securitization and the balance sheet channel of monetary transmission abstract this paper shows that the balance sheet channel of monetary transmission is stronger for us banks that securitize their assets this finding is different in spirit from the widely found negative relationship between financial development and the strength of the lending channel of monetary transmission focusing on the balance sheet channel and using bank level observations we find that securitizing banks are more sensitive to borrowers balance sheets and that monetary policy has a greater impact on this sensitivity for securitizing banks the optimality conditions from a simple partial equilibrium framework suggest that the positive effects of securitization on policy effectiveness could be due to the high sensitivity of security prices to policy rates

taxes benefits and careers complete versus incomplete markets abstract an incomplete market life cycle model with indivisible labor makes career lengths and human capital accumulation respond to labor tax rates and government supplied non employment benefits we compare aggregate and individual outcomes in this individualistic incomplete market model with those in a comparable collectivist representative family model with employment lotteries and complete insurance markets the incomplete and complete market structures assign leisure to different types of individuals who are distinguished by their human capital and age these microeconomic differences distinguish the two models in terms of how macroeconomic aggregates respond to some types of government supplied non employment benefits but remarkably not to labor tax changes

raising children to work hard altruism work norms and social insurance children who can count on support from altruistic parents may not try hard to succeed in the labor market moreover parental altruism makes withdrawal of such support non credible to promote work

simple analytics of segmented markets what case for liberalization abstract discussion about the liberalization of controlled markets in developing countries frequently assumes that the removal of price or quantity restrictions will lead rapidly to increased marketed output however when parallel markets exist market controls may not depress marketed output and may actually increase it conversely liberalization may not increase marketed output much if at all the benefits of liberalization will be greater where parallel markets are costly to enter so that decontrol increases efficiency and scarce resources such as entrepreneurial and administrative ability are diverted into the rent seeking activity of gaining access to illegal parallel markets this paper employs partial equilibrium techniques to analyze market controls and liberalization in the presence of parallel markets for foodgrains credit labor and foreign exchange

computing multi period information constrained optima this paper presents a detailed theoretical derivation and justification for methods used to compute solutions to a multi period including infinite period continuum agent unobservedeffort economy actual solutions are displayed illustrating cross sectional variability in consumption and labour effort in the population at a point in time and variability for a typical individual over time the optimal tradeoff between insurance and incentives is explored and the issue of excess variability is addressed by consideration of the analogue full information economy and various restricted contracting regimes

using elasticities to derive optimal income tax rates this paper derives optimal income tax formulas using compensated and uncompensated elasticities of earnings with respect to tax rates a simple formula for the high income optimal tax rate is obtained as a function of these elasticities and the thickness of the top tail of the income distribution in the general non linear income tax problem this method using elasticities shows precisely how the different economic effects come into play and which are the key relevant parameters in the optimal income tax formulas of mirrlees the optimal non linear tax rate formulas are expressed in terms of elasticities and the shape of the income distribution these formulas are implemented numerically using empirical earning distributions and a range of realistic elasticity parameters

processing and preparation costs for rice and coarse grains in urban mali subjecting an ipse dixit to empirical scrutiny abstract this article uses household survey data from bamako mali to address three questions important in the policy debate concerning the determinants of the substitution from coarse grains to rice in west african diets and policy options the questions are 1 what are the relative costs of rice and coarse grain based dishes with and without complementary sauce costs 2 what are the shares in total cost of individual processing and preparation stages 3 are pre processed coarse grains e g dehulled grain or flour cheaper to consume than coarse grains processed in the household contrary to prevailing opinion the paper shows that despite higher processing costs coarse grain based dishes are cheaper than rice based dishes the main contributory factors to the higher cost of rice based dishes are sauce cost cereal cost and preparation cooking and sauce preparation time the result holds true over a wide range of rice and coarse grain prices and opportunity costs of women s time suggesting that the finding applies more generally to the urban sahel and not just bamako moreover coarse grain based dishes need not take longer to process and prepare than rice based dishes if the dehulling step is mechanized however pre processed coarse grains are not competitive with household processing given present technology and opportunity costs of women s time nor will coarse grains be able to retain the extent of their cost advantage over rice as incomes and labor opportunity costs rise without improvements in the efficiency of processing services

money and market incompleteness in overlapping generations models abstract this paper investigates the extent to which the character of equilibria in stochastic overlapping generations models stems from the model s generic market incompleteness in addition it addreses the question of whether money serves to complete markets in these models we show that money does not complete markets in the sense of expanding the set of state contingent commodities that an individual may trade the introduction of money effects state contingent transfers of wealth between individuals this is a generalization of a result obtained by marshall sonstelie and gilles 1987 numerical simulation of the model suggests that the risk sharing induced in the monetary economy leads to substantial increases in welfare levels relative to the nonmonetary economy

an empirical model of labor supply in a life cycle setting this paper formulates and estimates a structural intertemporal model of labor supply using theoretical characterizations derived from an economic model of lifetime behavior a two step empirical analysis yields estimates of intertemporal and uncompensated substitution effects which provide the information needed to predict the response of hours of work to life cycle wage growth and shifts in the lifetime wage path

