the employers cost of workers compensation insurance magnitudes determinants and public policy new estimates of the average cost of workers compensation insurance for a homogeneous group of employers by state are presented these data are used to estimate cost equations for a variety of alternative specifications the main finding is that when cost equations are estimated by ordinary least squares there is a unit elasticity of costs with respect to benefits but instrumental variable estimates of the effect of benefits yield a greater than unit elasticity finally the presence of a state insurance fund is associated with higher average costs for employers all else equal copyright 1990 by mit press

interest rates and budget deficits cross country evidence from the period 1924 1938 abstract this paper examines the question of whether budget deficits raise nominal interest rates the empirical analyses make use of cross country data from 16 countries covering the period 1924 1938 contrary to some recent studies by e g evans it turns out that budget deficits affect nominal rates positively and thus the ricardian equivalence proposition can be questioned

exchange rates interest rates and current account news some evidence from australia abstract this paper investigates the effects of the australian current account news on exchange rates and interest rates for the period july 1985 to december 1992 the results indicate that the australian dollar depreciated and interest rates rose as a result of an announcement of a larger than expected current account deficit this is consistent with the view that market participants expected a foreign exchange market intervention sale of the australian dollar by the reserve bank of australia and they used the portfolio balance model of exchange rate determination when responding to the news in addition significant structural breaks were found and the analysis shows that after january 1990 the news affected neither exchange rates nor interest rates

environmental influences on mne subsidiary roles economic integration and the nordic countries we seek to examine the importance of environmental factors in determining mne subsidiary roles in particular we examine the environmental factors associated with deep integration schemes such as the eu such schemes require a convergence of economic structure due to the establishment of common regional institutions regulations and policies specifically we distinguish between the scope of activities performed by subsidiaries and the level of competence of those subsidiaries the empirical analysis is based on a large scale survey of foreign owned units in denmark finland and norway these nordic countries differ with regard to their eu membership status norway being the outsider while the others are members but are very similar to each other in most other respects our data show that subsidiaries in norway report significantly lower scores for both scope of activities and levels of competence the effects remain strong even when we are controlling for other potentially influential factors the findings indicate that being on the outside of the eu may indeed carry the price of becoming less attractive to mne activity

why aren t developed countries saving abstract national saving rates differ enormously across developed countries but these differences obscure a common trend namely a dramatic decline over time france and italy for example saved over 23 and 19 of national income in 1970 but only 9 and 4 respectively in 2008 japan saved almost 33 in 1970 but only 7 in 2008 and the u s saved around 11 in 1970 but only 1 in 2008 what explains these international and intertemporal differences is it demographics government spending productivity growth or preferences for the u s and france whose saving behavior we study preferences appear to be an important factor american and french societies are placing increasing weight on the welfare of those currently alive particularly contemporaneous older generations government spending also appears to be one of the reasons why france is saving at much lower rates these conclusions emerge from estimating two models in which society makes consumption and labor supply decisions in light of uncertainty over future government spending productivity and social preferences the two models differ in terms of the nature of preference uncertainty and the extent to which current society can control future societies spending and labor supply decisions

legislative organization of fiscal policy in the voluminous literature on fiscal policy there is little evidence about the impact of legislative organization on shaping fiscal decisions by comparing different organizations of committee structure to control tax and spending policies this article presents such evidence regarding spending we test whether the dispersion of spending authority among multiple committees creates a problem similar to that of the common pool using american state data we find that when only one committee has the authority to spend spending is restrained relative to when spending authority is balkanized regarding taxation we hypothesize that if a single committee controls not only all spending authority but also all taxation authority that committee will have more incentive to tax than a committee that does not control spending it can obtain the benefits of increased taxation more directly again this proposition is supported by evidence at the state level

u s multinationals and preferential market access this paper examines the relationship between oshoring activity by u s multinational rms and the structure of u s trade preferences we combine rm level panel data on u s foreign aliate activity from the u s bureau of economic analysis bea with detailed measures of u s trade preferences from the u s international trade commission usitc to create a three way panel that spans 80 industries 184 countries and ten years 1997 2006 consistent with existing theory we nd that o shoring and preferential market access are positively and consistently correlated both in the pooled sample and within countries industries and years using both instru mental variables and simultaneous equations approaches to address the endogeneity of export oriented foreign investment we nd that a 10 increase in u s foreign aliate exports to the u s from a particular industry and country is associated with a 4 per centage point increase in the rate of preferential duty free access restricting attention to the generalized system of preferences gsp among potentially eligible develop ing countries we nd that the inuence of multinational aliate sales on preferential market access more than triples

why interest rates react to money announcements an explanation from the foreign exchange market abstract when the fed announces a money supply greater than had been expected interest rates rise why one explanation is that the market raises its estimate of the future rates of money growth and inflation and bids up nominal interest rates we offer contrary evidence on such days the dollar appreciates not depreciates an alternative explanation is that the market perceives the change in the money stock as a transitory fluctuation that the fed will reverse in the future the anticipated future tightening raises today s real interest rate causes a capital inflow and appreciates the dollar the result in fact observed

