the propagation of regional recessions this paper develops a framework for inferring common markov switching components in a panel data set with large cross section and time series dimensions we apply the framework to studying similarities and dierences across u s states in the timing of business cycles we hypothesize that there exists a small number of cluster designations with individual states in a given cluster sharing certain business cycle characteristics we nd that although oil producing and agricultural states can sometimes experience a separate recession from the rest of the united states for the most part dierences across states appear to be a matter of timing with some states entering recession or recovering before others jel c11 c32 e32

allocative disturbances and specific capital in real business cycle theories chanted albeit in varying degree with business cycle theories that either posit unexplained nominal wage and price rigidities or rely on misperceptions about nominal variables as a key driving force one response to this disenchantment has been a concentration of research effort on real business cycle theories aside from dissatisfaction with competitor theories the very visible oil price shock episodes of the 1970 s lent plausibility to the view that exogenous real disturbances cause large fluctuations in aggregate economic activity this essay on real business cycle theory considers the role of allocative disturbances in aggregate economic fluctuations when human and physical capital are specialized by allocative disturbances i mean events that impinge on the economy by inducing a costly time consuming reallocation of specialized resources at least since the publication of ricardo s principles in 1817 economists have recognized some of the potentially important aggregate consequences of allocative disturbances ricardo writes

oil price shocks and real gdp growth empirical evidence for some oecd countries this study assesses empirically the effects of oil price shocks on the real economic activity of the main industrialized countries multivariate var analysis is carried out using both linear and non linear models the latter category includes three approaches employed in the literature namely the asymmetric scaled and net specifications evidence of a non linear impact of oil prices on real gdp is found in particular oil price increases are found to have an impact on gdp growth of a larger magnitude than that of oil price declines with the latter being statistically insignificant in most cases among oil importing countries oil price increases are found to have a negative impact on economic activity in all cases but japan moreover the effect of oil shocks on gdp growth differs between the two oil exporting countries in the sample with the uk being negatively affected by an oil price increase and norway benefiting from it

a guide to health care reform there are four rationales for health care reform increasing the efficiency of health delivery reforming the market for health insurance providing universal coverage and reducing the federal deficit these goals are reflected in most reform proposals achieving these goals involves several problems however paying for universal coverage may lead to labor supply or demand reductions in addition reform involves large federal risks that must be dealt with through deficit financing reduced benefits or lower subsidies

asymmetries in the responses of regional job flows to oil price shocks this paper studies the effect of oil price innovations on manufacturing job flows across u s states first i estimate a nonlinear structural equation model and compute impulse response functions by monte carlo integration i find asymmetries in the responses of job flows to positive and negative oil price innovations yet these asymmetries do not pass a test of symmetry on the impulse responses especially after accounting for data mining third i use a test for the absence of job reallocation to evaluate whether an unexpected increase in the real price of oil price triggers an important change in job reallocation i find that oil price shocks have limited regional allocative effects

economic growth population theory and physiology the bearing of long term processes on the this lecture sketches a theory of the secular decline in morbidity and mortality that takes account of changes induced in physiological functioning since 1700 the synergism between technological and physiological improvements has produced a form of human evolution biological though not genetic rapid culturally transmitted and not necessarily stable which is still ongoing in both oecd and developing countries thermodynamic and physiological aspects of economic growth are defined and their impact on growth rates is assessed implications of this theory for population forecasting measurement of national income demand for leisure pension policies and demand for health care are considered excerpt

do oil price shocks matter evidence for some european countries this paper analyzes the oil price macroeconomy relationship by means of analyzing the impact of oil prices on inflation and industrial production indexes for many european countries using quarterly data for the period 1960 1999 first we test for cointegration allowing for structural breaks among the variables second and in order to account for the possible non linear relationships we use different transformation of oil price data the main results suggest that oil prices have permanent effects on inflation and short run but asymmetric effects on production growth rates furthermore significant differences are found among the responses of the countries to these shocks

imperfect competition and the effects of energy price increases on economic activity the authors show that modifying the standard neoclassical growth model by assuming that competition is imperfect makes it easier to explain the size of the declines in output and real wages that follow increases in the price of oil plausibly parameterized models of this type are able to mimic the response of output and real wages in the united states the responses are particularly consistent with a model of implicit collusion where markups depend positively on the ratio of the expected present value of future profits to the current level of output copyright 1996 by ohio state university press

oil price shocks and the dispersion hypothesis recent research by david lilien shows that a significant fraction of aggregate unemployment can be explained by the dispersion of employment growth across industries this paper presents two new results in this area first it is shown that a significant fraction of the variation in lilien s dispersion index is due to the differential impact of oil shocks across industries second and more important it is shown that once the dispersion in employment growth due to oil shocks is accounted for the residual dispersion has no explanatory power for unemployment