optimal grain pricing and storage policy in controlled agricultural economies application to zimbabwe abstract maize pricing and storage policies of zimbabwe s grain marketing board are compared to those that would be optimal under certain objective function risk and risk aversion assumptions optimal producer prices and storage levels are found to be interdependent and to respond to prices at other levels of the marketing chain the ideal maize reserve stock increases with uncertainty over import transportation costs a factor to consider in light of the threat of south african sanctions but at a reasonable risk aversion level optimal reserves still are much lower than those presently held by the board

an improved maize marketing system for african countries the case of zimbabwe abstract access to food is essential to survival and access to markets is essential for development most parastatal marketing systems in africa have failed either to provide adequate links between surplus and deficit areas or to extend markets to scattered smallholders or both the parastatal system does provide a legitimate need but it has been frequently misapplied this article proposes a system for zimbabwe which retains government control of national stocks and enables the parastatal to stabilize prices at the same time ensuring a more rational delivery system in rural areas with prices reflecting storage and transport costs the local population is encouraged to fulfill local needs thus avoiding the expense of directing all marketing and processing through the urban areas a more localized system will also have greater multiplier effects

macroeconomic adjustment and human nutrition abstract the macroeconomic adjustments made by most developing countries over the past decade to cope with economic crises have in many cases had severe effects on the poor these effects have often been ignored in planning but it is important to address them both to avoid human suffering and to facilitate economic growth this article provides a brief synthesis of current knowledge about the short term effects of macroeconomic adjustment policies on the nutritional status of the poor and proposes action to improve the nutrition effects of future adjustment programmes

nobel lecture the transformation of macroeconomic policy and research what i am going to describe for you is a revolution in macroeconomics a transformation in methodology that has reshaped how we conduct our science prior to the transformation macroeconomics was largely separate from the rest of economics indeed some considered the study of macroeconomics fundamentally different and thought there was no hope of integrating macroeconomics with the rest of economics that is with neoclassical economics others held the view that neoclassical foundations for the empirically determined macro relations would in time be developed neither view proved correct finn kydland and i have been lucky to be a part of this revolution and my address will focus heavily on our role in advancing this transformation now all stories about transformation have three essential parts the time prior to the key change the transformative era and the new period that has been affected by the change and that is the story i am going to tell how macroeconomic policy and research changed as a result of the transformation of macroeconomics from constructing a system of equations of the national accounts to an investigation of dynamic stochastic model economies

social interaction effects in disability pension participation evidence from plant downsizing we estimate the magnitude of social interaction effects in disability pension participation among older workers in norway the problem of omitted variable bias is addressed using the exposure of an individual s neighbors to plant downsizing events as an instrument for the disability entry rate among the individual s previously employed neighbors our instrumental variable iv estimates suggest that an increase of one percentage point in the participation rate of previously employed neighbors increased the subsequent four year entry rate of older workers by about 0 4 percentage points numerous robustness and specification tests appear to support the validity of the identifying assumption in our iv strategy

the impact of unemployment insurance benefit levels on recipiency this article studies the effect of unemployment insurance benefit levels on recipiency increasing benefit levels as measured by the fraction of weekly earnings of the lost job that they replace is found to significantly increase the probability of unemployment insurance recipiency among the eligible there is some evidence however that the effect is smaller at high replacement rates cost increases resulting from take up responses are found to be substantial for increases in the state s maximum benefit amount and for increases in the weekly benefit amount in low replacement rate states

the welfare cost of business cycles revisited finite lives and cyclical variation in idiosyncratic risk abstract this paper investigates the welfare costs of business cycles in a heterogeneous agent overlapping generations economy which is distinguished by idiosyncratic labor market risk aggregate variation arises both in terms of aggregate productivity shocks and countercyclical variation in the volatility of idiosyncratic shocks based on both aggregate data and microeconomic data from the panel study on income dynamics we find the welfare benefits of eliminating aggregate variation to be large an order of magnitude larger than those originally documented by lucas 1987 the key difference is countercyclical variation in idiosycratic risk which both amplifies the welfare cost of aggregate productivity shocks and imposes a cost of its own the magnitude of these effects increases non linearly in risk aversion our results therefore are consistent with the increasingly popular notion that distributional effects are an important aspect of understanding the welfare cost of business cycles

crime and social interactions the high variance of crime rates across time and space is one of the oldest puzzles in the social sciences this variance appears too high to be explained by changes in the exogenous costs and benefits of crime we present a model where social interactions create enough covariance across individuals to explain the high cross city variance of crime rates this model provides an index of social interactions which suggests that the amount of social interactions is highest in petty crimes moderate in more serious crimes and almost negligible in murder and rape

an economic model of welfare stigma perhaps the most basic assumption of the economic theory of consumer demand is that more is better than less virtually all of the major propositions of consumer theory can in a certain sense be derived from the assumption that goods are good interestingly however this tenet seems to be violated by the behavior of many individuals in the low income population for many turn out to be eligible for a positive welfare benefit but do not in fact join the welfare rolls for example it has been estimated that in 1970 only about 69 percent of the families eligible for afdc aid to families with dependent children participated in the program see richard michel 1980 the corresponding percentage for afdc u the program for which families with an unemployed male are eligible was only 43 percent and the participation rate in the food stamp program was only 38 percent see maurice mcdonald 1977 this phenomenon has puzzled many investigators because such individuals do not locate on the boundaries of their budget sets consequently most investigators ignore the problem when studying the effects of welfare programs on behavior in this paper this seemingly irrational rejection of an increase in income is modeled as resulting from welfare stigma that is from disutility arising from participation in a welfare program per se 1 the existence of stigma has been amply documented in the sociological literature patrick horan and patricia austin 1974 lee rainwater 1979 where interviews of recipients have often uncovered feelings of lack of self respect and negative self characterizations from participation in welfare nevertheless this phenomenon has not been modeled and many questions consequently remain when is the disutility of participation strong enough to prevent participation shouldn t we expect individuals to weigh the disutility of participation against the potential benefit in their decisions what is the elasticity of participation with respect to the potential benefit also in a slightly different vein how are the work disincentives of welfare affected by stigma these questions have been given scant attention by economists yet they are crucial for our ability to predict the impact of various welfare programs on the lowincome population here these questions are addressed by modeling nonparticipation as a utility maximizing decision the model is developed and estimated for the afdc program 2 the model posits an individual utility function containing not just disposable income but