separating the reporting effects from the injury rate effects of workers compensation insurance a hedonic simulation this paper presents a numerical simulation based on data from the early 1970s to investigate the economic links between labor market outcomes and the workers compensation insurance system the results suggest that in most cases any of three changes in the system more generous benefits more accurate categorization of insurance claims or more complete experience rating of premiums will slightly reduce the actual number of work related injuries but will dramatically increase the number of insurance claims filed the authors conclude that changes in self reported injuries can produce significant misimpressions of the safety incentives created by the workers compensation insurance system

substitution between unemployment insurance and workers compensation abstract this paper extends the literature on post injury duration of absence from work by developing a model that incorporates substitution between unemployment insurance benefits and workers compensation a theoretical analysis is presented in which the worker maximizes expected utility over four possible states of nature the model is tested empirically using pooled cross section and time series data at the two digit industry level the main findings support the predictions of the model an increase in workers compensation benefits increases the average duration of accidents with an elasticity of 0 9 1 4 while an increase in unemployment insurance payments reduces the average duration of accidents with an elasticity of 0 5 0 7

exogenous tax changes and interest rates testing for ricardian equivalence using an efficient markets model this article tests the ricardian theory i e barro 1974 using mishkin s 1981 1982 efficient markets model of interest rates employing romer and romer s 2010 measure exogenous tax changes i am able to test whether the u s bond market reacts in a keynesian or ricardian manner to exogenous tax policy changes this helps avoid the endogeneity problems associated with measuring the interest rate effects of deficits and provides a cleaner test of the pure ricardian thought experiment i find a significant negative relationship between tax changes and interest rates which is inconsistent with the ricardian model and support the keynesian crowding out framework

budget deficits and national saving are politicians exogenous during the thirty five year period following world war ii the federal budget deficit averaged less than one percent of net national product never once exceeding five percent for the five year period from 1982 86 the budget deficit never once fell below five percent of net national product there have been some modest cutbacks recently and the deficit is likely to fall to about four percent of net national product in 1988 further declines are now projected in the congressional budget office 1988 baseline forecast of the implications of present policies but both 1988 presidential candidates suggested many more policies that would increase than decrease the deficit these numbers indicate that after years of relative abstinence the united states has experimented with persistent budget deficits on a rather massive scale in the 1980s economists have generally been quite critical of this fiscal policy though there are at least three respectable minority views arguing that federal deficits are not so bad and quite possibly better than likely corrective measures the rationale for economists general opposition comes from those who hold what is called the neoclassical view of deficits according to this view if the united states should be treated as a closed economy persistent deficits will raise interest rates and lower investment if the united states should be treated as a small open economy persistent deficits will leave real interest rates and investment unchanged but the drop in national saving would be financed by higher foreign borrowing accomplished through a rise in the dollar and a drop in net exports either way net national saving falls and consumption rises at the expense of some combination of investment and net exports as a result living standards are higher in the present but lower in the future compared to what they would be in a world of no deficits

the differing effects of pre and post 1981 federal budget deficits on tax adjusted real interest rates this paper employs an estimating equation relating tax adjusted real interest rates to deficits and other economic variables to examine the differing effects of pre and post 1981 federal budget deficits on ex ante and ex post real tax adjusted short term interest rates over the period 1961 1 1992 2 the results for the 1961 1 1992 2 period taking into account a shift in the linkage between the ratio of alternative measures of the deficit to potential gdp occurring in 1981 1 indicate that the ratio of both the nipa deficit and the cyclically adjusted deficit to potential gdp have a significant effect on ex ante and ex post real tax adjusted interest rates for the post 1981 period but no significant effect before 1981

do macro economic news announcements affect the volatility of foreign exchange rates some evidence from australia this paper investigates the role of australian macro economic announcement news on five major australian dollar aud exchange rates specifically the daily changes of the exchange rates are modelled to ascertain the existence and the nature of the news effects in the conditional mean and variance of the changes it is found that a higher than expected current account deficit and unemployment rate announcements depreciated the aud and an unexpectedly higher gdp growth announcement appreciated it current account deficit cpi and unemployment news announcements significantly raised the conditional volatility of the changes of the aud on the days of their announcements except for the bp aud for the cpi news and there is some evidence of retail sales news reducing it in general the evidence is consistent with a view that a release of new information creates uncertainty in the markets due to a lack of consensus on the effects of the particular news announcement and the necessary course of action in add

multilateral trade liberalisation foreign direct investment and the volume of world trade a cournot duopoly model is used to explain the paradox that multilateral trade liberalisation has resulted in increases in both the volume of world trade and the amount of foreign direct investment fdi

preferential trade areas multinational enterprises and welfare the effects of preferential trade areas ptas on the investments by multinational enterprises and their implications for the welfare of members and non members are studied in a model with two types of firms national firms and multinational firms in the presence of multinational activity ptas can create new investment as well as divert investment from non members to members both affect the welfare of members positively more interestingly if the investment creation effect of a pta is sufficiently strong then the pta could be welfare enhancing for non members as well jel classification f2 l1 aires preferentielles de commerce entreprises plurinationales et bien etre on etudie les effets des aires preferentielles de commerce apc sur les investissements par les entreprises plurinationales et leurs implications pour le bien etre des pays membres et non membres a l aide d un modele ou l on retrouve deux genres d entreprises les entreprises nationales et plurinationales quand des operations plurinationales existent les apc peuvent creer de nouveaux investissements mais aussi deplacer certains investissements des pays non membres vers les pays membres ces deux effets affectent le niveau de bien etre des pays membres positivement il est interessant de noter que si l effet de creation d investissements d une apc est suffisamment puissant l apc peut entrainer une augmentation du niveau de bien etre des pays non membres

