swap rates and credit quality this article presents a model for valuing claims subject to default by both contracting parties such as swaps and forwards with counterparties of different default risk the promised cash flows of a swap are discounted by a switching discount rate that at any given state and time is equal to the discount rate of the counterparty for whom the swap is currently out of the money that is a liability the impact of credit risk asymmetry and of netting is presented through both theory and numerical examples which include interest rate and currency swaps this article presents a model for valuing claims subject to default by both contracting parties such as swaps and forwards this extends the valuation model for defaultable claims proposed by duffie and singleton 1994 to cases in which the two counterparties have asymmetric default risk the extension permits a reexamination of the impact of credit risk on swap rates while the valuation model applies to all forms of contingent claims in which both contracting parties are at risk to default such as forward contracts we focus on swaps for purposes of illustration for example consider a 5 year interest rate swap between a given party paying a floating rate such as the london inter bank offered rate libor and another counterparty paying a fixed rate replacing the given fixed rate counterparty with a lower quality counterparty whose bond yields are 100 basis points higher increases the swap rate by roughly 1 basis point using our model and typical parameters for libor rate processes this credit impact on swap rates is approximately linear within the range of normally encountered credit quality for a 5 year currency swap given a foreign exchange rate with 15 percent volatility our model shows the impact of credit risk asymmetry on the market swap rate to be roughly 10 fold greater than that for interest rate swaps that is approximately 10 basis points in swap rate per 100 basis points in bond yield credit spread the main goal of this article is to provide a simple and theoretically consistent model allowing such computations

a model of urban demography this study develops an overlapping generations model that involves the endogenous determination of demographic and city structure to fully analyze the social and natural changes in city populations we provide conditions under which the model exhibits the spatial features of demography observed in urban areas city centres have a lower total fertility rate than suburbs and larger cities have a lower total fertility rate than smaller cities through calibration we also show that spatial factors have a significant impact on demographic characteristics and city growth resume un modele de demographie urbaine cette etude developpe un modele de generations qui se chevauchent qui genere la determination endogene de la demographie et de la structure urbaine pour analyser pleinement les changements sociaux et culturels des populations urbaines on presente les conditions qui font que le modele genere les caracteristiques spatiales de la demographie observee dans les zones urbaines le centre ville avec un taux de fecondite plus faible que les banlieues et les grandes villes arborant une fecondite totale plus faible que les petites villes a l aide de calibration on montre que les facteurs spatiaux ont un impact significatif sur les caracteristiques demographiques et la croissance des villes

the effect of life expectancy on fertility saving schooling and economic growth theory and evidence we construct a simple growth model where agents with uncertain survival choose schooling time life cycle consumption and the number of children we show that rising longevity reduces fertility but raises saving schooling time and the growth rate at a diminishing rate cross section analyses using data from 76 countries support these propositions life expectancy has a significant positive effect on the saving rate secondary school enrollment and growth but a significant negative effect on fertility through sensitivity analyses the effect on the saving rate is inconclusive while the effects on the other variables are robust and consistent these estimated effects are decreasing in life expectancy

optimal social security in a dynastic model with investment externalities and endogenous fertility this paper studies optimal pay as you go social security with investment externalities positive bequests and endogenous fertility with an investment externality a competitive solution without social security suffers from under investment in capital and over reproduction of population we show the existence of time consistent optimal social security that improves welfare by reducing fertility and increasing capital intensity we also illustrate numerically that a small degree of this externality can justify the observed high ratios of social security spending to gdp

why gaussian macro finance term structure models are nearly unconstrained factor vars this paper explores the impact of simultaneously enforcing the no arbitrage structure of a gaussian macro nance term structure model mtsm and accommodating measurement errors on bond yield through ltering on the maximum likelihood estimates of the model implied conditional distributions of the macro risk factors and bond yields for the typical yield curves and macro variables studied in this literature the estimated joint distribution within a canonical mtsm is nearly identical to the estimate from an economic model free factor vector autoregression factor var even when measurement errors are large it follows that a canonical mtsm does not oer any new insights into economic questions regarding the historical distribution of the macro risk factors and yields over and above what is learned from a factor var in particular the discipline of a canonical mtsm is empirically inconsequential for analyses of impulse response functions of bond yields and macro factors or empirical studies of term premiums these results are rotation invariant and therefore apply to many of the specications of risk factors in the literature in deriving these results we develop a new canonical form for mtsms that is particularly revealing about the nature of the over identifying restrictions implied by mtsms relative to yield based factor models

efficient education subsidization and the pay as you use principle abstract we investigate whether the pay as you use principle of public finance should apply to education subsidization for children to internalize human capital externalities in an intergenerational model with endogenous fertility leisure and accumulations of human and physical capital we characterize social optimality concerning physical and human capital accumulation leisure labor and fertility to guide the design of efficient education subsidization we show that efficient education subsidization requires future generations benefitting from it pay for it when fertility and leisure are endogenous namely the government should uphold the pay as you use principle to subsidize children s education by deficit and repay the debt by future taxes