choice of technology in small and large firms grain milling in tanzania abstract it is not uncommon to find many production units in low income labor abundant and capital scarce economies such as tanzania employing sophisticated and capital intensive production techniques in such circumstances a technology choice problem exists in the sense that the technologies in use and more often the products being produced are not compatible with the resource endowment of the economy and the income levels of the majority of the population this paper evaluates the relative performance of small and large scale grain milling techniques in tanzania to identify appropriate ones and explain why some firms select inappropriate techniques and products the consequences of technology choice are then discussed within the context of employment creation output expansion surplus generation skill formation economies of scale and overall resource use

immigration and the welfare state immigrant participation in means tested entitlement programs this paper documents the extent to which immigrants in the united states over the past 30 years participate in the many programs that make up the welfare state the immigrant native difference in the probability of receiving cash benefits is small but the gap widens once other programs are included in the analysis 21 percent of immigrant households receive some type of assistance as compared with only 14 percent of native households the types of benefits received by earlier immigrants influence the types of benefits received by newly arrived immigrants hence there might be ethnic networks that transmit information about the availability of particular benefits to new immigrants excerpt

supply side hysteresis the case of the canadian unemployment insurance system abstract this paper presents results from a 1971 natural experiment carried out by the canadian government on the unemployment insurance system at that time the generosity of the ui system was increased dramatically we find some evidence that the propensity to collect ui increases with a first time exposure to the new ui system hence as more individuals experience unemployment their lifetime use of the system increases this supply side hysteresis effect may explain why unemployment has steadily increased over the 1972 1992 period even though the generosity of unemployment insurance did not

understanding welfare stigma taxpayer resentment and statistical discrimination abstract welfare stigma is widely regarded to be of central importance in understanding the impact of welfare programs in their goal of alleviating poverty it affects both the decision to take up benefits and the well being of those who actually do this paper develops alternative models of the determinants of welfare stigma we identify two views a statistical discrimination approach and a taxpayer resentment view we discuss how each may be formalized and derive their implications we then examine what they imply about the relationship between stigma and program design

insurance and opportunities a welfare analysis of labor market risk abstract using a model with constant relative risk aversion preferences endogenous labor supply and partial insurance against idiosyncratic wage risk this paper provides an analytical characterization of three welfare effects a the welfare effect of a rise in wage dispersion b the welfare gain from completing markets and c the welfare effect from eliminating risk the analysis reveals an important trade off for these welfare calculations on the one hand higher wage uncertainty increases the cost associated with missing insurance markets on the other hand greater wage dispersion presents opportunities to raise aggregate productivity by concentrating market work among more productive workers welfare effects can be expressed in terms of the underlying parameters defining preferences and wage risk or alternatively in terms of changes in observable second moments of the joint distribution over individual wages consumption and hours

recent trends in insured and uninsured unemployment is there an explanation this paper explores the recent decline in the fraction of unemployed workers who receive unemployment insurance benefits using march current population surveys we compare the fraction who are potentially eligible for benefits with the fraction who receive them the decline in insured unemployment is almost entirely due to a decline in the early 1980s in the takeup rate for benefits we analyze the determinants of the takeup rate using both aggregated state level data and micro data at least half the decline is due to an increasing share of unemployment in states with lower takeup rates

discrete choice with social interactions this paper provides an analysis of aggregate behavioural outcomes when individual utility exhibits social interaction effects we study generalized logistic models of individual choice which incorporate terms reflecting the desire of individuals to conform to the behaviour of others in an environment of noncooperative decisionmaking laws of large numbers are generated in such environments multiplicity of equilibria in these models which are equivalent to the existence of multiple self consistent means for average choice behaviour will exist when the social interactions exceed a particular threshold local stability of these multiple equilibria is also studied the properties of the noncooperative economy are contrasted with the properties of an economy in which a social planner determines the set of individual choices finally a likelihood function based on the theoretical model is given and conditions for the econometric identifiability of the model are established

incomplete markets labor supply and capital accumulation we explore the accumulation of capital in the presence of limited insurance against idiosyncratic shocks borrowing constraints and endogenous labor supply in the exogenous labor supply case e g aiyagari 1994 huggett 1997 the presence of limited insurance increases the demand for savings for precautionary reasons as a consequence capital and output are higher under incomplete markets we show that if labor hours are endogenous labor supply is likely to be lower under incomplete markets because those agents who experience a high shock to productivity are ex post richer and they work fewer hours in some cases this wealth effect can overcome the aggregate precautionary savings and give rise to lower savings and output under incomplete