california s 2004 workers compensation reform costs claims and contingent workers the large excess fraction of difficult to diagnose injuries that occur on a monday was originally thought to reflect employees use of workers compensation to cover weekend injuries evidence has

measuring personal savings consumption and disposable income in canada this paper highlights the fact that more adequate measurement of personal savings as well as a consumption and disposable income in canada yields a totally different picture from that projected by the national accounts niea the author measures of consumption excludes purchases of durables but includes their depreciation savings are measured as the change in the net real market value of the end of year balance sheet while according to the niea the savings income ratio reached 15 percent in 1981 their measure suggests that this ratio was negative and amounted to 10 5 percent in conclusion possible implications of the mismeasurement of savings on economic policy decisions are considered

deficits and inflation an open economy model of the united states the deficit debate is a recurring theme in academic and political circles the controversy is over the effect of deficits on inflation and interest rates the existing body of empirical evidence does not resolve the controversy this paper focuses on the inflationary impact of deficits the model used is derived from a comprehensive is lm analysis which incorporates a foreign trade sector and a general price adoptive expectation adjustment mechanism we test the model using time series data for the united states from our results we conclude that nia deficits have no significant bearing on the rate of inflation

export platform foreign direct investment theory and evidence this paper proposes a model that accounts for export platform fdi a form of fdi that is common in the data but rarely discussed in the theoretical literature unlike the previous literature this paper s theory nests all the typical modes of supply including exports horizontal and vertical fdi horizontal and vertical export platform fdi the theory yields the testable hypothesis that a decrease in either inter regional or intra regional trade costs induces firms to choose export platform fdi the empirical analysis provides descriptive statistics that point to large proportions of third country exports of us fdi and an econometric analysis whose results are in line with the model s predictions the paper suggests policy implications for nations seeking to attract fdi

interdependence in multinational production networks the majority of multinational firms today operate a multilateral production network most existing empirical analyses have however focused on firms choice between producing at home and investing overseas and assumed that a firm s decision to invest in a foreign country is independent of its locations in third countries this paper examines the effect of existing production network on multinationals entry decision using detailed french multinational subsidiary level data the paper finds strong evidence of horizontal and vertical interdependence across multinationals foreign production locations there is however little evidence of horizontal interdependence between home country production and foreign investment when the third country effects are taken into account constituting a sharp contrast to the conventional emphasis this result is robust to the various specifications and sensitivity analyses undertaken in the paper and highlights the importance of investigating the causes and effects of foreign direct investment in the context of multinational production network

a theorem of voting rules and budget deficits abstract a theorem showing that deficits under a procedure requiring expenditures to accompany revenues as they are enacted followed by a vote on the size of deficit are smaller than under current procedure in which votes on expenditures and taxes are unlinked

an empirical analysis of the macroeconomic effects of government debt evidence from canada 1989 an empirical analysis of the macroeconomic effects of government debt evidence from canada applied economics vol 21 no 1 pp 113 124

coordination between monetary policy and fiscal policy for an inflation targeting emerging market several studies including blanchard 2004 and favero and giavazzi 2004 imply that in emerging market economies a tight monetary policy within an inflation targeting framework could actually increase the price level due to the lack of fiscal discipline and the associated high risk premium we extend their arguments in two ways first we introduce a semi structural model with time varying parameters where the risk premium is unobserved and it is derived within the system such an approach fits better with the volatile nature of emerging market economies by allowing us to track down the time varying effects of macroeconomic dynamics on both the model consistent risk premium and the other key variables second we obtain impulse response functions and analyze the implications of a tight monetary policy on major macroeconomic variables taking the turkish economy as our reference point we find that the arguments of blanchard 2004 and favero and giavazzi 2004 seem to be valid

budget balance through revenue or spending adjustments abstract the paper provides a historical perspective on the issue of whether budget deficits are typically eliminated by increased taxes or by reduced spending by examining u s budget data from 1792 1988 i conclude that about 50 65 of all deficits due to tax cuts and about 65 70 of all deficits due to higher government spending have been eliminated by subsequent spending cuts while the remainder was eliminated by subsequent tax increases in contrast to previous studies the empirical analysis uses error correction models in a way that the intertemporal budget constraint is imposed in the estimation stage

domestic and international financial market responses to federal deficit announcements abstract this study examines the response of domestic and international financial variables to announced changes in federal deficit projections over the 1981 1994 period as observed in earlier studies rates on us treasury securities responded positively to announced increases in federal deficit projections new evidence shows that deficit effects are transmitted internationally with foreign long term interest rates also increasing in response to announced increases in us deficit projections the exchange value of the dollar tends to be positively related to announced changes in deficit projections but that result appears to be related to the degree of insulation of foreign financial markets from us financial markets finally the price of gold responded positively to announced changes in deficit projections taken together the results suggest that higher projected deficits raise real interest rates in part because of an increase in an inflation risk premium

short and long run behaviour of long term sovereign bond yields we assess the short and long run behaviour of long term sovereign bond yields in oecd countries using a dynamic panel approach to reflect financial and economic integration given the existence of cross country dependence regarding sovereign yields and its determinants we resort to simulation and bootstrap methods results based on the common correlated effect estimator of pesaran and on panel error correction models to sort out short and long run fiscal developments show that in addition to common movements in sovereign yields investors also consider country differences arising from specific factors inflation budgetary and current account imbalances real effective exchange rates and liquidity

