banking in computable general equilibrium economies abstract in this paper we develop a computable general equilibrium economy that models the banking sector explicitly banks intermediate between households and between the household sector and the government sector households borrow from banks to finance their purchases of houses and they lend to banks to save for retirement banks pool households savings and they purchase interest bearing government debt and non interest bearing reserves we use this structure to answer two sets of questions one normative in nature that evaluates the welfare costs of alternative monetary and tax policies and one positive in nature that studies the real effects of following a procyclical interest rate policy rule

occupational choice and the process of development this paper models economic development as a process of institutional transformation by focusing on the interplay between agents occupational decisions and the distribution of wealth because of capital market imperfections poor agents choose working for a wage over self employment and wealthy agents become entrepreneurs who monitor workers only with sufficient inequality however will there be employment contracts otherwise there is either subsistence or self employment thus in static equilibrium the occupational structure depends on distribution since the latter is itself endogenous we demonstrate the robustness of this result by extending the model dynamically and studying examples in which initial wealth distributions have long run effects in one case the economy develops either widespread cottage industry self employment or factory production employment contracts depending on the initial distribution in the other example it develops into prosperity or stagnation

constrained efficiency in the neoclassical growth model with uninsurable idiosyncratic shocks we investigate the welfare properties of the one sector neoclassical growth model with uninsurable idiosyncratic shocks we focus on the notion of constrained efficiency used in the general equilibrium literature our characterization of constrained efficiency uses the first order condition of a constrained planner s problem this condition highlights the margins of relevance for whether capital is too high or too low the factor composition of income of the consumption poor using three calibrations commonly considered in the literature we illustrate that there can be either over or underaccumulation of capital in steady state and that the constrained optimum may or may not be consistent with a nondegenerate long run distribution of wealth for the calibration that roughly matches the income and wealth distribution the constrained inefficiency of the market outcome is rather striking it has much too low a steady state capital stock

finding a maximum skewness portfolio a general solution to three moments portfolio choice considering the three first moments and allowing short sales the efficient portfolios set for n risky assets and a riskless one is found supposing that agents like odd moments and dislike even ones analytical formulas for the solution surface are obtained and important geometric properties provide insights on its shape in the three dimensional space defined by the moments a special duality result is needed and proved the methodology is general comprising situations in which for instance the investor trades a negative skewness for a higher expected return computation of the optimum portfolio weights is feasible in most cases

pricing risk in economies with heterogeneous agents and incomplete markets habit formation has been proposed as a possible solution to the equity premium puzzle this paper extends the class of models that support the habits explanation in order to account for heterogeneity in earnings wealth habits and consumption i find that habit formation does indeed increase the equity premium however contrary to earlier results the habit hypothesis does not imply a price for risk as largeas the one measured in the data there are three reasons for this first households in a habits economy modify their consumption savings decision second they modify their portfolio choice these two changes in behavior diminish the consumption fluctuations faced by households third the composition of the set of agents pricing risk in the economy changes so that relatively better self insured households end up pricing risk jel d52 g12 e21 c68

latin america s declining skill premium a macroeconomic analysis the decline in latin america s skill premium and income inequality during the 2000s was partly driven by an economic expansion that favored low skill intensive service sectors evidence shows inequality becomes countercyclical in the 2000s and unlike previous expansions the boom was concentrated on services while manufacturing lagged behind i build an open economy general equilibrium model that features a low skill intensive nontradable sector the model suggests that favorable shocks to commodity prices and international interest rate spreads such as those that buffeted latin america in the 2000s account for about a fifth of the observed decline in the skill premium jel d31 e32 f41 o15 o54

pension regulation and the market value of pension liabilities a contingent claims analysis using parisian options abstract we analyze the market consistent valuation of pension liabilities in a contingent claim framework whereby a knock out barrier feature is applied to capture early regulatory closure of a pension plan we investigate two cases which we call immediate closure procedure and delayed closure procedure in an immediate closure procedure when the assets value hits the regulatory boundary the pension plan is terminated immediately whereas in a delayed closure procedure a grace period is given to the pension fund for reorganization and recovery before premature closure is executed the framework is then used to construct fair pension deals furthermore we provide rules for deriving the optimal recovery period in pension regulation using utility analysis and interconnect the recovery period to the regulatory liquidation probability