the role of unemployment insurance in an economy with liquidity constraints and moral hazard the potential welfare benefits of unemployment insurance along with the optimal replacement ratio are studied using a quantitative dynamic general equilibrium model to provide a role for unemployment insurance agents in our economy face exogenous idiosyncratic employment shocks and are unable to borrow or insure themselves through private markets in the absence of moral hazard replacement ratios as high as 65 are optimal and the welfare benefits of unemployment insurance are quite large however if there is moral hazard and the replacement ratio is not set optimally but is instead set to an empirically plausible value the economy can be much worse off than it would be without unemployment insurance

disability earnings income and consumption using longitudinal data for the period 1968 2005 for a sample of male household heads we determine the prevalence of disability during the working years and examine how the extent of disability affects a range of outcomes including earnings income and consumption we have seven main findings first disability rates are high we divide the disabled along two dimensions based on the persistence and severity of their work limiting condition we estimate that a person reaching age 56 has a 53 percent chance of having been disabled at least once during his working years and a 19 percent chance that he has begun a chronic and severe disability second the economic consequences of disability are frequently profound ten years after disability onset a person with a chronic and severe disability on average experiences a 68 percent decline in earnings a 32 percent decline in after tax income a 22 percent decline in food and housing consumption and a 21 percent decline in food consumption third the various economic consequences differ sharply across disability groups the outcome declines for those with a chronic and severe disability are often more than twice as large as those for the average disabled fourth our findings show the partial and incomplete roles that individual savings family support and social insurance play in reducing the consumption drop that follows disability only about half of this most disabled group reports receiving social security disability insurance or supplemental security income fifth we find a noticeable fall in earnings and income prior to the onset of a reported disability consumption also falls somewhat suggesting that future disability is partially but incompletely predictable in the short run sixth time use and detailed consumption data further indicate that disability is associated with a decline in well being seventh the quantities we have estimated combined with elasticities from the literature allow us to examine the optimality of current compensation for the disabled we find that the current compensation for our most disabled group appears to be lower than is optimal

the privatization of agricultural trading in malawi abstract this paper examines the privatization of smallholder agricultural output marketing in malawi despite problems with implementing the privatization program including serious disruptions in the supply of maize the staple food the move toward greater private sector involvement in agricultural marketing has been successful nonetheless several medium term development issues e g food security and buyer and seller of last resort functions need to be addressed in the context of relations between the marketing parastatal admarc and the private sector before the policy change can be regarded as fully successful

on the quantitative importance of market completeness abstract this paper quantitatively compares allocations in calibrated large overlapping generations growth models that only differ in their market structures for insuring against aggregate risk the findings are that the equilibrium behavior of aggregate variables is very similar across all market structures there are only minor differences the ratio of the volatility of aggregate consumption relative to that of investment is higher in complete market economies due partly to the higher volatility of consumption of older people it was also found that the risk premia in complete markets economies is basically zero therefore we can conclude that we can for the most part abstract from the issue of whether there exist markets for aggregate risk

unemployment insurance takeup rates and the after tax value of benefits the recent decline in the unemployment insurance ui takeup rate has puzzled researchers using administrative data with accurate information on the potential level and duration of benefits we examine whether a separating employee receives ui we find a strong positive effect of the benefit level on takeup and smaller effects of the potential duration and the tax treatment of benefits simulations indicate that the recent inclusion of ui in the income tax base can account for most of the previously unexplained decline in ui receipt

money and redistribution revisionist notes on a problem of samuelson abstract this paper disputes the view that money remedies a friction of overlapping generations its arguments are based upon the numerical example of samuelson 1958 it shows that there is a one to one mapping from equilibria in a system of complete timeless markets to the sequential equilibria usually studied friction is absent in that sense further monetary injection is not unique in converting inefficiency to efficiency the same conversion is possible in markets for consumption loans the common factor of both conversions is redistribution of wealth prior to trade such redistributions correspond to redistributions of numeraire in complete timeless markets

identifying the balance sheet and the lending channels of monetary transmission a loan level analysis abstract we make a novel attempt at comparing the strength of the lending and balance sheet channels of monetary transmission to make this comparison we use loan level data to determine how borrower balance sheets and bank liquidity are related to bank lending decisions and how monetary policy can affect these relationships the key innovation in this paper is the use of loan level data this enables us to measure the independent effects of the two channels and directly account for borrower balance sheets and lender liquidity instead of using proxies our results show that the balance sheet channel is the main mechanism through which monetary policy shocks are transmitted to the economy and that the lending channel does not play a significant role

asset pricing puzzles and incomplete markets the representative agent theory of asset pricing is modified to incorporate heterogeneous agents and incomplete markets the model features two types of agents who differ up to a nontradable idiosyncratic component in their endowment processes numerical solutions indicate that individuals are able to diversify a substantial portion of their idiosyncratic income risk through riskless borrowing and lending alone restrictions on the variability of intertemporal marginal rates of substitution hansen and jagannathan 1991 are used to argue that incomplete markets as modeled here cannot account for the properties of asset returns that are anomalous from the perspective of representative agent theory a large literature in financial economics has investigated the extent to which variants of the lucas 1978 general equilibrium theory of asset pricing can account for the joint behavior of aggregate u s consumption and asset returns by and large this literature has concluded that a theory based upon frictionless arrow debreu markets and or a representative agent makes strongly counterfactual predictions regarding even the simple unconditional properties of this relationship mehra and prescott 1985 for instance show that the theory drastically underpredicts the average excess rate of return on u s stocks the so called equity premium puzzle weil 1989 points out as did mehra and prescott that the magnitude of the average risk free rate is far below that predicted by the theory this has been dubbed the risk free rate puzzle numerous authors including grossman melino and shiller 1987 and backus gregory and zin 1989 show that the theory cannot account for term premia inherent in the yield curve hodrick 1987 surveys a large literature which documents the theory s shortcomings in accounting for excess expected returns in foreign exchange markets the notion that the representative agent model cannot account for excess returns across a wide array of asset markets can be made more precise by using tools developed by hansen and jagannathan 1991 and shiller 1982

