credit market imperfections and patterns of international trade and capital flows this paper offers two simple models to illustrate how corporate governance contractual enforcement and the balance sheet condition of the business sector etc can affect the patterns of international trade and capital flows in the presence of credit market imperfections jel d52 f15 f21 f40

globalization and emerging markets with or without crash we analyze the effects of financial and trade globalization on the likelihood of financial crashes in emerging markets while trade globalization always makes crashes less likely financial globalization may make them more likely especially when trade costs are high pessimistic expectations can be self fulfilling and lead to a collapse in demand for goods and assets such a crash comes with a current account reversal and drops in income and investment lower income countries are more prone to such demand based financial crises a quantitative evaluation shows our model is consistent with the main stylized facts of financial crashes in emerging markets

the impact of house prices on consumption in the uk a new perspective this paper proposes an alternative approach to the question of how house prices influence household consumption by focusing on their impact on mortgage equity withdrawal and household saving household level data are used to derive a measure of expected and unexpected changes in house prices these are then incorporated into a recursive bivariate probit model of the decision to withdraw housing equity and save the results suggest that households respond to changes in their housing wealth primarily by increasing their mortgage borrowing rather than by decreasing their savings although this is mainly for younger households however while changes in housing wealth do not have a direct impact on household saving they do have an important indirect impact since they increase the likelihood that the household will withdraw equity which in turn has a negative impact on household saving

investor protection and equity markets we present a simple model of an entrepreneur going public in an environment with poor legal protection of outside shareholders the model incorporates elements of becker s j political econ 106 1968 172 crime and punishment framework into a corporate finance environment of jensen and meckling j financial econ 3 1976 305 we examine the entrepreneur s decision and the market equilibrium the model is consistent with a number of empirical regularities concerning the relation between investor protection and corporate finance it also sheds light on the patterns of capital flows between rich and poor countries and on the politics of reform of investor protection r 2002 elsevier science b v all rights reserved

boom in bust out young households and the housing price cycle abstract the uk experienced a major residential real estate boom bust cycle from the mid 1980s to the mid 1990s accompanied by unprecedented shifts in the owner occupancy rate of young households previous empirical analyses have pointed toward income changes and financial deregulation as the likely causes of this episode with little to say about the differential effects on various age groups we show that in a life cycle model with income heterogeneity and credit constraints the observed co movements of housing prices and owner occupancy rates can be explained as an equilibrium response to income and credit market shocks our findings suggest that the financial liberalisation of the early 1980s was crucial for the unparalleled increase in the owner occupancy rate of young households during the boom

trends in household saving don t justify tax incentives to boost saving despite diverse trends in household saving in oecd countries many governments are introducing tax incentives designed to boost saving by particular groups such schemes have been justified by many trends including increasing income inequality ageing populations and greater cross border competition it is dangerous however to base policy on what is happening to aggregate household saving alone first personal saving should be viewed within a lifecycle context saving may look inadequate today but households may already have made plans to redress this in future second data on aggregate saving conceal significant differences between different household groups only disaggregation yields reliable inferences on which policy can be based in particular it is impossible to assess the consequences of demographic changes without analysis that distinguishes between different generations we reassess household saving by computing the evolution of lifetime profiles of consumption income and saving of different cohorts over time and then analyse the effect of demographic and other changes we find little evidence for the assertion that tax incentives to promote national saving are needed now to stave off a future drought in household saving

a multiplier decomposition method to analyze poverty alleviation abstract the objective of this paper is to present a multiplier decomposition method focusing on poverty alleviation the decomposition captures the various mechanisms and linkages through which a production sector s output contributes to poverty alleviation within a socioeconomic system represented by a social accounting matrix sam it is shown that a multiplier can be broken down into two multiplicative effects the distributional and interdependency effects the decomposition method is applied to the case of indonesia a key policy implication is that the human capital of the poor needs to be enhanced if they are not to be sealed off from the industrialization process