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

regional tax coordination and foreign direct investment this paper analyses the effects of a regionally coordinated profit tax or location subsidy in a model with three active countries one of which is not part of the union and a globally mobile firm we show that regional coordination can lead to two types of welfare gain first for investments that would take place in the union in the absence of coordination a coordinated tax increase can transfer location rents from the firm to the union second by internalising all of the union s benefits from foreign direct investment a coordinated tax reduction can attract more welfare enhancing investment than when member states act in isolation depending on which motive dominates tax levels may thus rise or fall under regional coordination

forecasting federal budget deficits how reliable are us congressional budget office projections us congressional budget office cbo forecasts of nominal government expenditure revenue and deficits as well as nominal gross national product are examined for their reliablity critics contend

liquidity constraints and the substitutability between private and government consumption the role of military and non military spending i introduction using data for a number of economies we investigate i the relationship between private consumption and two types of government spending military and non military and ii the severity of liquidity constraints because of their importance for macroeconomic modeling in theory and practice 1 both issues have been the subjects of considerable theoretical and empirical investigation on the issue of liquidity constraints the most influential research has relied on hall s 1978 euler equation approach to the permanent income hypothesis in an attempt to reconcile hall s and flavin s 1981 methodologies hayashi 1982 modified hall s martingale result to allow for the possibility that a subset of consumers are liquidity constrained and showed that liquidity constraints can result in consumption s excess sensitivity to current income campbell and mankiw 1989 1990 1991 and jappelli and pagano 1989 have applied hayashi s methodology using data from the u s and several other oecd countries on the substitutability issue aschauer 1985 has modified hall s euler equation to allow for substitutability between government spending and private consumption and found that the two are substitutes for the u s karras 1994 however using a similar approach and data for 30 countries concludes that private and government consumption are better described as complementary or unrelated liquidity constraints and substitutability have been combined in studies by graham and himarios 1991 cushing 1992 and graham 1993 using u s data and by evans and karras 1996 for a number of countries a crucial limitation of most of these studies is the use of aggregate government consumption data which counterintuitively imposes a common substitutability parameter on all components of government spending 2 using recently available time series data for a large number of countries the present paper relaxes this restriction by decomposing government consumption into military and non military components enabling us to separately identify their relationship to private consumption the allocation of government consumption between military and non military functions has varied greatly across countries the appendix reports the average size of military and non military government shares in gdp as well as the military non military ratio by country over the 1970 1989 period average military expenditure as a fraction of gdp for example has ranged in our sample from 0 11 in mexico to 12 30 in jordan similarly the fraction of government consumption absorbed by military expenditure has ranged from 1 09 in mauritius to 66 82 in poland this sizable variability is promising in terms of cross sectional identification power but it also suggests that the estimated parameters must not be assumed to be common across countries the estimated model is derived in section ii which combines liquidity constraints and substitutability by nesting the approaches of hayashi 1982 and aschauer 1985 in the same section we discuss data sources and the estimation strategy which permits the estimated parameters to vary by country in a way that helps determine how they are influenced by country specific factors section iii estimates the model for a panel of the 66 countries for which annual data on all series are available for the 1970 1989 period the paper s main conclusions are given in section iv ii methodology and data we assume that consumers in economy i at time t derive utility from effective consumption c sup which we define as 1 mathematical expression omitted where c is private consumption g sup m and g sup nm are the military and non military components of government consumption the parameters theta sup m and theta sup nm measure the degree of substitutability between c and g sup m and c and g sup nm respectively

debt neutrality theory and evidence from developing countries this paper reviews the ricardian barro hypothesis and tests the basic postulate of the model for a sample of developing countries including mexico and venezuela two specifications are utilized the first is based on the simple consumption model associated with the work of kormendi 1983 the alternative is based on a model developed by haque and montiel 1987 the outcome of the two stage least square estimation technique rejected the hypothesis in mexico trinidad and tobago and venezuela all countries which underwent adjustment programmes however these results were reversed when the alternative model was utilized due to liquidity constraint and possibly the yaari blanchard effect the contradictory outcome alludes to the sensitivity of the results to the model specified

compensating wage differentials and the duration of wage loss a formal model of occupational choice is developed that shows the extent to which the compensation for increased duration exceeds that for increased risk using the panel study of income dynamics linked to industry data on injuries and unemployment we find nearly all the compensating wage differential for losses due to workplace injuries is for increases in the duration of loss and similarly for losses due to cyclical unemployment the compensating differentials for risk of injury are larger for union than for nonunion workers while those for cyclical unemployment are smaller for union workers