population concentration urbanization and demographic transition abstract this paper investigates how urbanization and demographic transition interrelate with each other via merits agglomeration economies and demerits congestion diseconomies of population concentration it reveals the mechanism by which agglomeration economies and congestion diseconomies affect the fertility rate furthermore analysis also shows that by assuming declines in infant and child mortality rate the model developed in this paper can replicate the following well known historical patterns i advances in urbanization ii rises in the wage rate iii declines in fertility and iv rises followed by declines in the population growth rate the inverted u shaped demographic transition

household and economy welfare economics of endogenous fertility mark nerlove assaf razin and efraim sadka academic press new york 1987 pp xii 155

economic determinants of the nominal treasury yield curve abstract macroeconomic shocks account for most of the variability of nominal treasury yields inducing parallel shifts in the level of the yield curve we develop a new approach to identifying macroeconomic shocks that exploits model based empirical shock measures technology shocks shift yields through their effect on expected inflation and the term premium shocks to preferences for current consumption affect yields through their impact on real rates and expected inflation for both shocks the systematic reaction of monetary policy is an important transmission pathway we find little evidence that fiscal policy shocks are an important source of interest rate variability

socially optimal social security and education subsidization in a dynastic model with human capital externalities fertility and endogenous growth abstract this paper considers socially optimal government policies in a dynastic family model with physical capital human capital endogenous fertility and positive spillovers from average human capital such spillovers reduce human capital investment but raise fertility from their social optimum we first characterize the social optimum with a non convex feasible set due to the quantity quality tradeoff concerning children we then show that social security and education subsidization together financed by labor income taxes can fully eliminate the efficiency losses of the spillovers and achieve the social optimum under plausible conditions however none of the policies can do so alone

vertical foreclosure with the choice of input specifications we develop an equilibrium model of vertical foreclosure with the choice of input specifications vertical foreclosure occurs as the upstream division of the integrated firm makes a specialized input for its sister downstream division while it would as an independent firm provide a generalized input the changes in incentives with vertical integration can be explained by the externalities the choice of a specialized input entails vertical integration allows the upstream firm to internalize the benefit of raising the rival firm s costs at the downstream level we derive conditions for equilibrium vertical foreclosure to occur and discuss its welfare consequences

models of vertical market relations abstract i contrast various models of vertical contracting that view upstream interactions either through the lenses of bilateral contracting and negotiations or through the lenses of a market interface with uniform contractual terms existing models contrast starkly in their policy implications in particular when imperfect horizontal competition on either the upstream or the downstream level interacts with differential buyer power depending on industry characteristics different assumptions on contracting may be appropriate even though the quest for an all encompassing modelling framework seems vain existing models can still be made more flexible so as to be of greater practical usage

term premia and inflation uncertainty empirical evidence from an international panel dataset this paper provides cross country empirical evidence on bond risk premia i construct a panel of zero coupon nominal government bond yields spanning ten industrialized countries and nearly two decades i hence compute forward rates and then use two different methods to decompose these forward rates into expected future short term interest rates and term premiums the first method uses an affine term structure model with macroeconomic variables as unspanned risk factors the second method uses surveys i find that term premium estimates declined across countries over the sample period especially in countries that appear to have reduced inflation uncertainty by making substantial changes in the monetary policy frameworks of their central banks during the recent financial crisis term premiums have remained flat and even declined further in some countries perhaps reflecting the effects of quantitative easing actions by many central banks

operative gift and bequest motives the ricardian equivalence theorem which is the proposition that changes in the timing of lump sum taxes have no effect on assumption or capital accumulation depends on the exist of operative altruistic motives for intergenerational transfers these transfers can be bequests from parents to children or gifts from children to parents in order for the ricardian equivalence theorem to hold one of these transfer motives must be operative in the sense that the level of the transfer is not determined by a corner solution resulting from a binding non negativity constraint this paper derives conditions that determine whether the bequest motive will be operative the gift motive will be operative or neither motive will be operative in a model in which consumers are altruistic toward their parents and their children this abstract was borrowed from another version of this item

fertility choice land and the malthusian hypothesis in a standard overlapping generations growth model with a fixed amount of land and endogenous fertility the competitive economy converges to a steady state with a zero population growth rate and positive consumption per capita the malthusian hypothesis is interpreted as a positive statement about the relationship between population growth and consumption per capita when production exhibits diminishing returns to labor and there is a fixed amount of land essential for production even when individuals care only about the number of their children and not about their children s welfare the equilibrium is such that they eventually would choose to have only one child for each adult hence if malthus s positive check on population is the result of the response of optimizing agents to competitively determined prices malthus s pessimistic conjecture is not necessarily true even though his other assumptions hold from authors

upstream competition between vertically integrated firms we propose a model of two tier competition between vertically integrated firms and unintegrated downstream firms we show that even when integrated firms compete in prices to offer a homogeneous input the bertrand logic may collapse and the input may be priced above marginal cost in equilibrium these partial foreclosure equilibria are more likely to exist when downstream competition is fierce or when unintegrated downstream competitors are relatively inefficient we discuss the impact of several regulatory tools on the competitiveness of the wholesale market

