investment models becomes increasingly important in this paper the intermittent characteristics of wind power are modelled as a stochastic parameter in a long term times model of the danish heat and electricity sector to our knowledge this is not a common approach in long term investment models and has not been done previously in times where the short term uncertainty of wind power is normally taken into account by a deterministic constraint that ensures excess back up capacity in our model the stochasticity gives lower total energy system costs significant lower investments in wind power less expected electricity export and higher expected biomass consumption compared to using the traditional deterministic approach also the deterministic investment strategy can be insufficient in periods with poor wind conditions based on our findings we recommend using a stochastic representation of intermittent renewables in long term investment models to provide more solid results for decision makers

wage growth and the inflation process a multivariate cointegration analysis past empirical analysis of the relationship between wages and prices within the expectations augmented phillips curve model have raised doubts about the effects of labor costs on inflation analysis of the same data used previously reveals the existence of a deterministic linear time component in the wage and price series which past research failed to take into account using the johansen 1988 1992 1994 multivariate cointegration technique the paper provides robust evidence on the consistency of the markup view of the inflation process with the data and concludes that monetary policy should profit from labor costs data in predicting future rates of inflation

endogenous capital market imperfections human capital and intergenerational mobility in this paper capital market imperfections are endogenized considering an adverse selection problem between banks and borrowers we develop a growth model with linear olg wealth dynamics where agents are heterogeneous in terms of observable wealth and ability which is private information we show that banks react to this informational asymmetry by granting higher loans to talented borrowers this in turn helps poor and talented agents to become educated and catch up with the rich agents furthermore the credit market friction leads to greater human capital accumulation

estimates of the economic returns to schooling from a new sample of twins this paper uses a new survey to contrast the wages of genetically identical twins with different schooling levels multiple measurements of schooling levels were also collected to assess the effect of reporting error on the estimated economic returns to schooling the data indicate that omitted ability variables do not bias the estimated return to schooling upward but that measurement error does bias it downward adjustment for measurement error indicates that an additional year of schooling increases wages by 12 to 16 percent a higher estimate of the economic returns to schooling than has been previously found copyright 1994 by american economic association

the effect of emergency liquidity assistance ela on bank lending during the euro area crisis abstract we examine the impact of emergency liquidity assistance ela on bank lending in eleven euro area countries during the financial crisis with the intensification of the crisis ela took on a pivotal role in some countries however assessments of the quantitative impact of ela in the literature are non existent we estimate a structural panel model for the determination of bank lending which includes the amount of ela received by each bank allowing us to investigate the direct effect of ela on lending our model corrects a mis specification found in the prototype model used in the literature we then undertake a var analysis which allows us to address the effect of ela on gdp finally we examine spillover effects among banks indicating that ela generated positive spillovers to other banks

econometrics of first price auctions in this paper we propose an estimation method for the empirical study of theoretical auction models we focus on first price sealed bid and descending auctions and we adopt the private value paradigm where each bidder is assumed to have a different private value only known to him for the object that is auctioned following mcfadden 1989 and pakes and pollard 1989 our proposed method is based on simulations specifically the method relies on a simulated nonlinear least squares objective function appropriately adjusted so as to obtain consistent estimates of the parameters of interest we illustrate the proposed method by studying a market of agricultural products where descending auctions are used our analysis takes into account heterogeneity of the auctioned objects and the fact that only the winning bid is observed we estimate the parameters that characterize the distribution of the unobserved private values for each auctioned object

does compulsory school attendance affect schooling and earnings we establish that season of birth is related to educational attainment because of school start age policy and compulsory school attendance laws individuals born in the beginning of the year start school at an older age and can therefore drop out after completing less schooling than individuals born near the end of the year roughly 25 percent of potential dropouts remain in school because of compulsory schooling laws we estimate the impact of compulsory schooling on earnings by using quarter of birth as an instrument for education the instrumental variables estimate of the return to education is close to the ordinary least squares estimate suggesting that there is little bias in conventional estimates every developed country in the world has a compulsory schooling requirement yet little is known about the effect these laws have on educational attainment and earnings 1 this paper exploits an unusual natural experiment to estimate the impact of compulsory schooling laws in the united states the experiment stems from the fact that children born in different months of the year start school at different ages while compulsory schooling laws generally require students to remain in school until their sixteenth or seventeenth birthday in effect the interaction of school entry requirements and compulsory schooling laws compel students born