factor mobility and international trade this paper develops a two country model of trade and factor mobility in which capital is sector specific but internationally mobile the model avoids the indeterminacy and propensity to specialize of heckscher ohlin models and exhibits a rich variety of responses to exogenous shocks including transfers capital taxes and tariffs the results throw light on the relationship between goods and factor trade reconciling the conflicting views of previous writers it is argued that the model holds out the possibility of a new paradigm in international trade theory in which international factor movements play a central rather than a peripheral role

demographic change tourism expenditure and life cycle behaviour abstract the paper explores how demographic changes in human populations may impact on tourism decision making of households over their life cycle by means of hurdle models the study focuses respectively on the decision to travel domestically or abroad and investigates if statistically significant differences exist as to the impact of age and cohort on the decision to travel and tourism expenditure using a vast dataset on italian household expenditures over the period 1997 2007 the empirical results show that demographic aspects do have a strong effect on the tourism behaviour of families and that cohort and age effects act differently on the decision of households to make a trip and on how much they spend on tourism age has a negative effect on the desire to travel but a positive effect on tourism expenditure on the other hand older cohorts are inclined to travel but they have a low propensity to spend on tourism relevant differences in income elasticity along the life cycle of households have also been found finally age and cohort aspects have a different effect on the decision as to whether to travel nationally or internationally

the italian recession of 1993 aggregate implications of microeconomic evidence we use household level data covering a ten year period 1984 to 1993 to investigate the likely determinants of the italian recession of 1993 the first year after wwii when private consumption fell consumption fell most for working age households and for the self employed our evidence is consistent with the response to permanent negative shocks due to the major pension reform of 1992 and the introduction of stricter tax compliance measures for the self employed this is still true when we control for the role played by job losses and the collapse of the retail sector that characterized the early 1990s

do tax incentives for saving in pension accounts cause debt accumulation evidence from danish register data abstract this paper applies a quasi experimental research design on a danish 2010 policy that reduced tax incentives for saving in annuity pension schemes to show significant substitution of savings from retirement accounts to gross debt repayments we find that for every 1 danish currency unit reduction in retirement savings 31 cents goes to debt repayments taking into account all types of savings we find full crowding out consistent with previous findings we document that the effect is driven by a minority about 23 percent who actively rebalance their savings

the impacts of petroleum price fluctuations on income distribution across ethnic groups in malaysia crude oil price hikes have compelled governments of developing countries to let domestic prices of energy increase fiscal priorities made it impossible to fully compensate the hikes by raising energy subsidies this paper examines the potential impacts of a limited deregulation of the petroleum price on the income distribution in malaysia paying specific attention to differences in impacts on major ethnic groups we introduce an extended social accounting matrix sam model which not only incorporates substitution possibilities among production inputs and consumption goods but also allows for the exogenous determination of the price of intermediate inputs the results of simulations indicate that distributional impacts of rising petroleum prices tend to be regressive affecting poor people more severely than richer people all ethnic groups experience income loss with the real incomes of malay households which are relatively poor on average more than the chinese and indian households which are the generally richer

housing markets consumption and financial liberalisation in the major economies abstract this paper analyses the implications of relaxing credit restrictions in housing finance markets a theoretical model of the interaction of financial and housing markets and forward looking agents is developed the effects of financial liberalisation in the model are analysed and evidence from the u s a and u k on the impact of easing credit restrictions is presented estimates are also made of the degree to which credit restrictions may bind on households in those countries where the range of mortgage products on offer is still more limited than in the u k and u s a simulations are undertaken to gauge the effect on consumption saving and bequests of wealth of possible future convergence in national systems of housing finance