property rights and efficiency in olg models with endogenous fertility is there an economic rationale for pronatalist policies we propose and analyze a particular market failure that leads to inefficiently low fertility in equilibrium the friction is caused by the lack of ownership of children if parents have no claim on their children s income the private benefit from producing a child can be smaller than the social benefit we analyze an overlapping generations model with fertility choice and parental altruism ownership is modeled as a minimum constraint on transfers from parents to children using the efficiency concepts proposed in golosov jones and tertilt 2007 we find that whenever the transfer floor is binding fertility choices are inefficient second we show that the usual conditions for efficiency are not sufficient in this context third in contrast to settings with exogenous fertility a payg social security system cannot be used to implement efficient allocations to achieve an efficient outcome government transfers need to be tied to fertility choice

the term structure spread and future changes in long and short rates in the g7 countries abstract according to the expectations hypothesis when the spread between long and short rates widens next quarter s long rate should rise in the united states however long rates decline instead of rising this anomaly is also present in canada the uk germany and japan four of the additional six g7 countries nevertheless in contrast to the us where long rates appear to overreact to expected future developments the anomalous short run movement of long rates in these other g7 countries is caused by an additive white noise error on long rates that does not materially affect the information in their term structure

fertility intra generational redistribution and social security sustainability incorporating heterogeneity in preference to having children into an overlapping generations model of a small open economy we examine the effects of changes in the size of pay as you go payg social security on fertility choices of individuals and population growth of the economy it is shown that payg social security will raise population growth by increasing the number of individuals who have children and the number of children parents have if the system involves redistribution between retirees with different contributions whereas if it has no redistribution payg social security does not affect the fertility decisions of individuals fecondite redistribution intra generationnelle et durabilite de la securite sociale incorporant l heterogeneite des preferences pour avoir des enfants dans un modele d une petite economie ouverte avec des generations qui se chevauchent on examine les effets de changements dans l importance de la securite sociale par repartition sur les choix de fecondite des individus et sur la croissance de la population dans l economie on montre que cette forme de securite sociale augmente la croissance de la population en accroissant a la fois le nombre de personnes qui ont des enfants et le nombre d enfants que les parents choisissent d avoir si le systeme implique une redistribution entre les gens a la retraite qui ont fait des contributions differentes alors que si le regime n implique aucune redistribution le regime de securite sociale par repartition n affecte pas les decisions de fecondite des individus

successive oligopolies with differentiated firms and endogeneous entry we develop a model of successive oligopolies with endogenous entry allowing for varying degrees of product differentiation and entry costs in both markets we show that downstream conditions dominate the overall profitability of the two tier structure while upstream conditions mainly affect the distribution of profits we analyze how two part tariffs and resale price maintenance shape the endogenous market structure and study their welfare effects in contrast to previous literature we find that welfare under linear prices can be larger than under twopart tariffs although the latter avoids double marginalization this is because linear prices induce more downstream market entry

efficiency with endogenous population growth in this paper we generalize the notion of pareto e ciency to make it applicable to environments with endogenous populations two di erent e ciency concepts are proposed p e ciency and a e ciency the two concepts di er in how they treat people that are not born we show how these concepts relate to the notion of pareto e ciency when fertility is

taylor rules mccallum rules and the term structure of interest rates abstract recent empirical research shows that a reasonable characterization of federal funds rate targeting behavior is that the change in the target rate depends on the maturity structure of interest rates and exhibits little dependence on lagged target rates see for example cochrane and piazzesi 2002 the fed and interest rates a high frequency identification american economic review 92 90 95 the result echoes the policy rule used by mccallum 1994a monetary policy and the term structure of interest rates nber working paper no 4938 to rationalize the empirical failure of the expectations hypothesis applied to the term structure of interest rates that is rather than forward rates acting as unbiased predictors of future short rates the historical evidence suggests that the correlation between forward rates and future short rates is surprisingly low mccallum showed that a desire by the monetary authority to adjust short rates in response to exogenous shocks to the term premiums imbedded in long rates i e yield curve smoothing along with a desire for smoothing interest rates across time can generate term structures that account for the puzzling regression results of fama and bliss 1987 the information in long maturity forward rates the american economic review 77 680 392 mccallum also clearly pointed out that this reduced form approach to the policy rule although naturally forward looking needed to be studied further in the context of other response functions such as the now standard taylor 1993 discretion versus policy rules in practice carnegie rochester conference series on public policy 39 195 214 rule we explore both the robustness of mccallum s result to endogenous models of the term premium and also its connections to the taylor rule we model the term premium endogenously using two different models in the class of affine term structure models studied in duffie and kan 1996 a yield factor model of interest rates mathematical finance 57 405 443 a stochastic volatility model and a stochastic price of risk model we then solve for equilibrium term structures in environments in which interest rate targeting follows a rule such as the one suggested by mccallum i e the mccallum rule we demonstrate that mccallum s original result generalizes in a natural way to this broader class of models to understand the connection to the taylor rule we then consider two structural macroeconomic models which have reduced forms that correspond to the two affine models and provide a macroeconomic interpretation of abstract state variables as in ang and piazzessi 2003 a no arbitrage vector autoregression of term structure dynamics with macroeconomic and latent variables journal of monetary economics 50 745 787 moreover such structural models allow us to interpret the parameters of the term structure model in terms of the parameters governing preferences technologies and policy rules we show how a monetary policy rule will manifest itself in the equilibrium asset pricing kernel and hence the equilibrium term structure we then show how this policy can be implemented with an interest rate targeting rule this provides us with a set of restrictions under which the taylor and mccallum rules are equivalent in the sense if implementing the same monetary policy we conclude with some numerical examples that explore the quantitative link between these two models of monetary policy