top income shares in oecd countries the role of government ideology and globalisation this paper investigates how government ideology and globalisation are associated with top income shares in 17 oecd countries over the period 1970 to 2014 we use top income shares of the world wealth and income database wid globalisation is measured by the kof index of globalisation static and dynamic panel model results show that the top income shares increased more under right wing governments than under left wing governments the ideology induced effect was stronger when globalisation proceeded more rapidly globalisation was positively correlated with income shares of the upper middle class p99 p90 but negatively with income shares of the rich top 1 in the overall sample we show that the relationship differs between anglo saxon countries and other oecd countries globalisation was more pro rich in anglo saxon countries than in other oecd countries government ideology does not turn out to have a statistically significant effect on top income shares in anglo saxon countries after the 1980s whereas ideology induced differences in the distributional outcomes continued in other oecd countries

non parametric frontier estimates of mutual fund performance using c and l moments some specification tests there is a burgeoning literature using non parametric frontier methods to measure mutual fund performance these articles measure the relationship between the various characteristics mainly return information and some costs of ownership of these specialized financial products to establish a ranking using some efficiency measure we argue in favor of the use of the shortage function which is compatible with general investor preferences and question some of the often maintained hypotheses in this line of research the empirical part employs a large database of us and european mutual funds to offer extensive tests of the underlying modeling assumptions using various frontier estimators

economic growth and inequality the role of public investment the relationship between growth and inequality is complex after discussing some general background issues motivated by extensive empirical evidence this paper focuses on public investment as a key determinant of the relationship two alternative frameworks each offering sharply contrasting perspectives are presented the first employs the representative consumer theory of distribution where agent heterogeneity originates with wealth endowments it yields an equilibrium in which aggregate dynamics drives distributional dynamics in the second agent heterogeneity arises from idiosyncratic productivity shocks and generates an equilibrium in which distributional dynamics drive growth the impact of government investment on growth and inequality are shown to contrast sharply in the two approaches thus illustrating the complexity of the growth inequality relationship

portfolio performance evaluation in a mean variance skewness framework abstract astronomical amounts of money are being invested in financial markets consequently the evaluation of portfolio performance has created a great deal of interest among practitioners as well as academic researchers the literature suggests that portfolio efficiency based on mean variance skewness is more desirable than the one based on mean variance however there are no well established procedures to measure efficiency in this framework mainly due to the computational difficulties the aim of this paper is to develop a portfolio performance measure based on mean variance skewness framework by utilizing a non parametric efficiency analysis tool namely data envelopment analysis

redistributive shocks and productivity shocks abstract a productivity innovation reduces labor share at impact making it countercyclical it subsequently produces a long lasting increase that peaks five years later at a level larger in absolute terms than the initial drop before slowly returning to average i e labor share overshoots we estimate a bivariate shock process to the production function that under competition in factor markets accounts for this overshooting we pose this process in an otherwise standard real business cycle economy and we find that the contribution of productivity innovations to the variance of hours is 1 of that in the standard rbc model

new jobs worklessness and households in poland abstract has the new polish labour market created opportunities for all or has the distribution of work been split unequally across household types are low unemployment outflows caused by increased congestion from employed job seekers or by low entry wages relative to benefit levels using data from waves of the polish labour force survey beginning in may 1992 we document the type of new jobs created and analyse the household groups most likely to benefit from the transformation process in order to assess the likely distributional consequences of the employment generation process

demographic differences in cyclical employment variation demographic differences in patterns of employment variation over the business cycle are examined in this paper three primary conclusions emerge first both participation and unemployment must be considered in any analysis of cyclical changes in the labor market second young people bear a disproportionate share of cyclical employment variation third failure to consider participation has led to undue pessimism about the effect of aggregate demand policy on high unemployment groups if participation did not surge reduction in overall unemployment to its 1969 level would reduce the unemployment of almost all demographic groups to very low levels