higher education elite institutions and inequality abstract we develop a model of higher education to analyze the effects of elite institutions on individual educational decisions and aggregate labor market outcomes elite institutions allow the most talented of a given population to separate themselves from the larger pool of agents enrolled in higher education and to earn the associated wage premium in the labor market as elite institutions engage in cream skimming the returns to publicly accessible education decrease and enrollment in public higher education declines the resulting effect on income inequality is ambiguous since elite education increases income dispersion at the top of the income distribution and decreases income dispersion at the bottom

an evaluation of the forecast performance of alternative models of inflation the forecast performances of three groups of models of the inflation process are evalu ated in this paper ra tional expectations models with instantaneous market clearing monetarist models and expectations augmented phillips curves the dynamic simulations performed for the intervals between 1977 and 1984 are somewhat discouraging for all three theories the variation in forecasting performance within model groups often exc eeded the variation in performance across model groups nevertheless the philli ps curve formulation rarely performed worse than the other two models and in th e 1981 to 1984 period it performed substantially better than the alternative mod els of inflation copyright 1987 by mit press

the multi sourcing location inventory problem with stochastic demand abstract this paper deals with a multi period location inventory optimization problem in a multi echelon supply chain network characterized by an uncertain demand and a multi sourcing feature the aim of the paper is to propose a generic modeling approach to integrate key features of the inventory planning decisions made under a reorder point order up to level s s policy with the location allocation design decisions to cope with demand uncertainty given the hierarchical structure of the problem a two stage stochastic mathematical model that maximizes the total expected supply chain network profit is proposed this optimization model is intractable due to its non linearity therefore a linear approximation is proposed and a sample average approximation approach is used to produce near optimal solutions numerical experiments are conducted to validate the proposed modeling and solution approaches the results show the efficiency of the linear approximation of the s s policy at the strategic level to produce robust design solutions under uncertainty they underline the sensitivity of the design solution to the demand type and the impact of the inventory holding costs and backorder costs especially under non stationary processes

declining discount rates and the fisher effect inflated past discounted future uncertain and persistent real interest rates underpin one argument for using a declining term structure of social discount rates in the expected net present value enpv framework despite being controversial this approach has influenced both the inter agency working group on cost benefit analysis and the uk government s guidelines on discounting we first clarify the theoretical basis of the enpv approach then rather than following previous work which used a single series of u s treasury bond returns we treat nominal interest rates and inflation as co integrated series and estimate the empirical term structure of discount rates via the fisher effect this nests previous empirical models and is more flexible it also addresses an irregularity in previous work which used data on nominal interest rates until 1950 and real interest rates thereafter as we show the real and nominal data have very different time series properties this paper therefore provides a robustness check on previous discounting advice and updated methodological guidance at a time when governments around the world are reviewing their guidelines on social discounting the policy implications are discussed in the context of the social cost of carbon nuclear decommissioning and public health

estimating long run economic equilibria with stochastic trends an asymptotic theory is provided to analyze a menu of currently existing estimators of cointegrated systems we study in detail the single equation ecm seecm approach of hendry our theoretical results lead to prescriptions for empirical work such as specifying seecm s nonlinearly and including lagged equilibrium relationships rather than lagged differences of the dependent variable as covariates simulations support these prescriptions and point to problems of overfitting not encountered in the semiparametric approach of phillips and hansen 1990

the taste for leisure career choice and the returns to education abstract we develop a simple methodology to estimate the returns to education despite heterogeneous labor leisure preferences the labor supply behavior of doctors and physician assistants is consistent with people choosing between the two careers based on differing tastes for leisure