international business cycles the authors estimate a dynamic two country model in which economic fluctuations are driven by a worldwide supply shock country specific supply shocks and relative fiscal money and preference shocks identification is achieved using only long run restrictions based on a theoretical model the main results are 1 supply shocks particularly country specific ones are very important in generating international business cycles and 2 although the post 1973 flexible exchange rate period has been inherently more volatile there are no differences in transmission properties of economic disturbances across exchange rate regimes for the endogenous variables they focus on copyright 1993 by american economic association

the term structure of currency carry trade risk premia we nd that average returns to currency carry trades decrease signicantly as the maturity of the foreign bonds increases because investment currencies tend to have small local bond term premia the downward term structure of carry trade risk premia is informative about the temporal nature of risks that investors face in currency markets we show that long maturity currency risk premia only depend on the domestic and foreign permanent components of the pricing kernels since transitory currency risk is automatically hedged by interest rate risk for long maturity bonds our

the problem of population and growth a review of the literature from malthus to contemporary models of endogenous population and endogenous growth abstract this paper deals with the evolution of the literature on the problem of population and growth from the classical period to the recent literature on endogenous growth and development the problem concerns two distinct issues 1 how to explain the observed covariation of the levels and rates of growth of per capita income and population size over time and space and 2 how to improve the human condition represented by these variables through an accommodating social policy the evolution of the literature we survey is reflected by the progressive treatment of key variables as endogenous rather than exogenous to the growth process it is also reflected by a shift from the historical concern about population explosion and its implications for growth to the more recent concern about the association between growth and population implosion in many developed countries

vertical integration raising rivals costs and upstream collusion abstract this paper analyzes the impact vertical integration has on upstream collusion when the price of the input is linear as a first step the paper derives the collusive equilibrium that requires the lowest discount factor in the infinitely repeated game when one firm is vertically integrated it turns out this is the joint profit maximum of the colluding firms the discount factor needed to sustain this equilibrium is then shown to be unambiguously lower than the one needed for collusion in the separated industry while the previous literature has found it difficult to reconcile raising rivals costs strategies following a vertical merger with equilibrium behavior in the static game they are subgame perfect in the repeated game studied here

international business cycles world region and country specific factors the paper investigates the common dynamic properties of business cycle fluctuations across countries regions and the world we employ a bayesian dynamic latent factor model to estimate common components in macroeconomic aggregates output consumption and investment in a 60 country sample covering seven regions of the world the results indicate that a common world factor is an important source of volatility for aggregates in most countries providing evidence for a world business cycle we find that region specific factors play only a minor role in explaining fluctuations in economic activity we also document similarities and differences across regions countries and aggregates jel f41 e32 c11 c32

indirect taxation in vertical oligopoly this paper analyzes the effects of specific and ad valorem taxation in an industry with downstream and upstream oligopoly we find that in the short run i e when the number of firms in both markets is exogenous the results concerning tax incidence tend to be qualitatively similar to models where the upstream market is perfectly competitive however both over and undershifting are more pronounced potentially to a very large extent instead in the long run under endogenous entry and exit overshifting of both taxes is more likely to occur and is more pronounced under upstream oligopoly as a result of this a tax increase is more likely to be welfare reducing we also demonstrate that downstream and upstream taxation are equivalent in the short run while this is not true for the ad valorem tax in the long run we show that it is normally more efficient to tax downstream

why do term structures in different currencies co move abstract yield curve fluctuations across different currencies are highly correlated this paper investigates this phenomenon by exploring the channels through which macroeconomic shocks are transmitted across borders macroeconomic shocks affect current and expected future short term rates as central banks react to changing economic environments investors could also respond to these shocks by altering their required compensation for risk macroeconomic shocks thus influence bond yields both through a policy channel and through a risk compensation channel using data from the us the uk and germany we find that world inflation and us yield level together explain over two thirds of the covariance of yields at all maturities further these effects operate largely through the risk compensation channel for long term bonds

international interest rate linkages in the term structure this paper considers one aspect of the relationship between returns on long term bonds denominated in canadian dollars issued by the canadian federal government and long term bonds denominated in american dollars issued by the american federal government the difference between a component of the term premium in the canadian dollar term structure and the same component of the term premium in the american dollar term structure is measured at three terms to maturity the measurement compares ex ante excess returns earned on canadian dollar long term bonds and excess returns earned on american dollar long term bonds the evidence supports the existence of currency specific term premia which vary over time copyright 1993 by ohio state university press