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

the influence of macroeconomic factors on personal income distribution in developing countries a parametric modelling approach this article examines the influence of macroeconomic factors on personal income distribution in developing countries using a parametric modelling approach the technique is based on the selection and estimation of a theoretical parametric model a dagum distribution which fits accurately to the empirical income distributions of the countries examined the parameters of the model specifically related to inequality are subsequently used as dependent variables in econometric models in order to examine the impact that certain macroeconomic variables gdp growth inflation employment and real interest rates have on inequality the results reveal that gdp growth employment rate and real interest rate are the macroeconomic factors with greater impact in shaping personal income distribution in developing countries

international evidence on the historical properties of business cycles we contrast properties of real quantities with those of price levels and stocks of money for ten countries over the last century although the magnitude of output fluctuations has varied across countries and periods relations among real quantities have been remarkably uniform properties of price levels however exhibit striking differences between periods inflation rates are more persistent after world war ii than before and price level fluctuations are typically procyclical before world war ii and countercyclical afterward fluctuations in money are less highly correlated with output in the postwar period but are no more persistent than in earlier periods jel e32 e31

accounting for the u s earnings and wealth inequality we show that a theory of earnings and wealth inequality based on the optimal choices of ex ante identical households that face uninsured idiosyncratic shocks to their endowments of efficiency labor units accounts for the u s earnings and wealth inequality almost exactly

from the peaks to the valleys cross state evidence on income volatility over the business cycle abstract countercyclical variation in individuals idiosyncratic labor income risk could generate substantial welfare costs following past research we infer income volatility the variance of permanent income shocks a standard proxy for income risk from the rate at which cross sectional variances of income rise over the life cycle for a given cohort our novelty lies in exploiting cross state variation in state economic conditions or state sensitivity to national economic conditions we find that income volatility is higher in good state times than bad during good national times we find volatility is higher in states that are more sensitive to national conditions

frontier based vs traditional mutual fund ratings a first backtesting analysis we explore the potential benefits of a series of existing and new non parametric convex and non convex frontier based fund rating models to summarize the information contained in the moments of the mutual fund price series limiting ourselves to the traditional mean variance portfolio setting we test in a simple backtesting setup whether these efficiency measures fare any better than more traditional financial performance measures in selecting promising investment opportunities the evidence points to a remarkable superior performance of these frontier models compared to most but not all traditional financial performance measures

a co moment criterion for the choice of risky investment by firms this paper uses taylor series expansions and the assumption of small risks to derive a co moment criterion that firms should maximize so that the resulting equilibrium is pareto optimal this is done in two models of production under uncertainty the state of nature sn model in which the firms outputs depend on states of nature and financial markets are complete with respect to these states of nature and the probability p model in which the firms risky outputs are modeled by their joint probabilities and financial markets span the outcome space of the firms the theoretical criterion in the sn model is market value maximization while in the p model it is maximization of a firm s contribution to social welfare we show that both criteria can be transformed into a common co moment criterion which a firm should maximize taking as given the production decisions of other firms and the co moment prices which can be deduced from the security prices the co moment criterion provides a unifying framework for the two equilibrium models of production under uncertainty has the merit of being based on information which is readily available to firms and provides greater insight than the theoretical criterion into the risk characteristics of its profit stream which a firm should focus on when choosing its investment plan

data envelopment analysis of mutual funds based on second order stochastic dominance abstract although data envelopment analysis dea has been extensively used to assess the performance of mutual funds mf most of the approaches overestimate the risk associated to the endogenous benchmark portfolio this is because in the conventional dea technology the risk of the target portfolio is computed as a linear combination of the risk of the assessed mf this neglects the important effects of portfolio diversification other approaches based on mean variance or mean variance skewness are non linear we propose to combine dea with stochastic dominance criteria thus in this paper six distinct dea like linear programming lp models are proposed for computing relative efficiency scores consistent in the sense of necessity with second order stochastic dominance ssd the aim is that being ssd efficient the obtained target portfolio should be an optimal benchmark for any rational risk averse investor the proposed models are compared with several related approaches from the literature

efficiency and equality in a simple model of efficient unemployment insurance abstract this paper describes the efficient allocation of consumption and work effort in an economy in which workers face idiosyncratic employment risk and considerations of moral hazard prevent full insurance we impose a lower bound on the expected discounted utility that can be assigned to any agent from any date onward and show with this feature added that the efficient unemployment insurance scheme induces an invariant cross sectional distribution of individual entitlements to utility the paper thus provides a simple prototype model suited to the study of the normative question what is the trade off between equality and efficiency in resource allocation journal of economic literature classification numbers d31 d63 d82 j65