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

real wages inflation and labour productivity in australia this paper presents an analysis of real wages inflation and labour productivity interrelationships using cointegration granger causality and most importantly structural change tests applications of tests to australian data over the 1965 2007 period corroborate the presence of a structural break in 1985 and show that a 1 percent increase in manufacturing sector real wages led to an increase in manufacturing sector productivity of between 0 5 and 0 8 percent comparable estimates for the effect of inflation on manufacturing sector productivity have limited statistical significance granger causality test results suggest that real wages and inflation both granger cause productivity in the long run

german monetary unification and the stability of the german m3 money demand function abstract this paper employs quarterly data from the whole of germany to test the stability of m3 demand for money the methodology is based on an application of the cusum and cusumsq in the context of error correction modeling and cointegration the results reveal some instability in m3 money demand function

instability in cointegration regressions a brief review with an application to money demand in portugal this study addresses some modelling questions related to the possibility of structural change in models with nonstationary variables focusing on cointegration issues some methodological aspects are discussed attempting to integrate coherently the several steps of the modelling strategy these range from unit root to cointegration testing and to testing for instability in the cointegration vector an empirical example with portuguese data tries to illustrate the usefulness of this approach where a simple money demand function is estimated using an error correction model ecm if a break is explicitly allowed in the cointegration vector the forecasting performance of the ecm improves

the effect of inflation and real wages on productivity new evidence from a panel of g7 countries this article examines the effect of inflation and real wages on productivity within a panel unit root and panel cointegration framework for the g7 countries over the period 1960 to 2004 the main contribution of the article is to provide panel long run estimates of the effect of inflation and real wages on productivity in the g7 countries over this period the article finds that for the panel as a whole a 1 increase in real wages generates a 0 6 increase in productivity while the effects of inflation on productivity are statistically insignificant for most of the individual countries and for the panel as a whole

racial profiling fairness and effectiveness of policing citizens of two groups may engage in crime depending on their legal earning opportunities and on the probability of being audited police audit citizens police behavior is fair if both groups are policed with the same intensity we provide exact conditions under which forcing the police to behave more fairly reduces the total amount of crime these conditions are expressed as constraints on the quantile quantile plot of the distributions of legal earning opportunities in the two groups we also investigate the definition of fairness when the cost of being searched reflects the stigma of being singled out by police

the linkage between prices wages and labor productivity a panel study of manufacturing industries 1 introductionpolicy makers and financial analysts cite wage pressures and productivity gains as leading factors in explaining inflation this cost push explanation of inflation however is questioned by mehra 1991 1993 2000 who shows that prices explain wages but that wages are not a causal factor in determining inflation studies by hu and trehan 1995 and gordon 1988 1998 report evidence indicating that wage growth has no predictive content for inflation rejecting the cost push view emery and chang 1996 and hess 1999 demonstrate that these findings are sensitive to the sample period examined ghali 1999 using granger causality tests finds that wage growth does help to predict inflation supporting the cost push view a related but also relatively unexplored relationship is that between real wages and productivity although this link is the building block of many macroeconomic models and is frequently cited in intermediate macroeconomic textbooks few empirical works have tested this relationship 1recently a large number of studies have begun testing long standing macroeconomic hypotheses using panel unit root and or panel cointegration tests however few studies have employed industry level panel data sets the current article contributes to filling this void it employs manufacturing industry data to evaluate the long run dynamics between wages prices and productivity rather than the traditional approach of examining macroeconomic aggregates more specifically using annual four digit industry level data from the manufacturing sector over the period 1958 1996 this article examines the relationship between prices and wage adjusted productivity as well as the linkage between productivity and real wages using panel unit root and cointegration estimation methods the increased power and precision of the panel methods are particularly valuable in this context because they allow the researcher to more accurately test for the existence of a one for one cointegrating equilibrium between labor market variables and industry output prices an additional objective of this article is to show the advantages and disadvantages of employing panel unit root and cointegration tests we demonstrate that the considerable heterogeneity of the data imply that the practitioner must be cautious in making inferences about the linkage between variables when using either pooling estimation methods or aggregate level data our methodology accommodates for heterogeneity by averaging coefficients as well as examines outlier effects through quartile analysis heterogeneity of the cointegrating vector and cross correlations are accommodated through analysis by industry of the extent of cointegration across the panel and monte carlo simulations that calculate correctly sized critical values our results suggest that a stable long run relationship exists between prices and wage adjusted productivity as well as between real wages and productivity for many but not all industries both relationships however have considerably varied estimates and in most cases differ from the one for one linkage found by mehra and others in aggregate level data furthermore granger causality tests support one way causation from prices to per unit labor costs ulc in both the short and the long run hence the industry level data reject the standard cost push explanation of wage pressures contributing to inflation supporting the aggregate level findings of mehra 1991 1993 2000 and others our findings suggest that prices may be driven more by demand side factors than supply side factors results further support bidirectional granger causality in the long run between real wages and labor productivity this implies that changes in real wages lead to productivity changes and is not inconsistent with the efficiency wage hypothesis at the same time productivity movements affect real wages which is consistent with efficient labor markets