international yield curve comovements impact of the recent financial crisis empirical evidence on international yield comovement is sparse and lacks consensus employing a dynamic correlation approach we show that during the recent global financial crisis euro area yields have ceased to comove with the yields of the other international markets canada uk and us some implications of our results are discussed

endogenous fertility and the henry george theorem abstract models of endogenous demographic change deal with population size as an additional object of the welfare analysis in these models the overlapping generations olg model serves as the basic framework in club theory too population size is treated as an endogenous variable in local public goods lpg models the so called henry george theorem which requires local public expenditures to be financed by a 100 tax on aggregate land rent is known as a first order condition for club efficiency the present paper establishes and exploits an isomorphism between steady states of the olg model and allocations of the lpg model the paper revisits samuelson s fallacy concerning his goldenest golden rule and it explores institutional arrangements that sustain the optimum growth of population

indirect versus direct constraints in markets with vertical integration for an assessment of market power on the wholesale or merchant market in the presence of vertically integrated firms we analyze the interaction of direct constraints arising from competition on the wholesale market and of indirect constraints arising from substitution on the retail market a vertically integrated firm that still participates in the merchant market exerts both direct and indirect constraints we analyze the factors that determine the importance of indirect constraints we find that in contrast to a common presumption indirect constraints are sometimes more powerful than direct constraints we furthermore analyze the incentives of integrated firms to still participate in the merchant market provided that this is technologically feasible

total utility overlapping generations and optimal population the necessary and sufficient conditions for the solution to an optimal population growth model with overlapping generations using the sum of total utility per generation as the objective function are derived the solution for a specific steady state model and an example are presented and compared to that for a similar model without overlapping generations in both cases a positive but less than infinite optimal growth rate is found next since an additively separable individual utility function is used the differences between a total utility per generation model and a total utility per period model a la lerner are discussed finally the results of the total utility model are compared to those from a model in which the discounted sum of per capita utility is the objective function an extension to the samuelson lerner utility paradox concerning the optimal rate of population growth is discussed

income distribution policies with endogenous fertility the implications of endogenous fertility for intra generational welfare comparisons of alternative policies with respect to income taxation and family allowances are considered the interactions among the choices between leisure options labor force participation and fertility are shown to be crucial to the determination of both the signs and the magnitudes of the optimal child allowances and income tax rates the implications of a negative marginal tax rate and a negative child allowance are considered annotation

monetary policy surprises and interest rates evidence from the fed funds futures market abstract this paper estimates the impact of monetary policy actions on bill note and bond yields using data from the futures market for federal funds to separate changes in the target funds rate into anticipated and unanticipated components interest rates response to anticipated target rate changes is small while their response to unanticipated changes is large and highly significant these responses are generally consistent with the expectations hypothesis of the term structure surprise target rate changes have little effect on expectations of future actions however which helps to explain the lack of empirical support for the expectations hypothesis at the short end of the yield curve

international house price cycles monetary policy and credit abstract we evaluate three alternative predictors of house price corrections anticipated tightenings of monetary policy deviations of house prices from fundamentals and rapid credit growth a new cross country measure of monetary policy expectations based on an international term structure model with time varying risk premiums is constructed house price overvaluation is estimated via an asset pricing model the variables are incorporated into a panel logit regression model that estimates the likelihood of a large house price correction in 18 oecd countries the results show that corrections are predicted by increases in the market s forecast of higher policy rates the estimated degree of house price overvaluation also contains significant information about subsequent price reversals in contrast to the financial crisis literature credit growth is less important all of these variables help forecast recessions

health spending savings and fertility in a lifecycle dynastic model with longevity externalities we investigate health spending savings fertility and policy implications in a lifecycle dynastic model with longevity externalities in annuity returns we show that such externalities engender not only excessive health spending but also under saving and excessive fertility social security and health subsidization increase health spending and savings but reduce fertility from laissez faire levels a publicly funded universal health system under labour income taxation raises fertility taxing health spending or using social security and public health together can obtain socially optimal health spending savings longevity and fertility numerical results based on us observations suggest substantial variations among these cases especially in old age health spending

dynamic information spillovers in intraregionally focused spot and forward currency markets abstract this paper proposes an intraregionally focused tri currency modeling framework to investigate dynamic information spillovers across spot and forward exchange rate markets in frontier and emerging country currencies for both price levels and volatilities empirical estimates of structural parameters were obtained using an mgarch mskst model that incorporated the term structure of non deliverable forward ndf and deliverable forward df markets the dominance of regional currencies and the influence of differing forward contract maturities 1 3 6 and 12 months the currencies for nine countries were grouped into three regions northeast asia china korea and taiwan south southeast asia india indonesia and philippines and latin america brazil chile and columbia the currency for each selected country was evaluated within the regionally determined tri currency system we found that ndf markets play a dominant role over df markets with regard to price discovery during periods of tranquility during periods of crisis both ndf and df markets exhibit a more balanced impact on currency market price discovery mechanisms in addition distinct differences were observed across regions currencies in northeast asia were shown to be affected by the chinese renminbi during periods of crisis and the indian rupee could be regarded as the dominant currency in south southeast asia no robust results were obtained with regard to the dominance of currencies in latin america finally our results also suggest important distinctions between the effect of various instrument maturities on ndf and df market returns with df returns being more responsive to longer maturities 6 months and 12 months during tranquil periods ndf returns are more responsive to shorter maturities but during crisis periods this effect is diminished