medical care costs how much welfare loss hardly a week goes by without a front page newspaper article on rising health care costs and the uninsured in this article i focus mainly on costs arguing that the issue has been somewhat misconceived while the level of medical care spending in the u s is a cause for concern the welfare losses associated with rises in that level of spending may not be as large as the public rhetoric can make them seem in fact cost containment may not be as urgent as is widely supposed and some proposed cost containment policies may result in welfare losses for the insured and even increase the number of uninsured

health care costs on the rise again since 1999 health care costs have been growing faster than national income this rapid growth has occurred as the ability of private and public purchasers to reduce service utilization and bargain for lower prices has fallen insurers have recouped lost profits through higher premiums and new technologies have driven up costs throughout the sector private insurance market responses to these rising costs may lead to reductions in the number of people with insurance and to increased fragmentation of the insurance market over time technological change in medicine both increases costs and improves the quality of care the challenge for public policy is to maintain insurance and some degree of equity in the face of these rising costs

the case for a new fiscal constitution for the first 140 years of u s history the federal budget was effectively constrained by two fiscal rules the formal limits within the constitution on the enumerated spending powers and an informal rule that the government could borrow only during recessions and wars at the end of the 1920s federal expenditures were 2 6 percent of gnp the federal debt was constrained to about equal to 16 percent of gnp the general price level was roughly stable over this long period over the past six decades however federal expenditures have increased to nearly 25 percent of gnp larger and more frequent budget deficits have increased the federal debt held by the public to an amount equal to about 50 percent of gnp and the general price level is now about nine times the level at the beginning of this period this dramatic change in fiscal and monetary conditions occurred without one amendment to the constitution to authorize a change in the fiscal rules our effective fiscal constitution has been transformed into one in which congress and the president may authorize any type or amount of expenditures and taxes subject only to the voting rules for routine legislation how did this happen should economists be concerned about this change in the fiscal constitution what if anything should be done about it

are medical prices declining evidence from heart attack treatments we address long standing problems in measuring medical inflation by estimating two types of price indices the first a service price index prices specific medical services as does the current cpi the second a cost of living index measures a quality adjusted cost of treating a health problem we apply these indices to heart attack treatment between 1983 and 1994 more frequent reweighting and accounting for price discounts lowers the measured price change for heart attacks by three percentage points annually accounting for quality change lowers it further we estimate that the real cost of living index fell about 1 percent annually

the effects of oil price shocks on job reallocation we investigate the effect of oil price innovations on u s manufacturing job flows using a simultaneous equation model that nests symmetric and asymmetric responses we find no evidence of asymmetry in the response of job flows to positive and negative oil price innovations we then inquire whether firms when facing positive shocks shed jobs faster than they create jobs we show that positive innovations lead to a decline in net employment and an increase in job reallocation possibly due to search and matching issues yet the latter effect becomes statistically insignificant when we control for data mining we demonstrate that the cumulative one year effect of oil price shocks on job creation and destruction was smaller during the great moderation but it was larger for gross job reallocation these variations were caused by a change in the transmission channel and not by smaller oil price shocks

symposium on health care reform the papers in this symposium focus on two major issues of health economics in the context of president clinton s health security act cost containment and labor market effects of financing insurance the act proposes to limit public and private spending a key issue is the extent to which without a limit but with a standardized basic plan supplementary insurance will exist to allow scope for individual choice the act s financing will have an ambiguous effect on labor supply but will encourage formation of small low wage firms several features including community rating and standardization of dependent coverage imply substantial redistribution

a neoclassical model of unemployment and the business cycle this paper investigates a general equilibrium model of unemployment and the business cycle in which specialization of labor plays a key role a rational expectations equilibrium with fully flexible wages and prices can exhibit unemployment in which the marginal product of employed workers exceeds the reservation wage of those who are without jobs workers are unemployed either because they are in the process of relocating for a better job or because they are waiting for conditions in the depressed sector to improve moreover seemingly small disruptions in the supplies of primary commodities such as energy could be the source of fluctuations in aggregate employment and can exert surprisingly large effects on real output

what happened to the oil price macroeconomy relationship abstract strong evidence is found that oil prices no longer granger cause many u s macroeconomic indicator variables in data after 1973 a number of potential explanations are explored that sample stability issues are responsible that oil prices are now endogenous and that linear and symmetric specifications misrepresent the form of the oil price interaction none of these hypotheses are supported by the data the opec price increases do appear to have had significant impacts while the effects of the price declines of the 1980s are smaller and harder to characterize these results have potentially important implications for the large body of research which utilizes oil prices as an instrumental or explanatory variable

where do jobs go when oil prices drop abstract in this paper we estimate a factor augmented vector autoregressive favar model to investigate the effect of oil price shocks on total private job flows as well as on industry level job creation and destruction following an unexpected oil price drop in the first year we find that in oil and gas extraction and support activities for mining exhibit a reduction in job creation and an increase in job destruction instead industries in construction manufacturing and services exhibit an increase in the net employment change an unexpected decline in the real oil price slows down the pace of gross job reallocation we demonstrate that the increase decrease in private job destruction creation observed during the first year is primarily driven by the response of closing expanding firms in services and manufacturing