a procedure for testing the signalling hypothesis abstract this paper develops a procedure for testing the signalling hypothesis as advanced by spence et al the approach used is to examine directly the question of whether employers use education for purely informational purposes in their hiring decisions an application of the method to a recruitment by the swedish auto manufacturer volvo is presented

the effect of statistical discrimination on black white wage inequality estimating a model with multiple equilibria this article presents the structural estimation of the parameters of a statistical discrimination model although the model is capable of displaying multiple equilibria an estimation strategy that identifies both the model parameters and the equilibrium selected by the economic agents is developed and empirically implemented a comparison between the selected equilibria and the other potential equilibria reveals that the decline in wage inequality experienced in the u s economy cannot be attributed to changes in the equilibrium selection nonetheless a counterfactual experiment shows that in a color blind society blacks wage would have been on average more than 20 higher

is the budget deficit too large some further evidence i introduction since the early 1980s the u s federal government has run unprecedented peacetime deficits the size of these deficits became a major issue in recent u s presidential elections for example during the 1992 elections ross perot successfully used his simple charts and tables to convey the notion that the size of the deficit was too large economists look at the deficit issue from a different perspective instead of emphasizing the size of the deficit at any particular point in time they are more concerned with the intertemporal solvency condition the present value of debt in the long run this condition focuses on the long run paths of interest inclusive expenditures and revenues unless these two variables trend together over the long run the government will have an incentive to default on the debt losing the confidence of investors from the standpoint of the intertemporal solvency condition are recent deficits too large do they represent boundless growth of government debt as an empirical proposition boundless growth of the debt corresponds to non stationarity of the deficit or the first difference of the debt recent developments in time series econometrics have provided ways to examine the intertemporal solvency condition for example hamilton and flavin 1986 and trehan and walsh 1991 apply stationarity tests to the u s federal deficit similarly hakkio and rush 1991 test for cointegration between interest inclusive expenditures and revenues while bohn 1991 tests for the cointegration of debt non interest expenditures and revenues hakkio and rush s results suggest that the deficit is too large for intertemporal solvency and thus the government has an incentive to default on its debt they conclude that over the period 1950 through 1989 interest inclusive expenditures and revenues are cointegrated but not one to one this suggests that although the present discounted value of the debt tends to zero the undiscounted value of the debt will be unbounded moreover they find that interest inclusive expenditures are not cointegrated with revenues over the period 1964 to 1989 the government debt appears to drift upward without bound overall hakkio and rush s results suggest that the government will have an incentive to default on the debt at some point in the future 1 we look at the issue from a different point of view we believe that a discrete break in the fiscal process occurred in the early 1980s as a result of several policy changes such as the 1981 economic recovery and tax act during the first reagan administration this reagan era change is modeled as a one time upward shift in the constant component of the deficit as mccallum 1984 shows a constant interest inclusive deficit does not imply boundless growth of government debt and should not provide an incentive to inflate away the debt as did previous research we conduct tests for the cointegration of interest inclusive expenditures and revenues as well as stationarity tests on the deficit 2 however we allow a shift in the intercept term of the cointegration and stationarity tests to capture the break in the fiscal process our results show that when the break is included expenditures and revenues are cointegrated with a coefficient not statistically different from unity i e that the deficit is stationary this contradicts the conclusions of hakkio and rush of course the way we choose the break date may be crucial to our analysis our initial choice of break date is based on prior information this is the approach used by perron 1989 who tests the u s gnp with a break chosen using prior information christiano 1992 criticizes perron 1989 on the a priori choice of the break date he suggests that the break date should be chosen using a formal pre test procedure moreover any statistical inference that follows must take this pre test procedure into account