a multicountry comparison of term structure forecasts at long horizons abstract this paper extends previous work on the information in the u s term structure at longer maturities to britain west germany and switzerland we find strong evidence that the term structure does have significant ability to forecast changes in inflation particularly at long maturities on the other hand the ability of the term structure to forecast changes in one year interest rates is somewhat weaker only at the very longest horizon five years is there significant forecasting ability for interest rate changes

population size and the social welfare functions of bentham and mill abstract the consequences of the social welfare function of bentham and mill b m for optimal population size are explored when individuals utility is a function of own consumption the number of progeny and the welfare of those children

infectious disease and preventive behavior in an overlapping generations model abstract this paper incorporates prevalence of disease and agent s preventive behavior i e health investment into a small open overlapping generations model and investigates the dynamic behaviors of the competitive equilibrium allocation using the model it is shown that agents prevalence elastic behaviors which are supported from empirical studies can be obtained and that such agents behaviors cause the cyclicity of the spread of disease we also show that although the agents preventive behavior in a competitive equilibrium may be insufficient because of the existence of external effects a one shot medical aid from foreign countries does not necessarily improve the agents welfare in the pareto sense

vertical mergers and market foreclosure ythe model in this paper illustrates three effects of vertical mergers when both stages are oligopolistic and vertically integrated and unintegrated producers coexist first the merging firm increases its final good output second the resulting backward shift in the residual demand curve facing unintegrated final good producers ylowers their demand for the intermediate good third the merged firm withdraws from the intermediate good market the increased concentration pushes the intermediate good price upward which effect dominates depends on market structure under some conditions a vertical merger causes the price of the final good to increase

elderly labor supply and fertility decisions in aging population economies with a longer life expectancy individuals who plan to work when they are old may increase the number of their children therefore when individuals choose the time of retirement the fertility rate may not necessarily decline but even rise

expectation puzzles time varying risk premia and dynamic models of the term structure abstract linear projections of returns on the slope of the yield curve have contradicted the implications of the traditional expectations theory this paper shows that these findings are not puzzling relative to a large class of richer dynamic term structure models specifically we match all the key empirical findings reported by fama and bliss 1987 american economic review 77 4 680 692 and campbell and shiller 1991 review of economic studies 58 495 514 among others within large subclasses of affine and quadratic gaussian term structure models additionally we show that certain risk premium adjusted projections of changes in yields on the slope of the yield curve recover the coefficients of unity predicted by the models key to this matching are parameterizations of the market prices of risk that let the risk factors affect the market prices of risk directly and not only through factor volatilities the risk premiums have a simple form consistent with fama s findings on the predictability of forward rates and are also shown to be consistent with interest rate feedback rules used by a monetary authority in setting monetary policy

population growth and economic growth a reconsideration abstract in an endogenous growth model endogenous fertility a neo malthusian relation emerges only when all exogenous variables are controlled for this suggests that conflicting findings in the literature may originate from heterogeneity in unobserved variables in cross country panel data sets

optimal intergenerational redistribution in a two country model with endogenous fertility we analyze a model with two countries that are linked by anintegrated capital market fertility and thus population growth isendogenously determined by households our analysis proceeds inthree steps first we characterize an optimal intertemporal andinterregional allocation in a model with endogenous fertility andtwo countries second we look for an institution supporting theoptimal allocation it turns out that in general a decentralizedequilibrium is inefficient national public pension systems withbenefits that are related to the number of children implements theoptimal allocation this provides a justification for governmentinterventions beyond its role as a night watchman third weanalyze whether national governments have the right incentives toimplement the optimal system it turns out that every nationalgovernment has an incentive to deviate from the optimal structureand to shift part of the burden to the other country policyimplications for the institutional arrangements within the europeanunion are discussed

social security and endogenous growth abstract this paper examines the effects of social security on the steady state growth of per capita income in an endogenous growth model in which agents care about their own consumption the number of children and the welfare of each child it shows that an unfunded program may simulate growth by reducing fertility and increasing the ratio of human capital investment per child to per family income when bequests are positive also it may cause faster growth than funded programs especially when receipts from funded programs are independent of contributions when voluntary saving is positive funded social security is neutral if receipts are linked to contributions and most likely depresses growth if receipts are independent of contributions

economic geography fertility and migration abstract this paper analyzes the relationship among economic geography fertility and migration the empirical evidence presented reveals that persistent regional variations in fertility exist within a country and that regional total fertility rates are negatively related to regional population density a two period overlapping generations model of endogenous fertility incorporating n regions agglomeration economies and congestion diseconomies is constructed to explain this negative relationship while agglomeration economies have both positive income and negative substitution effects on fertility congestion diseconomies have a negative income effect on it combined with the mobility of people interaction among these effects generates the negative relationship as a steady state equilibrium outcome it is also shown that net migration from regions with lower population density to regions with higher population density occurs in an equilibrium which in turn maintains the regional variations in fertility