export oriented fdi in the uk it is well known that the performance of foreign firms compared to domestic companies is superior with respect to employment wages and productivity in this paper we detail the export behaviour of foreign affiliates in the united kingdom relative to indigenous firms our findings show that foreign firms are more likely to export and when they do so they are more export intensive and overall contribute disproportionately to total manufacturing exports from the uk while firm level advantages explain some of these differences in export behaviour strategic considerations dominate where these include the differential in costs productivity and market size between the uk and foreign countries that is both horizontal and vertical motives can be found for the use of the uk as an export platform by foreign firms copyright 2004 oxford university press

endogenous r d and foreign direct investment in international oligopolies abstract this paper examines the impact of the firms mode of foreign expansion on the incentive to innovate as well as the effects of r d activities and technological spillovers on the firms international strategy we consider a two country imperfect competition model where the firms face three different type of decisions how to expand abroad how much to spend on r d and how much to sell in each market market structure is endogenously determined as the equilibrium solution of a three stage game it is shown that the firm that invests more in research is the one which is a mne while the rival is an exporter the results indicate that there is a positive relationship between multinational expansion and r d investment and that in turn investment in research increases the likelihood of multinational expansion the value of the spillover parameter can also be an important determinant of firms international strategy

workers compensation and moral hazard in tunisia abstractmoral hazard is a problem of asymmetric information that plays a central role in numerous contractual relationships and may lead to suboptimal resource allocation both ex ante and ex post moral hazard problems in workers compensation wc have been extensively analysed in developed countries the main objective of this paper is to test the presence of ex post moral hazard in the tunisian context to our knowledge this is the first analysis on this topic in a developing country tunisia it is particularly important to study moral hazard problems in developing countries since the negative impacts of such problems could be exacerbated in the developing world dionne and st michel 1991 have developed a methodology for testing for the presence of ex post moral hazard in the context of a more generous wc regime in quebec the tunisian institutional context that we study is similar to that prevailing in quebec that is in 1995 there was a significant increase in the generosity of the wc regime

are recessions good for workplace safety empirical evidence shows that in recessions the rate of workplace accidents goes down this paper presents a theory and an empirical investigation to explain this phenomenon the theory is based on the idea that reporting an accident affects the reputation of a worker and raises the probability that he is fired if the unemployment rate is high a worker faces a big loss when fired and fewer workplace accidents are reported the empirical investigation concerns workplace accidents in 16 oecd countries we conclude that cyclical fluctuations in workplace accident rates have to do with reporting behavior of workers and not with changes in workplace safety

economies of scale and market structure in international grain trade a large body of literature has examined international grain trade in imperfectly competitive models the article develops a two stage duopoly model that considers a private trader and a state trading enterprise ste competing on a foreign market the key difference between the private trader and the ste is their international organization while the ste makes use of external agents to export the private firm may choose to internalize international transactions the game is solved for different modes of competition and under both assumptions of homogeneous and differentiated products in order to assess how these assumptions affect the outcome of the game the results of the game are examined by using numerical examples the analysis shows that external shocks on export markets may result in a change of market structure and consequently of market shares these effects depend on the initial market structure furthermore the degree of product differentiation and the assumed mode of competition significantly affect the relative values of transaction and fixed costs at which the market structure changes

the budget deficit and the arbitrage pricing theory abstract non linear sur techniques are used to demonstrate that the budget deficit is a priced factor in the arbitrage pricing theory the results also indicate that unexpected increases in the deficit lower stock prices

an empirical investigation into the impact of us federal government budget deficits on the real interest rate yield on intermediate term treasury issues 1972 2012 this study provides new empirical evidence on the impact of the federal budget deficit on the real interest rate yields on intermediate term debt issues of the us treasury represented herein by the ex post real interest rate yields on 3 year treasury notes and 7 year treasury notes two interest rate measures that have received essentially no attention in the economics and finance literature in recent years this study is couched within a loanable funds model that includes two ex post real interest rate yields the monetary base as a per cent of gdp the change in per capita real gdp net financial capital inflows as a per cent of gdp and the budget deficit as a per cent of gdp this study uses annual data for the study period 1972 to 2012 a time period that includes quantitative easing monetary policies by the federal reserve two stage least squares estimations reveal that the federal budget deficit expressed as a per cent of gdp exercised a positive and statistically significant impact on the ex

costs of banking system instability some empirical evidence abstract this paper assesses the cross country stylised facts on empirical measures of the losses incurred during periods of banking crises we first consider the direct resolution costs to the government and then the broader costs to the welfare of the economy proxied by losses in gdp we find that the cumulative output losses incurred during crisis periods are large roughly 15 20 on average of annual gdp in contrast to previous research we also find that output losses incurred during crises in developed countries are as high or higher on average than those in emerging market economies moreover output losses during crisis periods in developed countries also appear to be significantly larger 10 15 than in neighbouring countries that did not at the time experience severe banking problems in emerging market economies by contrast banking crises appear to be costly only when accompanied by a currency crisis these results seem robust to allowing for macroeconomic conditions at the outset of crisis in particular low and declining output growth that have also contributed to future output losses during crises episodes