optimal income transfer programs intensive versus extensive labor supply responses this paper analyzes optimal income transfers for low incomes labor supply responses are modeled along the intensive margin intensity of work on the job and along the extensive margin participation into the labor force when behavioral responses are concentrated along the intensive margin the optimal transfer program is a classical negative income tax program with a substantial guaranteed income support and a large phasing out tax rate however when behavioral responses are concentrated along the extensive margin the optimal transfer program is similar to the earned income tax credit with negative marginal tax rates at low income levels and a small guaranteed income carefully calibrated numerical simulations are provided

network effects and welfare cultures we empirically examine the role of social networks in welfare participation using data on language spoken at home to better infer networks within an area our empirical strategy asks whether being surrounded by others who speak the same language increases welfare use more for those from high welfare using language groups this methodology allows us to include local area and language group fixed effects and to control for the direct effect of being surrounded by one s language group these controls eliminate many of the problems in previous studies the results strongly confirm the importance of networks in welfare participation

endogenous market incompleteness with investment risks abstract this paper studies a general equilibrium economy in which agents have the ability to invest in a risky technology the investment risk cannot be fully insured with optimal contracts because shocks are private information we show that the presence of investment risks lead to under accumulation of capital relative to an economy where idiosyncratic shocks can be fully insured we also show that the availability of state contingent optimal contracts compared to simple debt contracts brings the aggregate stock of capital close to the complete markets level institutional reforms that make possible the use of these contracts have important welfare consequences

the role of information and social interactions in retirement plan decisions evidence from a randomized experiment this paper analyzes a randomized experiment to shed light on the role of information and social interactions in employees decisions to enroll in a tax deferred account tda retirement plan within a large university the experiment encouraged a random sample of employees in a subset of departments to attend a benee ts information fair organized by the university by promising a monetary reward for attendance the experiment multiplied by more than e ve the attendance rate of these treated individuals relative to controls and tripled that of untreated individuals within departments where some individuals were treated tda enrollment e ve and eleven months after the fair was signie cantly higher in departments where some individuals were treated than in departments where nobody was treated however the effect on tda enrollment is almost as large for individuals in treated departments who did not receive the encouragement as for those who did we provide three interpretations differential treatment effects social network effects and motivational reward effects to account for these results

full insurance in the presence of aggregate uncertainty this paper tests implications of full consumption insurance the object is to determine how much mileage can be obtained from a model with complete markets with such features as private information or liquidity constraints omitted the implication exploited is that individual consumption responds to aggregate risk but not to idiosyncratic risk the test involves regressing the change in household consumption onto the change in aggregate consumption and other right hand side variables such as the change in household income and change in employment status all variables other than the change in aggregate consumption are predicted to be insignificant in explaining the change in household consumption with observations on consumption and income for 10 695 households from the consumer expenditure survey the results are mixed the results for one specification exponential utility are mostly consistent with full consumption insurance the results for the other specification power utility are not

financial integration entrepreneurial risk and global dynamics abstract how does financial integration impact capital accumulation current account dynamics and cross country inequality we investigate this question within a two country general equilibrium incomplete markets model that focuses on the importance of idiosyncratic entrepreneurial risk a risk that introduces not only a precautionary motive for saving but also a wedge between the interest rate and the marginal product of capital our contribution is to show that this friction provides a simple explanation for the emergence of global imbalances a resolution to the empirical puzzle that capital often fails to flow from the rich or slow growing countries to the poor or fast growing ones and a set of policy lessons regarding the intertemporal costs and benefits of capital account liberalization

exploring the income distribution business cycle dynamics abstract we document the business cycle behavior of the us income distribution and explore the extent to which unemployment spells and cyclically moving factor shares account for this behavior by analyzing four heterogeneous household extensions of the neoclassical growth model we conclude i that partitioning the population into five types subject to type specific employment processes seems to be enough to account for most aspects of the us income distribution business cycle dynamics ii that the role played by cyclically moving factor shares is small and iii that the income distribution business cycle dynamics may be essentially independent from the significant part of the observed wealth concentration that these model worlds fail to account for

takeup social multipliers and optimal social insurance abstract this paper examines the optimal provision of unemployment insurance ui in a framework that accounts for behavioral responses along both the intensive and extensive margins two formulations of takeup are considered in the first individuals face a takeup cost that is exogenous in the second the cost depends endogenously on the takeup rate such endogenous costs to takeup lead to a social multiplier a reduced form parameter summarizing the strength of social interactions this paper derives a formula for the optimal replacement rate in terms of the takeup and duration elasticities and the social multiplier the formula is applied by estimating the social multiplier using policy variation in ui benefit levels the results suggest that social multiplier effects account for 35 of the total effect of ui on takeup and yield an optimal replacement rate around 60 of pre unemployment wages 20 higher than previous estimates