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

optimal credit swap portfolios this paper formulates and solves the selection problem for a portfolio of credit swaps the problem is cast as a goal program that entails a constrained optimization of preference weighted moments of the portfolio value at the investment horizon the portfolio value takes account of the exact timing of protection premium and default loss payments as well as any mark to market profits and losses realized at the horizon the constraints address collateral and solvency requirements initial capital position limits and other trading constraints that credit swap investors often face in practice the multimoment formulation accommodates the complex distribution of the portfolio value which is a nested expectation under risk neutral and actual probabilities it also generates computational tractability numerical results illustrate the features of optimal portfolios in particular we find that credit swap investment constraints can have a significant impact on optimal portfolios even for simple investment objectives our problem formulation and solution approach extend to corporate bond portfolios and mixed portfolios of corporate bonds and credit derivatives this paper was accepted by wei xiong finance

skewness persistence with optimal portfolio selection abstract existing studies have found that ex post stock returns are positively skewed but such skewness is only persistent for individual stocks not for portfolios this implies that the ex post knowledge of skewness may not be useful in ex ante portfolio selection however the portfolios in these studies are not optimally formed because preferences for skewness are not taken into consideration when forming these portfolios it is more meaningful to see if the positive skewness would persist in optimally formed mean variance skewness efficient portfolios using stocks from both japanese and us markets and a bootstrap method we find that the portfolios optimally formed by using a polynomial goal programming method which considers preference for skewness greatly enhances skewness persistence over time our results are robust across both japanese and us stocks however the skewness persistence is stronger for portfolios formed with monthly data than that with weekly data these findings have practical implications to investors with skewness preferences

foundations of portfolio theory prize lecture to the memory of alfred nobel december 7 1990 this abstract was borrowed from another version of this item

mean variance skewness portfolio performance gauging a general shortage function and dual approach this paper proposes a nonparametric efficiency measurement approach for the static portfolio selection problem in mean variance skewness space a shortage function is defined that looks for possible increases in return and skewness and decreases in variance global optimality is guaranteed for the resulting optimal portfolios we also establish a link to a proper indirect mean variance skewness utility function for computational reasons the optimal portfolios resulting from this dual approach are only locally optimal this framework permits to differentiate between portfolio efficiency and allocative efficiency and a convexity efficiency component related to the difference between the primal nonconvex approach and the dual convex approach furthermore in principle information can be retrieved about the revealed risk aversion and prudence of investors an empirical section on a small sample of assets serves as an illustration

shareholders unanimity with incomplete markets macroeconomic models with heterogeneous agents and incomplete markets e g krusell and smith 1998 usually assume that consumers rather than rms own and accumulate physical capital this assumption while convenient is without loss of generality only if the asset market is complete when nancial markets are incomplete shareholders will in general disagree on the optimal level of investment to be undertaken by the rm this paper derives conditions under which shareholders unanimity obtains in equilibrium despite the incompleteness of the asset market in the general equilibrium economy analyzed here consumers face idiosyncratic labor income risk and trade rms shares in the stock market a rm s shareholders decide how much of its earnings to invest in physical capital and how much to distribute as dividends the return on a rm s capital investment is affected by an aggregate productivity shock the paper contains two main results first if the production function exhibits constant returns to scale and short sales constraints are not binding then in a competitive equilibrium a rm s shareholders will unanimously agree on the optimal level of investment thus the allocation of resources in this economy is the same as in an economy where consumers accumulate physical capital directly second when short sales constraints are binding instead the unanimity result breaks down in this case constrained shareholders prefer a higher level of investment than unconstrained ones

consumption smoothing in island economies can public insurance reduce welfare abstract in this paper we study the effects of certain types of public compulsory insurance arrangements for aggregate shocks on private allocations in environments with limited commitment we show that this type of insurance can improve the wellbeing of private situations but it can also deteriorate it we also describe how different characteristics of the environment affect the role of public insurance using data on the mexican progresa program we document the impact that some government programs have in crowding out private transfers