fiscal policy and national saving this paper uses structural vector autoregressions along with structural measures of fiscal policy to measure the dynamic impact of fiscal policy shocks on the output gap and national saving positive shocks to government purchases and negative shocks to real net taxes are found to increase the output gap positive shocks to the government s structural surplus increases national saving although the effects are small positive shocks to government purchases are found to substantially reduce national saving negative shocks to real net tax revenues as a share of potential gdp have a small negative impact on national saving

hmos moral hazard and cost shifting in workers compensation abstract previous research has shown that workers respond to the economic incentives provided in workers compensation in particular claim frequency rises with increased benefits and claim duration on net seems to increase here we provide additional evidence of another incidence of behavioral responses to incentives we find that doctors in health maintenance organizations hmos have a greater tendency to classify claims as compensable under workers compensation than do other physicians our evidence suggests that the rapid expansion of hmos over the 1980 1990 period resulted in a significant increase in workers compensation claim frequency

the impact of eu preferential trade agreements on foreign direct investment although north south preferential trade agreements ptas are expected to affect foreign direct investment fdi there is not much evidence to date on the impact of eu ptas on the pattern of fdi the aim of this study is to assess the impact of eu ptas on the outward stocks of fdi of the eu we estimate a model based on the knowledge capital theory of the multinational enterprise over the period 1995 2005 using a sample of 173 host countries explanatory variables include measures of the level of bilateral protection and a dummy to capture the impact of deep integration provisions of ptas a dynamic panel model with fixed effects is used in order to take into account the dynamic behaviour of fdi and the heterogeneity bias results show that eu fdi is both horizontal and vertical the level of eu protection affects fdi negatively while the impact of the tariffs applied by host countries varies across groups of partner countries deep integration provisions affect eu fdi positively

effects of us money announcements on the daily exchange rates of industrialized countries this paper examines the effects of anticipated and unanticipated components of us money supply announcements on exchange rates for each day of the week for eight industrialized countries the results show that most of the reaction to the anticipated component occurs before the announcement however the unanticipated component of the announcement causes strong reactions on the friday and the monday following the announcement and in the days preceding the announcement

what do regressions of interest rates on deficits imply economists analyses of the impact of federal deficits on interest rates are based primarily upon two alternative theories one of these says deficits force up interest rates while the other says they do not in their lucid exposition james barth george iden and frank russek 1 2 3 call the former the conventional and the latter the ricardian equivalence paradigm there are several studies attempting to assess empirically the impact of federal deficits on economic activity the congressional budget office 23 and b douglas bemheim 5 surveyed most of these studies and found that the evidence produced by these studies on the conventional and ricardian equivalence theories was inconclusive this finding agrees with that of barth iden and russek 1 2 3 the specific purpose is to extend barth iden and russek s computations and compare the out of sample forecasting performances of different estimates of the interest rate deficit connec

does economic integration cause foreign direct investment the authors analyze the effect of economic integration on oligopolists international trade and foreign direct investment activities using a three country three firm model increased country size leads to dispersed foreign direct investment while improved market accessibility leads to export platform foreign direct investment increased intraregional market accessibility prompts outside firms to invest in the regional bloc reducing product prices profits of intrabloc firms and increasing total surplus integrating economies are more likely to gain from improving intraregional market accessibility than from tougher external trade policy and may wish to offer investment incentives to encourage foreign direct investment by outside firms copyright 1996 by economics department of the university of pennsylvania and the osaka university institute of social and economic research association

a cointegrating approach to budget deficits and long term interest rates a cointegrating approach is undertaken in this study to determine if there is a long run equilibrium relationship between budget deficits and long term interest rates for the united states and nine european countries the cointegration approach consists of conducting cointegration tests and then testing several hypothesized values for the deficit and price expectations variables the cointegration results suggest the existence of several significant cointegrating vectors for each of the ten countries which would seem to appeal to the view of budget deficits having a positive impact on long term interest rates the hypothesized values for the deficit and price expectations variables are found to be too strict since the hypotheses are rejected in every case but one

incentive effects of workers compensation insurance abstract this paper uses micro level data from the current population survey to estimate the determinants of participation in state workers compensation programs in the united states the principal finding is that higher workers compensation benefits are associated with greater participation in the workers compensation program after accounting for a variety of covariates in addition the waiting period is found to have a substantial negative effect on program participation finally time series estimates based on the cross sectional model show that the growth in workers compensation claims in the 1970s corresponds reasonably well with the growth in real benefits in this time period

fiscal deficits financial fragility and the effectiveness of government policies recent developments in the euro area highlighted the interactions between fiscal policy sovereign debt and financial fragility we introduce asset choice and sovereign debt holdings in banks portfolios in an otherwise standard macroeconomic model with financial frictions to emphasize a new crowding out mechanism through reduced private access to credit when leverage constrained banks accumulate sovereign debt when banks are substantially invested in sovereign debt the effectiveness of fiscal stimuli is impaired because deficit financed fiscal expansions through this channel crowd out private demand this channel also significantly reduces the gains from fiscal policy when interest rates are at the zero lower bound