house prices home equity based borrowing and the u s household leverage crisis us household leverage sharply increased in the years preceding the 2007 eco nomic recession the top panel of figure 1 shows the steady rise in household debt since 1975 which accelerated beginning in 2002 in just five years the household sector doubled its debt balance in comparison the contemporaneous increase in corporate debt was modest the middle panel shows that the increase in household debt from 2002 to 2007 translated into a striking rise in household leverage as mea sured by the debt to income ratio during the same time period corporate leverage declined the dramatic absolute and relative rise in us household leverage from 2002 to 2007 is unprecedented compared to the last 25 years one reason for the rapid expansion in household leverage during this period is that mortgage credit became more easily available to new home buyers mian and sufi 2009 strong house price appreciation from 2002 to 2006 however which may have been fueled by the availability of mortgage credit to a riskier set of new home buyers could also have had an important feedback effect on household lever age through existing homeowners given that 65 percent of us households already owned their primary residence before the acceleration in house prices the feedback from house prices to borrowing may be an important source of the rapid rise in household leverage that preceded the economic downturn our central goals in this study are to estimate how homeowner borrowing responded to the increase in house prices and to identify which homeowners responded most aggressively we examine this home equity based borrowing channel using a dataset consisting of anonymous individual credit files of a national consumer credit bureau agency we follow a random sample of over 74 000 us homeowners who owned their homes as of 1997 at an annual frequency from the end of 1997 until the end of 2008 the bottom panel of figure 1 plots the growth in debt of 1997 homeowners over time and shows that existing homeowners borrow significantly more debt as their house prices appreciate from 2002 to 2006 while the aggregate trend is suggestive

what do we learn about consumer demand patterns from micro data the aim of this paper is to assess the importance of using micro level data in the econometric analysis of consumer demand to do this we utilize a time series of repeated cross sections covering some 4 000 households in each of 15 years employing a number of different aggregation procedures we conclude that aggregate data alone are unlikely to produce reliable estimates of structural price and income coefficients however once certain aggregation factors as well as trend and seasonal components are included an aggregate model is not necessarily outperformed across all demand equations in terms of forecasting ability jel d12 c52 c31 the purpose of this paper is to develop a complete consumer demand system based on a time series of individual household data and to use it to measure the biases introduced into the study of consumer de mand behavior when aggregate data are used in place of the appropriate microeco nomic data we assess the suitability of ag gregate data through the impact on income and price elasticities and by evaluating the ability of both micro and aggregate based models to forecast aggregate consumer de mand the biases introduced by the use of aggregate data depend upon the way that household characteristics interact with in come and price effects and on departures of demand systems from linearity we explore the structure of microeconomic demand sys tems and the role of household characteris tics in the behavior of consumer demand both for the light this may shed on the pattern of future demands and for the im plications this behavior has for issues of aggregation consumer demand patterns typically found in micro data sets vary considerably across households with different household characteristics and with different levels of income we model this variability by making intercept and slope parameters in the budget share equations of our demand sys tem depend on household characteristics and by allowing for nonlinear total log expenditure terms in fact in theory consistent demand systems it is total ex penditure rather than disposable income that is allocated across goods we find that this general framework leads to a well specified data coherent demand system which is a quadratic extension of the popu lar almost ideal model of angus s deaton and john muellbauer 1980 the micro level estimates are shown to be sensitive to the treatment of endogeneity of total expen diture and to the specification of interaction terms with household characteristics in ad dition this specification is also shown to possess many attractive features for the evaluation of aggregate models

industrial structure and capital flows this paper provides a new theory of international capital flows in a framework that integrates factor proportions based trade and financial capital flows a novel force emerges capital tends to flow toward countries that become more specialized in capital intensive industries this composition effect competes with the standard force that channels capital toward the location where it is scarcer if the composition effect dominates capital flows away from the country hit by a positive labor force productivity shock a flow reversal extended to a quantitative framework the model generates sizable current account imbalances between developing and developed countries broadly consistent with the data

north south lending and endogenous domestic capital market inefficiencies abstract we develop an open economy model of intertemporal trade under asymmetric information capital market imperfections are endogenous and depend on a country s stage of economic development relative to the perfect information benchmark north south capital flows are dampened and possibly reversed and world interest rates are lower whereas riskless rates are equalized across borders the domestic loan rate is higher in poorer countries the model can be applied to a number of policy issues including the debt overhang problem the indexation of foreign public debts and the effect of income distribution on growth