housing and the great depression this article considers the structural stability of the relationship between the real housing price and real gdp per capita for an annual sample that includes the great depression we test for structural change in parameter values using a sample of annual us data from 1890 to 1952 the article examines the long run and short run dynamic relationships between the real housing price and real gdp per capita to determine whether these relationships experienced structural change over the sample period we find that temporal granger causality exists between these two variables only for subsamples that include the great depression for the other subsample periods as well as for the entire sample period no relationship exists between these variables

human capital vs signalling explanations of wages increases wages by directly increasing the worker s productivity this learning explanation is usually associated with human capital theory however it seems unlikely that learning explains all the wage differences associated with schooling and work history better educated workers are not a random sample of workers they have lower propensities to quit or to be absent are less likely to smoke drink or use illicit drugs and are generally healthier it is unlikely that employers make full use of differences in propensities to quit or to be absent or sick when hiring workers these characteristics are often not directly observed and the americans with disabilities act precludes firms from using either poor health or the likelihood of future sickness as a hiring criterion unless it is directly related to job performance however if low levels of education are associated with these unfavorable employee characteristics and employers are allowed to take education into account when hiring workers we would expect employers to favor better educated workers as a means of reducing their costs of sickness and job turnover in turn students will take these hiring criteria into account when deciding how long to stay in school students will choose a length of schooling to signal their ability to employers and employers will demand a minimum level of schooling

the rising college premium in the eighties return to college or return to unobserved ability the changes in the distribution of earnings during the 1980s have been studied extensively the two most striking characteristics of the decade are a a large increase in the college high school wage gap and b a substantial rise in the variance of wage residuals while this second phenomenon is typically implicitly attributed to an increase in the demand for unobserved skill most work in this area fails to acknowledge that this same increase in demand for unobserved skill could drive the evolution of the measured college premium in its simplest form if higher ability individuals are more likely to attend college then the increase in the college wage premium may be due to a increase in the relative demand for high ability workers rather than an increase in the demand for skills accumulated in college this paper develops and estimates a dynamic programming selection model in order to investigate the plausibility of this explanation the results are highly suggestive that an increase in the demand for unobserved ability could play a major role in the growing college premium the changes in the distribution of earnings during the 1980s have been studied extensively the two most striking characteristics of the decade are a a large increase in the college high school wage gap and b a substantial rise in the variance of wage residuals while this second phenomenon is typically implicitly attributed to an increase in the demand for unobserved skill most work in this area fails to acknowledge that this same increase in demand for unobserved skill could drive the evolution of the measured college premium in its simplest form if higher ability individuals are more likely to attend college then the increase in the college wage premium may be due to an increase in the relative demand for high ability workers rather than an increase in the demand for skills accumulated in college this paper develops and estimates a dynamic programming selection model in order to investigate the plausibility of this explanation the results are highly suggestive that an increase in the demand for unobserved ability could play a major role in the growing college premium there are at least two reasons to be interested in this topic first for policy makers intent on helping the american workforce adjust to the changing wage structure this distinction is crucial if the value added of attending college truly rises they may consider policies aimed at subsidizing the skills learned in college however if it results from an increase in the payoff to other types of skills then policies focused on skill acquisition earlier in life would be more appropriate second it will also aid in understanding the