incentives for input foreclosure we analyze the incentives of a vertically integrated firm to foreclose downstream rivals in contrast to the extant literature our model allows for upstream price competition between suppliers of only imperfectly substitutable inputs as the integrated firm decides on the degree of foreclosure through the scale of its continued participation in a merchant market the model can be applied also to cases where the foreclosed input is not essential as well as to cases where foreclosure is not complete we find that incentives to foreclose are much lower than in existing models with upstream cournot competition if there is also cournot competition downstream there will never be complete foreclosure in the case of linear demand potentially more important for practical purposes is our criticism of some explicit assertions made in the european commission s 2007 non horizontal merger guidelines we find that pre merger margins on the up and downstream markets are not necessarily good predictors of the incentives for subsequent i e post merger foreclosure

exchange rates and interest rates can term structure models explain currency movements abstract we construct an international term structure model that has excellent empirical performance in tracking movements of exchange rates and currency returns the forward premium puzzle is accounted for yet the model does not have the undesirable properties found in backus et al j finance 56 2001 279 examination of the estimated factor structure indicates that local factors are not important in the us uk and german markets moreover we find that term structure factors alone cannot satisfactorily explain exchange rate movements in other words exchange rates are also affected by other factors that are not in the interest rate dynamics

channels of us monetary policy spillovers to international bond markets abstract we show significant us monetary policy mp spillovers to international bond markets our methodology identifies us mp shocks as the change in short term treasury yields around federal open market committee meetings and traces their effects on international bond yields using panel regressions we emphasize three main results first us mp spillovers to long term yields have increased substantially after the 2007 2009 global financial crisis second spillovers are large compared with the effects of other events and at least as large as the effects of domestic mp after 2008 third spillovers work through different channels concentrated in risk neutral rates expectations of future mp rates for developed countries but predominantly on term premia in emerging markets in interpreting these findings we provide evidence consistent with an exchange rate channel according to which foreign central banks face a trade off between narrowing mp rate differentials or experiencing currency movements against the us dollar developed countries adjust in a manner consistent with freely floating regimes responding partially with risk neutral rates and partially through currency adjustments instead emerging countries display patterns consistent with foreign exchange interventions which cushion the response of exchange rates but reinforce capital flows and their effects in bond yields through movements in term premia our results suggest that the endogenous effects of currency interventions on long term yields should be added into the standard cost benefit analysis of such policies

monetary policy and financial spillovers losing traction abstract has financial globalisation compromised central banks effectiveness in managing domestic financial conditions this paper tackles this question by studying the dynamics of bond yields encompassing 31 advanced and emerging market economies to gauge the extent to which external financial conditions complicate the conduct of monetary policy we isolate a contagion component by focusing on comovements in measures of bond return risk premia that are unrelated to domestic economic fundamentals our contagion measure is designed to more accurately capture relative to simple yield correlation spillovers driven by exogenous global shifts in risk preference or appetite in contrast to what simple comovements in bond yields suggest emerging market economies appear to be much less susceptible to global contagion than advanced economies and the overall sensitivities to contagion have not increased after the global financial crisis the extent to which financial spillovers have compromised policy traction thus appears to be lower relative to studies based on common variation in bond yields

market power vertical integration and the wholesale price of gasoline this paper examines empirically the relationship between vertical integration and wholesale gasoline prices we use discrete and differential changes in the extent of vertical integration generated by mergers in west coast gasoline refining and retailing markets to test for incentives to raise rivals costs the research design allows us to test for a relationship between vertical integration and wholesale prices controlling for horizontal market structure cost shocks and trends we find evidence consistent with the strategic incentive to raise competitors input costs this suggests that vertical integration can have a significant impact on wholesale prices

endogenous fertility and optimal population size pareto optimality which is the standard criterion of efficiency in general equilibrium models takes population size as given and therefore cannot be directly applied to analyze the question of optimal population size the criterion then for optimal population size must be based on a more restrictive definition of optimality this paper extends peter diamonds 1965 golden golden rule growth model by assuming that individuals derive utility from their own consumptionand from their own children offspring are assumed to consume resources before reaching adulthood the authors show that the optimal steady state utility yields a higher population growth rate when it converges to the golden rule allocation they then demonstrate that a voluntary social security program in which the size of the transfer to a particular agent is directly tied to his own fertility leads the competitive allocation to be identical to the allocation corresponding to the maximum of the steady state utility of the representative individual