why don t voters put the gini back in the bottle inequality and economic preferences for redistribution abstract the classic democratic theory of redistribution claims that an increase in market income inequality causes an increase in the size of government through majority voter support for an offsetting expansion of redistribution i argue that the predicted inequality redistribution relationship can break down when voters face uninsurable idiosyncratic risk with respect to future labor income and a timing differential between tax collections and government outlays this is formalized using an incomplete market heterogeneous agent dsge model with majority voting and time to build policy which suggests the collective demand for redistribution will not necessarily increase with growing income or wealth inequality this result implies that even with equal political power among voters democracies do not have a systematic mechanism to offset rising inequality as contrary to popular belief

the welfare cost of inflation under imperfect insurance abstract this paper examines the welfare cost of inflation in an economy where agents hold money in order to smooth consumption in the face of income variability for which there is no insurance the findings indicate that for the type of economies considered here the area under the empirical money demand curve is a poor measure of the welfare cost of inflation this area accounts for only one fourth of the true costs in the case of 5 inflation

skewness preference and portfolio choice one of the virtues of parameter preference models presented in general form in rubinstein 23 is their empirical content applied models of financial theory rely heavily on the mean variance mv version of parameter preference as spelled out in samuelson 25 mv models are adequate with compact distributions of returns and when portfolio decisions are made frequently so that the risk parameter becomes sufficiently small

wage dispersion over the business cycle abstract in this paper i provide robust evidence that fluctuations in wage dispersion are independent of the business cycle while residual wage dispersion i e dispersion of wages within narrowly defined demographic and skill groups of workers increases during booms and lessens during recessions moreover i show that the procyclical fluctuations in residual wage dispersion are mainly generated by cyclical changes in the upper half of the residual wage distribution

fiscal policy with heterogeneous agents and incomplete markets i undertake a quantitative investigation into the short run effects of changes in the timing of proportional income taxes for model economies in which heterogeneous households face a borrowing constraint temporary tax changes are found to have large real effects in the benchmark model a temporary tax cut increases aggregate consumption on impact by around 29 cents for every dollar of tax revenue lost comparing the benchmark incomplete markets model to a complete markets economy income tax cuts provide a larger boost to consumption and a smaller investment stimulus when asset markets are incomplete copyright 2005 wiley blackwell

on efficient distribution with private information this paper is a study of the dynamics of the efficient distribution of consumption in an exchange economy with many consumers each of whom is subject to private idiosyncratic taste shocks we propose a recursive method for finding feasible allocations that are incentivecompatible and that are pareto optimal within this set the method is applied to several parametric examples we find that in an efficient allocation the degree of inequality continually increases with a diminishing fraction of the population receiving an increasing fraction of the resources we discuss the extent to which these allocations can be decentralized via market arrangements this paper is a study of the dynamics of the efficient distribution of consumption in an exchange economy with private information the economy we study has a constant endowment flow of a single non storable consumption good which is to be allocated each period among a large number of consumers each period these consumers experience unpredictable idiosyncratic privately observed taste shocks affecting their marginal utility of current consumption efficiency dictates that more resources be allocated to those consumers who in any given period have a high marginal utility of current consumption

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

non parametric estimation of decision makers risk aversion abstract a new non parametric method to estimate a decision maker s coefficient of absolute risk aversion from observed economic behaviour is explained the method uses the expected value variance e v framework and quadratic programming an empirical illustration is given using norwegian farm level data

dea frontier improvement and portfolio rebalancing an application of china mutual funds on considering sustainability information disclosure abstract data envelopment analysis dea has been a widely used methodology for evaluating the relative performance of portfolios extensive work has appeared for realizing the role of dea in the aspect of assessing portfolio performance and deriving the relative rankings however the role of providing realizable benchmarks is not fully explored in the existing literatures most importantly the dea based portfolio performance evaluation methods developed in the existing literatures can hardly provide support for fund managers in pursuing sustainability performance in this paper we first propose a dea frontier improvement approach under the mean variance framework this approach provides investor with a rebalancing strategy as well as an improved dea frontier which approximates the portfolio efficient frontier better than the traditional dea model does then this approach is extended to a general return risk framework our in sample simulation results verify the effectiveness of the proposed approach for a wide range of applications in addition the out of sample tests show that the rebalancing investment strategies can achieve higher sharpe ratios and sortino ratios than those of the original ones finally we apply the proposed approach to evaluate mutual fund performance in china with the consideration of sustainability information disclosure we construct a disclosure index to indicate the extent of sustainable information disclosure of each mutual fund the results show that the proposed approach provides not only investment recommendations but also references for constructing sustainable green funds