should unemployment insurance vary with the unemployment rate theory and evidence we study how the marginal welfare gain from increasing the unemployment insurance ui bene t level varies over the business cycle we do this by estimating how the moral hazard cost and the consumption smoothing bene t of ui vary with labor market conditions which we identify using variation in the interaction of ui bene t levels with the unemployment rate within u s states over time we nd that the moral hazard cost is procyclical greater when the unemployment rate is relatively low by contrast we do not nd evidence that the consumption smoothing bene t varies with the unemployment rate we use these empirical results to estimate the marginal welfare gain and we nd that it is modest on average but varies positively with the unemployment rate jel h5 j64 j65

a simple test of consumption insurance are consumers effectively insured against idiosyncratic shocks to income or wealth either by formal institutions such as charities private insurance and government programs or by informal mechanisms such as gifts and loans from relatives friends and neighbors under full insurance consumption growth should be cross sectionally independent of idiosyncratic variables that are exogenous to consumers this proposition is tested by cross sectional regressions of consumption growth on a variety of exogenous variables full insurance is rejected for long illness and involuntary job loss but not for spells of unemployment loss of work due to strike and an involuntary move

false promise or false premise the experience of food and input market reform in eastern and southern africa abstract the literature on the effects of agricultural market reform in africa is sharply divided and inconsistent this article attempts to reconcile opposing viewpoints on the effects of food and input market policy reform in eastern and southern africa drawing from studies of ethiopia kenya malawi zambia and zimbabwe we argue that a major source of the controversy stems from assumptions that countries have actually moved to a liberalized market environment we find that many of the most fundamental elements of the reform programs either remain unimplemented were reversed within several years or were implemented in such a way as to negate private sector investment incentives a framework is developed for explaining why some countries have been able to liberalize their food and fertilizer markets while others have not these findings have implications for how donor assistance and policy oriented research can more constructively contribute to an improved policy environment

identification of endogenous social effects the reflection problem this paper examines the reflection problem that arises when a researcher observing the distribution of behaviour in a population tries to infer whether the average behaviour in some group influences the behaviour of the individuals that comprise the group it is found that inference is not possible unless the researcher has prior information specifying the compisition of reference groups if this information is available the prospects for inference depend critically on the population relationship between the variables defining reference groups and those directly affecting outcomes inference is difficult to implossible if these variables are functionally dependent or are statistically independent the prospects are better if the variables defining reference groups and those directly affecting outcomes are moderately related in the population

maize milling market reform and urban food security the case of zimbabwe abstract government policy in much of eastern and southern africa has encouraged the development of highly centralized large scale milling facilities which has in turn promoted the consumption of highly refined and expensive maize meal compared to that produced by small scale hammer mills policies to develop competitive small scale milling facilities in urban areas are apparently neglected because of the conventional perception in eastern and southern africa that urban consumers strongly prefer the refined industrially milled meals and are not responsive to price differences between various types of maize meals results of consumer and miller surveys in zimbabwe call into question the validity of these perceptions simulation analysis also indicates that the elimination of policy constraints that block small scale millers access to grain would reduce overall marketing costs thereby allowing higher producer prices lower consumer prices and or lower government subsidies the case of zimbabwe suggests that market reform may considerably reduce the magnitude of the tradeoff between governments food security and budget minimization objectives

household choices in equilibrium this paper is an empirical investigation of equilibrium restrictions on household consumption and male labor supply it exploits a simple factor structure rationalized by two assumptions that household allocations are pareto optimal and that the labor market is competitive the paper estimates household preferences and tests how well this parsimonious factor structure represents panel data on married couples and time series data on asset returns most of the estimates are roughly comparable to those found in previous work no evidence against the simple factor representation is found and the intertemporal capital asset pricing model is not rejected copyright 1990 by the econometric society

efficient allocations with hidden income and hidden storage we consider an environment in which individuals receive income shocks that are unobservable to others and can privately store resources we provide a simple characterization of the unique efficient allocation of consumption in cases in which the rate of return on storage is sufficiently high or alternatively in which the worst possible outcome is sufficiently dire we show that unlike in environments without unobservable storage the symmetric efficient allocation of consumption is decentralizable through a competitive asset market in which individuals trade riskfree bonds among themselves in this paper we consider an environment in which individuals have random income and can accumulate assets through a storage technology their income realizations and their asset position are private information given these informational frictions we provide a simple characterization of the unique efficient allocation of consumption in cases in which the rate of return on storage is sufficiently high or alternatively in which the worst possible outcome is sufficiently dire we show that the symmetric efficient allocation of consumption is decentralizable through a competitive asset market in which individuals trade risk free bonds among themselves there is a large prior literature which examines the characteristics of efficient risksharing in dynamic settings in the presence of private information unlike our paper this literature generally finds that efficient allocations do not coincide with the equilibrium allocations of any economy with a competitive bond market see atkeson and lucas 1992 in particular the key difference between our paper and these preceding ones is that the earlier literature assumes either that agents cannot accumulate resources over time or that if they can this accumulation is observable in contrast we assume that both agents incomes and their stored resources are private information it is this combination of assumptions that leads to our result our findings are reminiscent of allen s 1985 he considers a dynamic principalagent relationship in which the agent is risk averse and has hidden stochastic income the