do revenues or expenditures respond to budgetary disequilibria the post world war ii increase in the size of the federal government has led to a number of theoretical and empirical investigations of the sources of this growth in particular economists have questioned whether increases in the size of the federal budget tend to be initiated by changes in expenditures followed by revenue adjustments by the reverse sequence or both friedman for example argues that governments adjust expenditures to the level of revenues so that control of taxation is essential to limit growth in government 13 alternatively the spend and tax model posits that revenues will be adjusted to finance any politically chosen level of expenditures a third perspective reflecting the institutional separation of allocation and taxation functions of the federal government hypothesizes the independent determination of revenues and expenditures the goal of this investigation is to test these three alternative theories of the budgetary process for the united states

is a military really a luxury good an international panel study of ldcs this paper introduces country specific fixed effects into a theoretical and empirical model of military expenditure contrary to the existing literature the model indicates that the share of military expenditure decreases with a country s income

what makes the stock market jump an analysis of political risk on hong kong stock returns abstract this paper employs a components jump volatility filter to investigate the possible market impact of political risk the filter operates by identifying jump return dates which are then associated with political events allowing us to measure the market return and volatility effects of political announcements our empirical results show that political developments in hong kong have a significant impact on its market volatility and return the results have some interesting implications for option pricing and political risk management

balance of trade announcements and asset prices influence on equity prices exchange rates and interest rates abstract this paper examines the informational impact of traded balance announcements on asset prices including equities currrencies long and short term debt instruments and financial futures this study finds that in the 1980s prior to the 1985 plaza agreement for international economic cooperation information in trade balance announcements seem to have influenced only interest rates however in the 1985 1987 period such announcements also influenced stock prices and currency values these influences intensity further in the 1987 1988 period thus asset prices are sensitive to news in trade balance announcements and this sensitivity seems to have increased significantly in recent years with important implications for asset pricing models and economic policy formulation jel f30

regional economic integration and geographic concentration of multinational firms abstract a number of theoretical studies have predicted that preferential trade agreements ptas raise outside multinationals incentive to invest in the participating countries especially in those that are integrated with larger markets and have lower production costs the hypothesis has however not been tested empirically this paper addresses the issue by estimating the impact of ptas on countries ability to attract multinationals the evidence is broadly consistent with expectations the formation of ptas leads to an increase in fdi by outside multinationals but the effect varies sharply with the size of integrated markets and countries comparative advantage countries integrated with larger markets experience a greater increase in total and export platform fdi those with a higher labor endowment also attract more fdi especially in labor intensive industries but at the expense of their labor scarce pta partners

monetary policy bond returns and debt dynamics abstract using the government s intertemporal budget constraint we quantify the contribution of returns paid on the u s government s debt portfolio to the evolution of the debt to gdp ratio we show that announcements of unconventional monetary policy measures by the federal reserve between 2008 iv and 2012 as a part of macroeconomic stabilization were associated with a sizable increase in returns and debt to gdp ratios and contributed to fiscal imbalances we use the federal reserve s portfolio composition as a proxy for unconventional monetary policy measures and show that it is significantly related to future bond returns and fiscal balances

a new approach in analyzing the effect of deficit announcements of interest rates using alternative methods the authors find less support than previous authors for significant interest rate responses to deficit announcements the main results are that interest rates respond only 40 percent of the time to deficit announcements and when they do respond the impact is only temporary lasting between one to six days and involving a 0 25 basis point response per percentage change in the deficit copyright 1994 by ohio state university press

why is the u s current account deficit so large evidence from vector autoregressions most observers consider large u s current account deficits to have been the main contributor to world macroeconomic imbalance in the 1980s the implications of continuing u s current account deficits of 100 to 200 billion dollars per year are troubling other countries must adjust to the scarcity of capital as the united states acquires a significant portion of the world s savings at the same time u s companies seek protection from unfair foreign competition as foreign companies increase market share in the united states determining the source of the problem and designing the correct solution are therefore major objectives of economic research policymakers and economists have suggested a number of reasons for the sudden jump in the current account deficit different schools of thought have therefore proposed different policy responses ranging from doing nothing to radically altering the country s commercial policy debate has centered on the proposed policies with little attention paid to comparing the explanatory power of the underlying hypotheses

effects of us interest rates and news on the daily interest rates of a highly indebted emerging economy evidence from turkey it has been widely demonstrated that asset prices react sensitively to macroeconomic news releases both in the industrialized countries and emerging markets however there are contradicting results on the effects of changes in interest rates of industrialized countries on asset prices of emerging markets in heavily indebted economies in addition to these factors political news and announcements from international institutions that may increase or decrease concerns about debt sustainability can affect asset prices as well this potential notwithstanding there has been relatively limited empirical work on the effects of such variables the objective of this study is to quantify the impact of all of these factors on interest rates of a highly indebted emerging economy using daily post crisis data of the turkish economy we show that both good and bad political news international monetary fund announcements and european union related news significantly affected secondary market government securities yi

economic effects of workers compensation in the united states private insurance and the administration of compensation claims using a sample of workers compensation claims from new york this article investigates 1 the probability that the claimant and insurer will negotiate a settlement rather than adjudicate the claim 2 the size of the settlement if settlement occurs 3 the size of the award if the claim is adjudicated and 4 factors determining the extent of the insurers claim adjustment efforts the findings show that insurer adjustment activities increase settlement probability and that a 24 25 discount rate is required to equate lump sum settlements with the benefit stream paid by an adjudicated award