the effectiveness of alternative monetary policy tools in a zero lower bound environment this paper reviews alternative options for monetary policy when the shortterm interest rate is at the zero lower bound and develops new empirical estimates of the effects of the maturity structure of publicly held debt on the term structure of interest rates we use a model of risk averse arbitrageurs to develop measures of how the maturity structure of debt held by the public might affect the pricing of level slope and curvature term structure risk we find that these treasury factors historically were quite helpful for predicting both yields and excess returns over 1990 2007 the historical correlations are consistent with the claim that if in december 2006 the fed were to have sold off all its treasury holdings of less than 1 year maturity about 400 billion and use the proceeds to retire treasury debt from the long end this might have resulted in a 14 basis point drop in the 10 year rate and an 11 basis point increase in the 6 month rate we also develop a description of how the dynamic behavior of the term structure of interest rates changed after hitting the zero lower bound in 2009 our estimates imply that at the zero lower bound such a maturity swap would have the same effects as buying 400 billion in long term maturities outright with newly created reserves and could reduce the 10 year rate by 13 basis points without raising short term yields

fertility and the tax benefit system a reconsideration of the theory of family taxation the author examines the simultaneous nature of the decision to have children the decision to spend money on them and the decision to seek employment it will be argued that the children income trade off emphasised by the present paper is more relevant to most family decisions than the income leisure trade off on which much of the policy debate has been centred in order to do that we shall bring together the recently developed economic theory of the family or new home economics with the microeconomic branch of the theory of public finance a model of family choice is developed the main message of the present paper is that if as the evidence suggests parents have some control over the number of children they put into the world then the effect of taxes and subsidies on the familys allocation of time and money will be generally weaker and in some respects the opposite of what it would be if the number of children were physiologically constrained or exogenously given another is that if parents derive utility from having children this has to be taken into account in any welfare calculation fertility may thus affect the design of optimal policy in two ways indirectly through its effect on market behaviour and directly through its effect on welfare excerpt

population growth and human capital investments theory and evidence this paper presents evidence from empirical studies that test hypotheses derived from models of household behavior pertaining to the interrelationships among population growth human capital and economic development these studies have exploited quasi natural experiments embodied in the cross area variability in the wage rates of children in a number of low income countries the intercouple variation in the biological propensity to conceive and the geographically selective introduction of new high yielding seed varieties in india in the period 1961 71 the different varieties of evidence support the hypotheses that alterations in the returns to human capital associated with exogenous technical change lead simultaneously to increases in human capital investments and to reductions in fertility and that the costliness of fertility control is a significant but modest factor in inhibiting human capital investments

intergenerational transfers and demographic transition abstract this paper presents an analysis of demographic transition based on the endogenous evolution of intergenerational transfers along an economy s endogenous path of development two period lived agents belonging to overlapping generations choose optimally their desired levels of consumption and fertility together with their desired sizes of transfers to both parents and children parents are more efficient than children in producing output but some parental time must be devoted to child rearing at low levels of development fertility is high and the flow of net intergenerational transfers is from the young to the old at high levels of development fertility is low and the flow of net transfers is from the old to the young these results accord strongly with empirical observations and the analysis may be seen as formalising for the first time a long standing and well respected hypothesis in the demographic transition literature

on the welfare impact of mergers of complements raising rivals costs versus elimination of double marginalization abstract a common view in antitrust analysis is that mergers of complements can have raising rivals costs and elimination of double marginalization effects with the net effect on consumer welfare thus unclear we revise this view in the context of a merger between a monopolist in one market and a duopoly producer of a complement good with linear demand and imperfect substitutability while such a merger increases the price of the monopolized component elimination of double marginalization dominates any raising rivals costs effects increasing consumer welfare we discuss a variety of extensions

social security and endogenous fertility pensions and child allowances as siamese twins abstract this paper analyses public pensions and child support in a model with endogenous fertility we show that the individual fertility choice may not coincide with the social optimum due to the existence of external effects of children on society as a whole the market outcome without government intervention is efficient however as the externalities exactly cancel out in that case if the government wants to redistribute towards the old it cannot replicate the command optimum by merely applying lump sum transfers but rather needs a child allowance scheme to effectively alter the number of offspring finally we analyse whether a pareto improving social security reform is possible it is shown that merely reducing the payg scheme cannot be pareto improving but the introduction of a child allowance scheme can be

evaluating the effects of optimally distributed public programs child health and family planning interventions this paper develops and tests an optimizing model determining the distribution of family planning and health subsidies across heterogeneous households and assesses the biases in cross area estimates of the health effects of such subsidies due to public resource optimization the model incorporates both health externalities and the endogenous response of the size of the recipient population to program subsidies longitudinal data describing child health and publicly provided family planning and health programs in 20 barrios in laguna province in the philippines are used to estimate the effects of such programs on child health and the relationships between the distribution of the programs and preprogram health levels the impact of a program on a particular childs health status is viewed as dependent upon the childs length of exposure to the program a basic feature of the model is the presence of health externalities which is shown to be sufficient along with plausible features of household behavior to make selective subsidization of fertility control either alone or in combination with health investment subsidies pareto efficient the model suggests that subsidization of fertility control is likely to be pareto efficient in the presence of health or human capital externalities when human capital and family size are gross substitutes and or when any per child human capital subsidies may substitute for direct subsidies to health investment and an equalizing distribution of the subsidies the highest family planning subsidies to the lowest health recipient households is efficient when both health and family planning subsidies are used fertility control subsidies minimize the subsidy burden for donors and are highest when total subsidy expenditures per child are greatest