empirical analysis of the exchange rate channel in japan abstract this paper analyzes the significance of the exchange rate channel one of the transmission mechanisms of monetary policy it is important to evaluate this channel for japan because yen depreciation has been proposed as a policy to move the economy out of a liquidity trap our results suggest that in the past monetary expansion resulted in yen depreciation in the long and short run however there is no evidence to support the view that yen depreciation facilitated economic growth therefore we conclude that use of the exchange rate as a mechanism to boost the real economy was in our sample period at least premature

mismatch in human capital accumulation this article studies the allocation of heterogeneous agents to levels of educational attainment the goal is to understand the magnitudes and sources of mismatch in this assignment both in theory and in the data the article presents evidence of substantial mismatch between ability and educational attainment across 21 oecd countries with a main focus on germany italy japan and the united states model parameters are estimated using a simulated method of moments approach the main empirical finding is that measured mismatch arises largely from noise in test scores and does not reflect borrowing constraints taste shocks play a minor role in explaining mismatch

self exciting effects of house prices on unit prices in australian capital cities this paper examines the long and short run relationship between australian house and unit prices across all capital cities over the period december 1995 to june 2015 we find that house and unit prices are cointegrated and based on the results of granger causality and generalised impulse responses that house prices significantly influence unit prices across all cities however bi directional causality responses exists only for major capital cities with the exception of brisbane we also for the first time apply self excited threshold models to explore the complex interplay between house and unit prices in australia we find that when the market for units is self excited or bullish the positive effects of house prices on unit prices are noticeably larger than otherwise there is a varying degree of herd mentality in the australian property market with sydney and darwin being the most and least excitable capital cities respectively

price inertia and policy ineffectiveness in the united states 1890 1980 this paper introduces a new approach to the empirical testing of the lucas sargent wallace lsw policy ineffectiveness proposition which compares the lsw hypothesis with an alternative that states that prices respond fully in the long run but only gradually in the short run to nominal aggregate demand disturbances the empirical equations estimated for a new set of quarterly data extending back to 1890 exhibit uniformly high responses of real output and low responses of price changes to anticipated changes in nominal gnp the paper compares and tests three alternative methods of introducing persistence effects into the lsw framework

wages and prices in the uk this paper investigates the relationship between wages and prices in the uk using a vecm formulation and generalized impulse response functions and persistence profiles because of significant feedbacks it finds that fluctuations in wage growth cannot be used directly to predict fluctuations in inflation

the residential demand for electricity in australia an application of the bounds testing approach to cointegration this paper reports estimates of the long and short run elasticities of residential demand for electricity in australia using the bounds testing procedure to cointegration within an autoregressive distributive lag framework in the long run we find that income and own price are the most important determinants of residential electricity demand while temperature is significant some of the time and gas prices are insignificant our estimates of long run income elasticity and price elasticity of demand are consistent with previous studies although they are towards the lower end of existing estimates as expected the short run elasticities are much smaller than the long run elasticities and the coefficients on the error correction coefficients are small consistent with the fact that in the short run energy appliances are fixed

adaptive inventory control for nonstationary demand and partial information this paper examines several different policies for an inventory control problem in which the demand process is nonstationary and partially observed the probability distribution for the demand in each period is determined by the state of a markov chain the core process however the state of this core process is not directly observed only the actual demand is observed by the decision maker given this demand process the inventory control problem is a composite state partially observed markov decision process pomdp which is an appropriate model for a number of dynamic demand problems in practice managers often use certainty equivalent control cec policies to solve such a problem however this paper presents results that demonstrate that there are other practical control policies that almost always provide much better solutions for this problem than the cec policies commonly used in practice the computational results also indicate how specific problem characteristics influence the performance of each of the alternative policies

the overvaluation of purchasing power parity abstract recent panel studies of purchasing power parity have reported strong evidence of mean reversion in real exchange rates however these studies fail to control for cross sectional dependence in the data this failure has dramatic consequences raising the significance level of tests with a nominal size of 5 percent to as much as 50 percent it is shown in this paper that controlling for cross sectional dependence no evidence against the random walk null can be found in panels of up to 64 real exchange rates this finding cannot be attributed to low power as there is ample power in panels of this size to reject the unit root null