structural adjustment and the welfare of rural smallholders a comparative analysis from sub saharan africa the direction and level of changes in real incomes brought about by structural adjustment are determined by a variety of factors including sources of income patterns of expenditures and movements in relative prices in the wake of adjustment an econometric model is used to derive an index of real income which is employed for data from cote d ivoire ghana malawi madagascar and tanzania no systematic changes in relative prices and especially in the ratio of tradable to nontradable prices were noted after the beginning of adjustment although the diversity of income sources implies that the implications of movements in relative prices on smallholder welfare are indeed complex the results indicate that there is no unequivocal pattern of increase or decline in the real welfare of the rural poor but that there are marked differences among countries and regions

the social multiplier aggregate data is often used to make inferences about individual level behavior if there are social interactions in which one person s actions influence his neighbor s incentives or information then these inferences are inappropriate the presence of positive social interactions or strategic complementarities implies the existence of a social multiplier where aggregate relationships will overstate individual elasticities we present a brief model and then estimate the size of the social multiplier in three areas the impact of education on wages the impact of demographics on crime and group membership among dartmouth roommates in these contexts there is a significant social multiplier jel ho jo co

unravelling zimbabwe s food insecurity paradox implications for grain market reform in southern africa abstract the organization of zimbabwe s grain market while stimulating production and incomes in high potential smallholder areas since independence has actually contributed to food insecurity among grain deficit households in semi arid areas results of an econometric model indicate that over 100 000 tonnes of expensive commercial maize meal flow annually into rural areas while grain flows out through the state marketing channel this circuitous movement of grain a symptom of poorly functioning intrarural grain trade has effectively reduced incomes among poor rural consumers by as much as 30 the promotion of intrarural trade will require the removal of government restrictions and other critical barriers to private investment in grain trading

networks or neighborhoods correlations in the use of publicly funded maternity care in california abstract this study focuses on network effects in the utilization of publicly funded prenatal care using vital statistics data from california for 1989 2000 networks are defined using 5 digit zip codes and a woman s racial or ethnic group like others we find evidence that the use of public programs is highly correlated within groups defined using race ethnicity and neighborhoods these correlations persist even when we control for many unobserved characteristics by including zip code year fixed effects and when we focus on the interaction between own group behavior and measures of the potential for contacts with other members of the group contact availability however the richness of our data allows us to go further and to conduct several tests of one important hypothesis about networks that the estimated effects represent information sharing within groups the results cast doubt on the idea that the observed correlations can be interpreted as evidence of information sharing in particular we find estimated effects to be as large or larger among women who have previously used the program as among first time users

grain marketing regulations impact on peasant production in ethiopia abstract during the past 10 years ethiopia has established an elaborate system of trade restrictions producer quotas and fixed producer prices for purchasing a substantial proportion of peasants marketable surplus recent evidence suggests that the quotas are inequitably allocated among areas and that low fixed prices reduce farmer incomes incentives to use improved inputs and grain production regulation of marketplaces and interregional grain trade have important negative effects on consumers producers and the national economy by increasing grain prices the state can stimulate production and ensure adequate supplies of grain without the need for compulsory quotas relaxing the restrictions on marketplaces and on interregional trade can benefit farmers consumers and the national economy with few costs

unemployment insurance and unemployment spells this paper tests the effects of the level and length of unemployment insurance benefits on unemployment durations the paper particularly studies individual behavior during the weeks just prior to when benefits lapse higher unemployment insurance benefits are found to have a strong negative effect on the probability of leaving unemployment however the probability of leaving unemployment rises dramatically just prior to when benefits lapse individual data are used with accurate information of spell durations and the level and length of benefits the semiparametric estimation techniques used in the paper yield more plausible estimates than conventional approaches and provide useful diagnostics copyright 1990 by the econometric society

an empirical analysis of stock and bond market liquidity this article explores cross market liquidity dynamics by estimating a vector autoregressive model for liquidity bid ask spread and depth returns volatility and order flow in the stock and treasury bond markets innovations to stock and bond market liquidity and volatility are significantly correlated implying that common factors drive liquidity and volatility in these markets volatility shocks are informative in predicting shifts in liquidity during crisis periods monetary expansions are associated with increased liquidity moreover money flows to government bond funds forecast bond market liquidity the results establish a link between macro liquidity or money flows and micro or transactions liquidity a number of important theorems in finance rely on the ability of investors to trade any amount of a security without affecting the price however there exist several frictions 1 such as trading costs short sale restrictions and circuit breakers that impact price formation the influence of market imperfections on security pricing has long been recognized liquidity in particular has attracted a lot of attention from traders regulators

precautionary saving and consumption fluctuations this paper uses the consumption euler equation to derive a decomposition of consumption growth into four sources these four sources are new information and three sources of predictable consumption growth intertemporal substitution changes in the preferences for consumption and incomplete markets for consumption insurance using household level data we implement this decomposition for the average growth rate of consumption expenditures on nondurable goods in the united states from 1982 to 1997 the economic importance of precautionary saving rivals that of the real interest rate but the relative importance of each source of movement in the volatility of consumption is not precisely measured

cost of business cycles with indivisibilities and liquidity constraints it is almost universally agreed that individuals face incomplete insurance markets and cannot perfectly insure against the idiosyncratic risk in this paper simple general equilibrium models with incomplete insurance markets are examined in order to assess the impact of imperfect insurance on the magnitude of the welfare costs of business cycles two versions of incomplete insurance markets are considered and certain statistical properties of the equilibrium stochastic processes in these environments are compared with those of a perfect insurance economy