the effects of macroeconomic shocks on sector specific returns the reliance on market and sector specific indexes to evaluate managed portfolios and the popularity of index investing has increased the importance of understanding what leads to market movements how long they may last and how different sectors respond to macroeconomic shocks this research is concerned with how shocks to macroeconomic variables affect five major s p sector specific stock market indexes the paper employs the newly developed econometric technique of generalized impulse response analysis the results identify the various responses of the sectors to unanticipated changes in some key macroeconomic variables asset prices are commonly believed to react sensitively to economic news daily experience seems to support the view that individual asset prices are influenced by a wide variety of unanticipated events and that some events have a more pervasive effect on asset prices than do others chen et al 1986 p 386

preferential trade agreements and tax competition for foreign direct investment abstract this paper examines how free trade agreements and customs unions affect the location of foreign direct investment fdi and social welfare taking into account that governments may adjust taxes and external tariffs to compete for fdi conditions are identified under which a free trade agreement leads to fdi and under which this improves welfare the welfare effect is shown to depend on the relative size of efficiency gains in production and government revenue losses due to tax competition a free trade agreement may fail to induce welfare improving fdi creating a role for a customs union

is bad news cause of asymmetric volatility response a note this article uses a direct test of the impact of economic news on stock volatility the main interest is to test whether the asymmetric response of volatility can be due to the effect of bad news to do this this study takes items of news into account as exogenous variables the analysis is divided into two stages each of which uses different items of news as exogenous variables additional to the information provided by the residuals the first stage uses more exhaustively classified information whereas the second considers daily information as a global sign this study finds that bad news is responsible for most of the observed asymmetric behaviour of variance further this study detects that the gjr model adequately captures the impact of bad news when traders are not ready to carry out a time consuming analysis of the information

tariff jumping and joint ventures it is well known that high tariffs tend to induce foreign direct investment fdi by encouraging the investors to jump the tariff wall this paper examines the economic interaction among tariffs fdi and international joint ventures ijv we show that in the presence of a strong local competitor even if opening a fully owned subsidiary is not profitable to a foreign firm the foreign firm may still enter the host country market through ijv however ijv is not profitable for sufficiently high tariff rates hence we argue that liberal trade policies may attract foreign investments through the formation of joint ventures

budget deficits short term real interest rates and the specification of expected inflation an empirical investigation the purpose of this paper is to illustrate whether empirical estimates of the effects of budget deficits on short term real interest rates are sensitive to the choice of the expected inflation variable survey data on expected inflation and the rational expectations method described by mishkin 1981 are used to construct two measures of the short term real interest rate results for two previous studies on this deficit interest rate relationship are re estimated using these measures of expected inflation and the interest rate variables additional results reported in this paper further indicate that empirical estimates of the interest rate effects of budget deficits are sensitive to the choice of the expected inflation variable in addition to the choice of the inflation variable a number of other robustness tests are included we are able to conclude that 1 increases in budget deficits do not generally raise short term real interest rates and 2 short term real interest rates are not independent of

rate regulation safety incentives and loss growth in workers compensation insurance we analyze the relationship between insurance rate regulation inflationary cost surges and incentives for loss control using state level data on workers compensation insurance for 24 states during 1984 90 regulators often responded to rapid loss growth during this period by denying rate increases or approving increases that were less than initially requested by insurers we test whether rate suppression increased loss growth by distorting incentives for loss control our regressions indicate a positive and statistically reliable relationship between loss growth and lagged measures of regulatory price constraints suggesting that rate regulation increased the frequency and or severity of employee injuries copyright 2000 by university of chicago press

deficit announcements and interest rates despite the fact that the most theoretical analyses with the notable exception of the ricardian equivalence approach indicate that increased deficits cause interest rates to rise the empirical evidence is at best inconclusive 1 in this note the relationship between interest rates and deficits is examined with the announcement effect methodology which has not previously been used in this context we find evidence of a positive relationship between unanticipated announcements of the projected federal government deficit and interest rates in an efficient market information about any determinant of interest rates should be quickly incorporated into observed rates thus when information about the size of the deficits is released a relatively quick impact on interest rates can be anticipated more specifically if an increase in the deficit is in fact associated with higher interest rates then an unanticipated announcement of a larger deficit should lead to a response in financial markets which increases interest rates this paper provides evidence on the announcement effects of information on the deficit the advantage of the announcement effect approach is that it precludes the necessity of specifying a structural model for interest rates 2 projections of current and future federal government deficits are made on a regular basis by both the office of managementand budget omb and the congressional budget office cbo and receive wide attention in the financial press these projections provide data that are related to the change in interest rate on government securities from the day before the announcement to the end of the announcement day the macroeconomic hypothesis underlying this investigation is simply that an increase in the current or future deficit leads to an increase in yields on government securities in anticipation of higher levels of debt financing in a rational expectations framework an announcement of higher future deficits will lead to a current increase in interest rates in anticipation of future financing thus the examination of announcement effects enables us to substantiate a relationship between interest rates and deficits without encountering the econometric problems of reduced form modeling section i begins with a description of the data this is followed by a discussion of the methodology in section ii section iii presents the empirical results this is followed by our conclusions in section iv