estimation with censored regressors basic issues we study issues that arise for estimation of a linear model when a regressor is censored we discuss the efficiency losses from dropping censored observations and illustrate the losses for bound censoring we show that the common practice of introducing a dummy variable to correct for censoring does not correct bias or improve estimation we show how censored observations generally have zero semiparametric information and we discuss implications for estimation we derive the likelihood function for a parametric model of mixed bound independent censoring and apply that model to the estimation of wealth effects on consumption

house price shocks and household indebtedness in the united kingdom we use household panel data to explore the link between changes in house prices and household indebtedness both secured on housing assets and unsecured in the united kingdom we show that households which are borrowing constrained by a lack of housing equity as collateral make greater use of unsecured debt such as credit cards or personal loans in response to rising house prices which relax this constraint such households are more likely to refinance and to increase their indebtedness relative to unconstrained households however for most households house price movements appear to have little impact on indebtedness

the uk consumption boom of the late 1980s aggregate implications of microeconomic evidence two competing explanations of the uk consumer boom in the late 1980s are the financial liberalisation imperfect housing market hypothesis of muellbauer and murphy and the expectations hypothesis of king we use 15 years of family expenditure surveys and cohort analysis to investigate to what extent these two hypotheses agree with observed changes in consumption patterns we find that the housing markets explanation accounts for much of the increase by older cohorts but cannot be reconciled with the marked rise in expenditure levels of younger households a simple simulation exercise shows instead that the expectations hypothesis can generate increases of expenditure by young consumers of the magnitude observed in our data

changes in the distribution of housing wealth in great britain 1985 91 during which time sizeable real capital gains accrued to owner occupiers particularly those who were already owner occupiers at the start of this period the paper constructs housing wealth estimates disaggregated by household from the 1985 ghs and 1991 bhps wave 1 in order to explain the distributional consequences of the housing market experience the paper finds that there has been a modest increase in housing wealth inequality but one that is more pronounced for gross housing wealth compared with equity this growth has been offset by the growth in owner occupation and the benefits of the council house right to buy scheme

deep financial integration and volatility we investigate the relationship between foreign direct ownership of firms and firm and region level output volatility using a novel panel data set for european countries we document a positive highly robust relationship between firm level foreign ownership and volatility of value added this relationship holds cross sectionally and in panels with firm fixed effects where the relationship captures within firm variation over time considering domestic firms with assets in foreign countries we document that it is international diversification rather than the nationality of the owner that explains this positive correlation our results can also be found at the aggregate level where we show that region level volatility is correlated positively with foreign investment in the region we show that this positive relation between aggregate volatility and foreign investment can be explained by the granularity of the firm size distribution and the fact that foreign ownership is concentrated among the largest firms

dualism and macroeconomic volatility this paper develops a simple macroeconomic model that shows that combining capital market imperfections together with unequal access to investment opportunities across individuals can generate endogenous and permanent euctuations in aggregate gdp investment and interest rates reducing inequality of access may be a necessary condition for macroeconomic stabilization moreover countercyclical escal policies have a role to play in our model savings are underutilized in slumps because of the limited debt capacity of potential investors therefore the government should issue public debt during recessions in order to absorb those idle savings and enance investment subsidies or tax cuts for investors the most important single fact about saving and investment activities is that in our industrial society they are generally done by different people and for different reasons for years there might tend to be too little investment leading to deeation losses excess capacity and unemployment for other years there might tend to be too much investment leading to periods of chronic ineation unless prudent and proper public policies in the escal and monetary eelds are followed paul a samuelson economics 8th edition 1970 pp 196 198

a life cycle consistent empirical model of family labour supply using cross section data this paper estimates a utility maximising model of the joint determination of male and female labour supplies using a sample of married couples from the u k family expenditure survey the emphasis is on the estimation of within period preferences that are consistent with intertemporal two stage budgeting under uncertainty however the approach we adopt provides an alternative method of estimating certain aspects of life cycle behaviour to the fixed effects constant approach of heckman and macurdy 1980 macurdy 1981 and browning deaton and irish 1985 moreover it relaxes some of the underlying restrictions that are implicit in these constant models under uncertainty