this is what happened to the oil price macroeconomy relationship abstract many of the quarterly oil price increases observed since 1985 are corrections to even bigger oil price decreases the previous quarter when one looks at the net increase in oil prices over the year recent data are consistent with the historical correlation between oil shocks and recessions

oil price shocks and u s economic activity abstract our understanding of the sources of oil price fluctuations and their effects on the u s economy has undergone important transformations in the last decades first several studies have demonstrated the importance of identifying the causes of oil price fluctuations whether they are driven by demand or supply shocks instead of assuming that oil price changes are exogenous to the evolution of the world s economic activity second new methodologies have allowed researchers to re evaluate the functional form of the relationship between oil prices and u s gdp its components and job flows third significant advances have been made in understanding the relationship between oil price uncertainty news economic policy uncertainty and aggregate economic activity finally investigations into the time varying nature of oil price macroeconomy relationship have provided important insights into the reasons why unexpected increases in oil prices appear to shock less now than in the 1970s this paper reviews the studies that have contributed to these different aspects of the literature

how sensitive are consumer expenditures to retail energy prices abstract there is growing evidence that the primary effect of energy price shocks on the u s economy involves a reduction in consumer spending we quantify the direct effect on real consumption of unanticipated changes in discretionary income shifts in precautionary savings and changes in the operating cost of energy using durables the possibility of asymmetries in the response of real consumption to energy price shocks is also considered we demonstrate that linear models are consistent with the symmetric behavior of real consumption in 1979 when energy prices increased sharply and in 1986 when they fell sharply it is shown that historically energy price shocks have been an important factor in explaining u s real consumption growth but by no means the dominant factor

paying for health insurance the trade off between competition and adverse selection we use data on health plan choices by employees of harvard university to compare the benefits of insurance competition with the costs of adverse selection moving to a voucher type system induced significant adverse selection with a welfare loss of 2 to 4 percent of baseline spending but increased competition reduced harvard s premiums by 5 to 8 percent the premium reductions came from insurer profits so while harvard was better off the net effect for society was only the adverse selection loss adverse selection can be minimized by adjusting voucher amounts for individual risk we discuss how such a system would work governments are increasingly turning to market forces as a way to limit the cost of social insurance traditionally social insurance programs were operated as nonmarket goods governments mandated participation in a central program collected revenues to finance the program and ran the insurance system there was no role for competition among suppliers in providing the basic benefit as the costs of social insurance have increased however the centralized model of social insurance is coming under increasing strain in the united states for example recent proposals have called for replacing the medicare program with a health care voucher for the elderly aaron and reischauer 1995 cutler 1996 the voucher would guarantee people a basic insurance plan but the plans would be privately run competition among plans would generate plan premiums and enrollments similarly longstanding proposals for social security reform have called for replacing the current system with a system of individual accounts where people would make saving investment and annuitization decisions on their own advisory council on social security 1996 feldstein 1996 the trend is not just domestic in the united kingdom the national health service has moved to encourage more competition in recent years with the establishment of hospital trusts that bid for patients and partially fixed payments to physicians

walking the tightrope on medicare reform a central controversy in the debate about medicare is whether the program spends too much money or whether instead it should be expanded to cover more i consider the value of increased medicare spending i argue that on average medicare spending is worth it the health gains brought by medicare have been greater than their cost at the margin however services are overused and have low value medicare reforms need to promote the high average value of care while eliminating care of low value many of the proposed reforms fall short of this goal

securities markets with increasing numbers of traders abstract i show that the entry of new traders into a perfectly competitive securities market that is initially in competitive equilibrium leads to a series of equilibria each of which is pareto superior to the previous one thus all participants in the market gain from the entry of additional traders both existing participants and new entrants gain this provides an alternative formalization of the idea that depth or liquidity in a market is beneficial to all the result occurs although the entry of a new participant may in principle alter market prices in a way that is unfavorable to existing participants the proof is based on the classical welfare properties of competitive equilibria and on the fact that competitive equilibria are contained in the core and does not use assumptions about market imperfections or imperfect information

oil and the macroeconomy when prices go up and down an extension of hamilton s results in an important paper hamilton 1983 demonstrated a strong correlation between oil price changes and gross national product growth in u s data however his study pertained to a period in which all the large oil price movements were upward and thus it left unanswered the question whether the correlation persists in periods of price decline moreover the price variable he used was somewhat distorted by price controls in the 1970s this note investigates whether hamilton s results continue to hold when the sample is extended to include the recent oil market collapse and the oil price variable is corrected for the effects of price controls particular attention is given to the possibility of asymmetric responses to oil price increases and decreases as suggested in the structural employment literature loungani 1986 davis 1987 hamilton 1988 like hamilton i based my investigation on the gnp equation in sims s 1 980b six variable quarterly vector autoregressive model