testing for prudence and skewness seeking numerous theoretical predictions such as precautionary saving or preventive behavior have been derived for prudent decision makers further prudence can be characterized as downside risk aversion and plays a key role in preference for skewness we use a simple experimental method to test for prudence and skewness preference in the laboratory and compare the two to this end we introduce a novel graphical representation of compound lotteries that is easily accessible to subjects and test it for robustness using a factorial design prudence is observed on the aggregate and individual level we find that prudence does not boil down to skewness seeking we further provide some theoretical explanations for this result this paper was accepted by peter wakker decision analysis

data watch research data from transition economies ten years into the transition from communism in the countries of the former soviet union and central and eastern europe a cursory search of the econlit database turns up hundreds of empirical studies published in refereed journals that deal with various issues in transition economies even so we suspect that many economists are prevented from making full use of the possibilities offered by the transition by the difficulties of obtaining and interpreting data from the region the purpose of this brief essay is to indicate some possible sources for data that can be used for economic analysis as well as some cautions regarding the use of these data

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 risk free rate in heterogeneous agent incomplete insurance economies abstract why has the average real risk free interest rate been less than one percent the question is motivated by the failure of a class of calibrated representative agent economies to explain the average return to equity and risk free debt i construct an economy where agents experience uninsurable idiosyncratic endowment shocks and smooth consumption by holding a risk free asset i calibrate the economy and characterize equilibria computationally with a borrowing constraint of one year s income the resulting risk free rate is more than one percent below the rate in the comparable representative agent economy

real returns on government debt a general equilibrium quantitative exploration we extend and apply computable general equilibrium methods to the study of economies with both aggregate uncertainty and uninsured household specific uncertainty in our economies the government issues two types of assets a small denomination non interest bearing asset which we call currency and a large denomination interest bearing asset which we call t bills we find that a real interest rate behavior similar to that observed in the u s can be sustained as equilibrium behavior in our class of economies we also find that policy induced real interest rate changes that are perceived as being permanent have significant real effects and that these effects take a few years to be fully realized

life cycle economies and aggregate fluctuations do the implications for business cycle issues change when we switch from studying infinitely lived representative agent models to more sophisticated demographic structures with finitely lived agents this article addresses that question by using a large overlapping generations model that is calibrated to u s demographic properties microeconomic evidence and national income and product accounts the finding is that the answers obtained are basically the same for the two kinds of models the article also explores the relative volatility of hours across age groups an issue that cannot be addressed by using the infinitely lived representative agent abstraction

idiosyncratic production risk growth and the business cycle we introduce a neoclassical growth economy with idiosyncratic production risk and incomplete markets each agent is an entrepreneur operating her own technology with her own capital stock the general equilibrium is characterized by a closed form recursion in the cara normal case incomplete markets introduce a risk premium on private equity which reduces the demand for investment as compared to complete markets the steady state can thus have both a lower capital stock due to investment risk and a lower interest rate due to precautionary savings furthermore the anticipation of high real interest rates in the future feeds back into high risk premia and low investment in the present thus slowing down convergence to the steady state our results highlight the importance of private risk premia for capital accumulation and business cycles

seigniorage as a tax a quantitative evaluation in this paper we construct a computable general equilibrium model calibrate it to selected data for the american economy and use it to explore the efficacy of the seigniorage tax associated with various monetary arrangements we find that the key feature of any monetary tax arrangement is its equilibrium after tax real return schedule on liquid assets held by the households we also find that considerable seigniorage which we define to be the diserence between government expenditures other than interest paid on government debt and taxes collected can be large we find that the seigniorage tax is a poor one relative to a tax on labor income ln particular we find that if the after tax real return on saving deposits is 5 percent as it was on average in the 1974 1978 period welfare is one half percent of consumption lower than it would be if the after tax real return were zero as it approximately was in both the 1964 1968 and 19841988 periods the work builds on that of a imrohoroglu 1990 who finds that for worlds in which non interest bearing nominal assets are the only liquid assets the cost of constant inflation is far greater than the area under the empirical demand for money relation with such arrangements the after tax real return is the negative of the inflation rate the key feature of her model is that agents hold money in order to smooth consumption in the face of idiosyncratic income variability for which there