financial constraints the distribution of wealth and international trade we develop a simple theoretical model to examine the impact of the distribution of wealth on the patterns of trade when capital markets are imperfect our model predicts that the dispersion of wealth can be a determinant of comparative advantage for low income countries with poor financial institutions we find support for these prediction using export and financial panel data from a large sample of countries

immiserizing deindustrialization a dynamic trade model with credit constraints abstract the paper develops an open economy dynamic model with bequests and credit constraints the agricultural sector uses only labor the industrial sector needs an indivisible investment under autarky productive agriculture provides the funds needed for investment in industry and in equilibrium credit constraints are not binding if agriculture is not sufficiently productive the price of the industrial good must be high enough to make the industrial sector sustainable in an open economy if the country has the comparative advantage in agriculture deindustrialization may occur over time deindustrialization is welfare reducing when the negative wealth distributional effects swamp the gains from trade

the stock market housing and consumer spending a survey of the evidence on wealth effects abstract this paper examines the time series and micro econometric evidence on the relationship between stock and house prices and consumer spending the time series studies distinguish between short run and long run links between consumption income and wealth they allow us to identify which variables adjust to restore the long run equilibrium in the case of a shock and to determine the time taken by the adjustment process the micro econometric literature improves our understanding of the link between wealth and expenditure and distinguishes among the alternative hypotheses of direct wealth effect common causality and collateral channel that have been proposed to explain this relationship the relationship between wealth and consumer spending appears to be strong but there is some disagreement as to its size and nature furthermore there appear to be some important differences across countries which should be allowed for by policy makers when appraising the policy implications of a change in asset prices

measuring financial market integration over the long run is there a u shape abstract using long time series for sovereign bond markets of fifteen industrialized economies from 1875 to 2009 i find that financial market integration by the end of the 20th century was higher than in earlier periods and exhibited a j shaped trend with a trough in the 1920s the main reason for the higher financial integration seen today is the recent extensive globalization around the turn of the 20th century countries frequently drifted apart conversely in recent years the bond markets of most countries have moved together both policy variables and the global market environment play a role in explaining the time variation in integration while unexplained changes in the overall level of country risk are also empirically important my methodology based on principal components analysis is immune to outliers and accounts for global and country specific shocks and hence can capture trends in financial integration more accurately than standard techniques such as simple correlations

the employment effects of an income redistribution in developing countries the 1970 ilo mission report to colombia first proposed the notion that since the poor tend to consume a more labour intensive basket of commodities than the rich a redistribution of income in their favour will tend to increase employment this proposal gave rise to a host of attempts in the 1970s to demonstrate its empirical validity in a number of developing countries the results however provided only a very limited degree of support to the ilo hypothesis indeed by 1978 the clear conclusion of the general equilibrium macroeconomic models was that income redistribution would have only a tiny effect on employment 1

asset bubbles economic growth and a self fulfilling financial crisis abstract a tractable model in which asset bubbles can exist in spite of infinitely lived agents is presented an intrinsically useless asset has a positive value and raises welfare because it helps investors with idiosyncratic productivity to obtain more credit in imperfect financial markets however the bubbly equilibrium is only the second best moreover bubbles may burst and this leads to recessions the model s analytical solution allows for the study of many policies we find that a policy of purchasing the asset avoids financial crises but nevertheless results in the second best outcome a policy that taxes depositors and subsidizes investors both prevents crashes and achieves the first best outcome

intertemporal consumption durables and liquidity constraints a cohort analysis we provide a theoretical framework to analyse the response of life time maximizing consumers to intertemporal prices of non durable goods and durable goods when the borrowing limit depends on the market value of the stock of durables owned by the consumer we use pseudo panel data on purchases of non durables and durable goods cars and demographic characteristics from the uk family expenditure survey as well as estimates of the durable stock constructed using the uk national travel survey to estimate the equations derived in the first part of the paper we evaluate the shadow prices of these restrictions which were significantly positive for younger consumers in the mid seventies and immediately prior to the 1982 financial liberalisation