the computational experiment an econometric tool an economic experiment consists of the act of placing people in an environment desired by the experimenter who then records the time paths of their economic behavior performing experiments that use actual people at the level of national economies is obviously not practical but constructing a model economy and computing the economic behavior of the model s people is such experiments are termed computational this essay specifies the steps in designing a computational experiment to address some well posed quantitative question the authors emphasize that the computational experiment is an econometric tool used in the task of deriving the quantitative implications of theory

the response of household incomes to stock price and gdp growth by income quantile how household incomes respond to gdp and stock price growth is important for an understanding of the economic costs of business cycles and the driving forces of income inequality over time this article examines to what extent household incomes react differently across income distribution quantiles and time it employs u s panel study of income dynamics data for the period 1979 2000 and quantile regression techniques significant differences are found in how household incomes respond across income quantiles for the same income quantiles large differences are identified when the time period 1979 1987 is compared to 1988 2000 the content of the article reflects the personal opinion of the authors and should not be associated with fedex services or any of its affiliated companies

intergenerational redistribution in the great recession in this paper we construct a stochastic overlapping generations general equilibrium model in which households are subject to aggregate shocks that aect both wages and asset prices we use a calibrated version of the model to quantify how the welfare costs of severe recessions are distributed across dierent household age groups the model predicts that younger cohorts fare better than older cohorts when the equilibrium decline in asset prices is large relative to the decline in wages asset price declines hurt the old who rely on asset sales to nance consumption but benet the young who purchase assets at depressed prices in our preferred calibration asset prices decline more than twice as much as wages consistent with the experience of the us economy in the great recession a model recession is approximately welfare neutral for households in the 20 29 age group but translates into a large welfare loss of around 10 percent of lifetime consumption for households aged 70 and over

heterogeneous agents in quantitative aggregate economic theory abstract modern macroeconomics with increasing frequency is devoting attention to the fact that agents are heterogeneous especially in their role as providers of labor input into production these differences can take various forms the skills for market production are different some workers are and some are not engaged in market activity in any given period people are at different stages of the life cycle people are faced with uninsurable idiosyncratic shocks perhaps combined with liquidity constraints and so on in some cases the equilibrium still can be computed from a stand in planner s problem the most exciting recent development however is the dramatically expanded ability to compute equilibriums for interesting model economies for which that is not the case examples are given

identifying monetary policy shocks with changes in open market operations abstract in this paper we reexamine the effects of monetary policy shocks by exploiting the information contained in open market operations a sticky price model is developed where money is the counterpart of securities deposited at the central bank the model s solution reveals that a rise in central bank holdings of open market securities can be interpreted as a monetary expansion estimates of vector autoregressions for us data are further provided showing that reactions to an unanticipated rise in open market securities are consistent with common priors about a monetary expansion i e a decline in the federal funds rate a rise in output and inertia in price responses compared to federal funds rate shocks prices do not exhibit a puzzling behavior and a larger fraction of the gdp forecast error variance can be attributed to open market shocks however the explanatory power of the latter has decreased since federal funds rate targets have been announced

federal reserve policy viewed through a money supply lens abstract federal reserve nonborrowed reserve supply systematically responded to changes in inflation and in the output gap over the period 1969 2000 while the feedback from output gap is always negative the response of money supply to changes in inflation varies considerably across time nonborrowed reserves decreased with inflation in the post 1979 period and increased in the pre 1979 period applying a standard macro model the estimated reaction functions are shown to ensure equilibrium determinacy viewed through the money supply lens federal reserve policy substantially changed over time but has never allowed for endogenous fluctuations which contrasts conclusions drawn from federal funds rate analyses

a general formula for the optimal level of social insurance in an influential paper baily 1978 showed that the optimal level of unemployment insurance ui in a stylized static model depends on only three parameters risk aversion the consumption smoothing benefit of ui and the elasticity of unemployment durations with respect to the benefit rate this paper examines the key economic assumptions under which these parameters determine the optimal level of social insurance i show that a baily type expression with an adjustment for precautionary saving motives holds in a general class of dynamic models subject to weak regularity conditions for example the simple reduced form formula derived here applies with arbitrary borrowing constraints durable consumption goods private insurance arrangements and search and leisure benefits of unemployment

market structure and competitive equilibrium in dynamic economic models abstract recently theorists have analyzed economies which potentially contain both finite and infinite horizon overlapping generations using arrow debreu complete markets typically applied models assume recursive spot and contingent securities markets implying a different equilibrium concept indeed if infinite horizon agents are present recursive equilibria cannot exist without some side conditions on debt with the right side conditions we show that every recursive market equilibrium allocation is a complete market equilibrium allocation and vice versa this bridges a gap between theory and applications and extends existing equivalence results on market structure

optimal unemployment insurance abstract we investigate the design of an optimal unemployment insurance program using an equilibrium search model calibrated using data from the reemployment bonus experiments there are three main conclusions first insurance considerations suggest that the potential duration of ul benefits would be unlimited under an optimal program second if the potential duration to benefits were unlimited current replacement rates in the u s about 0 5 would probably be about right third the optimal replacement rate rises as the potential duration of benefits is increasingly limited reaching 1 when the potential duration of benefits is limited to 32 weeks