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

taxation and income distribution dynamics in a neoclassical growth model we examine how changes in tax policies affect the dynamics of the distributions of wealth and income in a ramsey model in which agents differ in their initial capital endowment the endogeneity of the labor supply plays a crucial role in determining inequality as tax changes that affect hours of work will affect the distribution of wealth and income reinforcing or offsetting the direct redistributive impact of taxes our results indicate that tax policies that reduce the labor supply are associated with lower output but also with a more equal distribution of after tax income we illustrate these effects by examining the impact of recent tax changes observed in the us and in european economies

portfolio selection and skewness evidence from international stock markets abstract this paper finds that the returns of the world s 14 major stock markets are not normally distributed and that the correlation matrix of these stock markets was stable during the january 1988 december 1993 time period polynomial goal programming in which investor preferences for skewness can be incorporated is utilized to determine the optimal portfolio consisting of the choices of 14 international stock indexes the empirical findings suggest that the incorporation of skewness into an investor s portfolio decision causes a major change in the construction of the optimal portfolio the evidence also indicate that investors trade expected return of the portfolio for skewness

labour market reforms in transition economies several lessons can be drawn from the natural experiments of central and eastern european countries with labour market policies two of them are particularly relevant also for oecd countries first it is not wise to reduce the duration of unemployment benefits when the length of unemployment spells are on the rise unless i unemployment is still low and there is the administrative capacity to implement active labour market policies on a wide scale or ii there are income support schemes of the last resort in place and an administration capable of cost effectively enforcing work tests for those falling off unemployment benefit compensation rolls the second and perhaps more positive lesson in the light of the above is that it is possible to transform institutions and create an efficient policy delivery mechanism within a short time span copyright 1997 by oxford university press

precautionary saving in the small and in the large the theory of precautionary saving is shown to be isomorphic to the arrow pratt theory of risk aversion making possible the application of a large body of knowledge about risk aversion to precautionary saving and more generally to the theory of optimal choice under risk in particular a measure of the strength of the precautionary saving motive analogous to the arrow pratt measure of risk aversion is used to establish a number of new propositions about precautionary saving and to give a new interpretation of the dreze modigliani substitution effect copyright 1990 by the econometric society

geometric representation of the mean variance skewness portfolio frontier based upon the shortage function the literature suggests that investors prefer portfolios based on mean variance and skewness rather than portfolios based on mean variance mv criteria solely furthermore a small variety of methods have been proposed to determine meanvariance skewness mvs optimal portfolios recently the shortage function has been introduced as a measure of e ciency allowing to characterize mvs optimal portfolios using non parametric mathematical programming tools while tracing the mv portfolio frontier has become trivial the geometric representation of the mvs frontier is an open challenge a hitherto unnoticed advantage of the shortage function is that it allows to geometrically represent the mvs portfolio frontier the purpose of this contribution is to systematically develop geometric representations of the mvs portfolio frontier using the shortage function and related approaches

selecting a portfolio with skewness recent evidence from us european and latin american equity markets abstract polynomial goal programming in which investor preferences for skewness can be incorporated is utilized to determine the optimal portfolio from latin american us and european capital markets the empirical findings suggest that the incorporation of skewness into an investor s portfolio decision causes a major change in the resultant optimal portfolio the empirical evidence indicates that investors do trade expected return of the portfolio for skewness

conditional coskewness in stock and bond markets time series evidence in the context of a three moment intertemporal capital asset pricing model specification we characterize conditional coskewness between stock and bond excess returns using a bivariate regime switching model we find that both conditional u s stock coskewness the relation between stock return and bond volatility and bond coskewness the relation between bond return and stock volatility command statistically and economically significant negative ex ante risk premiums the impacts of stock and bond coskewness on the conditional stock and bond premiums are quite robust to various model specifications and various sample periods and also hold in another major developed country the united kingdom the findings also carry important implications for portfolio management