booms and busts consumption house prices and expectations over much of the past 25 years house price and consumption growth have been closely synchronized three main hypotheses for this have been proposed increases in house prices raise household wealth and so their consumption house price growth reduces credit constraints by increasing the collateral available to homeowners and house prices and consumption are together influenced by common factors using microeconomic data we find that the relationship between house prices and consumption is stronger for younger than older households contradicting the wealth channel we suggest that common causality has been the most important factor linking house prices and consumption

do house prices affect consumption a re assessment of the wealth hypothesis this paper revives the debate in the literature about the relationship between house prices and consumption by exploring conflicting results in the uk campbell and cocco 2007 find that old owners benefit most from a house price increase and young renters least confirming the so called wealth hypothesis in contrast attanasio et al 2009 find that house prices have the same impact on consumption across age groups we rule out several potential explanations related to data construction and provide evidence that the functional form can reconcile the conflicting results in the two papers

capital market imperfections international credit markets and nonconvergence abstract we consider a two country growth model with international capital markets these markets fund capital investment in both countries and operate subject to a costly state verification csv problem investors in each country require some external finance but also provide internal finance which mitigates the csv problem when two identical except for their initial capital stocks economies are closed they necessarily convergemonotonicallyto the same steady state output level unrestricted international financial tradeprecludesotherwise identical economies from converging and poor countries are necessarily net lenders to rich countries oscillation in real activity and international capital flows can occur journal of economic literatureclassification numbers e00 f00 f34 g14

wealth as a determinant of comparative advantage abstract this paper shows that a country s wealth can be an important determinant of comparative advantage when access to credit differs across sectors of the economy wealthier nations exhibit a comparative advantage toward goods produced in sectors facing more severe financial imperfections these sectors are typically populated by small firms empirically this paper documents that these sectors are also labor intensive consequently this theory partially offsets traditional sources of comparative advantage and offers an explanation for trefler s missing trade mystery and the leontief paradox furthermore the theory makes the relation between trade and income distribution endogenous

wealth effects and macroeconomic dynamics the effect of wealth on consumption is an issue of long standing interest to economists conventional wisdom suggests that fluctuations in household wealth have driven major swings in economic activity both in the united states and abroad this paper considers the so called consumption wealth effects there is an extensive existing literature on wealth effects that has yielded some insights for example research has documented the relationship between aggregate household wealth and aggregate consumption over time and a large number of household level studies suggest that wealth effects are larger for households facing credit constraints however there are also many unresolved issues regarding the influence of household wealth on consumption we review the most important of these issues and argue that there is a need for much more research in these areas as well as better data sources for conducting such analysis

is the uk balance of payments sustainable the uk current account deficit john muellbauer and anthony murphy the uk has a large and persistent current account deficit policy makers argue that the deficit is easily financed temporary and therefore not a sign of structural weakness we examine the conditions in which it is appropriate for a country to overspend its current income with the intention of repaying loans out of future income these include an increase in international capital mobility larger net holdings of foreign assets and expectations of faster productivity growth all three apply to the uk so official reasoning is in part correct even so for several decades there has been a trend deterioration of uk trade performance most markedly in manufacturing and we detect no underlying improvement in the 1980s we highlight structural deficiencies in both demand and supply on the demand side we show the importance of rising house prices and easier consumer credit in fuelling the consumer boom to an unwarranted extent this we trace to unjustifiable subsidies to house ownership on the supply side we stress vastly inadequate investment in skill formation education and physical capital these structural deficiencies lead us to a less optimistic view than official policy we draw the policy lessons for the uk and consider whether continental europe will face similar problems as financial markets are liberalized

can cross listing relax financial frictions in trade and equity holdings a sector level analysis previous studies have documented the positive mutual relationship between bilateral aggregate goods trade and asset holdings this article examines whether financial frictions play an important role in this mutual relationship instrumental variable poisson pseudo maximum likelihood iv ppml estimation method is applied to a new panel of data on us imports and foreign equity holdings in 20 manufacturing sectors from 43 countries over the period 2001 2007 the results confirm the significantly positive relationship between goods trade and equity holdings and show that financial frictions are an important factor causing this positive correlation in addition we find that equity cross listings in the us stock markets provide external funds to relax financial frictions and promote goods trade this impact varies with different measures of financial frictions in developing and developed countries

technology choice and income distribution within the context of the agricultural sector one can point to numerous attempts to assess the macro economic effects of alternative technologies on the distribution of income one of the most influential early efforts for example was undertaken mainly in the indian context by john mellor 1 who was seeking to redefine agriculture s role in development strategy and policy in rejecting the then existing capital intensive and industry led development model and advocating instead a rural led employment intensive path to development mellor was concerned among other things with the relationships between increased foodgrain production using alternative technologies and the growth rate of non agricultural employment non agricultural sector capital labour ratios and the course of per capita incomes of the labour force more recently haggblade and hazell2 have used an input output based model to examine how differences in the choice of agricultural technology and farm size influence the indirect or multiplier effects of increases in agricultural output they show for example that the input intensity consumption profile of targeted farms and processing characteristics of the farm output all affect the size and composition of nonfarm spinoffs 3 the finding that consumption linkages generally dominate the total multiplier confirms mellor s emphasis on the importance of this particular type of linkage effect

housing wealth and consumption evidence from geographically linked microdata rising home values also raise the cost of living offsetting their impact on consumption however additional home equity collateral can loosen borrowing constraints increasing spending for households that value their current endowment of housing highly i use geographically linked microdata to exploit regional heterogeneity in housing markets and identify the causal effect of house price fluctuations on consumer spending a 1 increase in home values leads to a 0 047 increase in spending for homeowners but a negligible response for renters results reflect large responses among credit constrained households suggesting looser borrowing constraints are a primary driver of the mpc out of housing wealth

factor movements and commodity trade as complements abstract several models are presented in which factor mobility leads to an increase in the volume of world trade the models share the common characteristic that the basis for trade is something other than differences in relative factor endowments these alternative bases for trade include returns to scale imperfect competition production and factor taxes and differences in production technology taken together the models suggest a more general idea the widely held notion that trade in goods and factors are substitutes is in fact a rather special result which is a general characteristic only of factor proportions models

housing wealth effects evidence from an australian panel we explore the positive relationship between house prices and household spending by following a panel of australian households no evidence for traditional housing wealth effects is found with young homeowners exhibiting the largest wealth effects young renters also exhibit a positive consumption response to house prices although less so than young homeowners this suggests that increasing house prices raise spending via easing credit constraints and a common association between house prices and a third factor results from a cohort level panel are similar to those using household level data suggesting that pseudo panels may be used as a partial substitute for actual panels

the life cycle model of consumption and saving a central implication of life cycle models is that agents smooth consumption we review the empirical evidence on smoothing at frequencies from within the year up to across a lifetime we find that life cycle models particular those which incorporate realistic features of markets and goods have more empirical successes than failures we also show that some apparent deviations from theoretical predictions imply very small welfare losses for agents finally we emphasize that the coherence of life cycle models imposes an important discipline when incorporating new features into models

occupational choice and development abstract the rise in world trade since 1970 has been accompanied by a rise in the geographic span of control of management and hence also a rise in the effective international mobility of labor services we study the effect of such a globalization of the world s labor markets the world s welfare gains depend positively on the skill heterogeneity of the world s labor force we find that when people can choose between wage work and managerial work the worldwide labor market raises output by more in the rich and the poor countries and by less in the middle income countries this is because the middle income countries experience the smallest change in the factor price ratio and where the option to choose between wage work and managerial work has the least value in the integrated economy our theory also establishes that after economic integration the high skill countries see a disproportionate increase in managerial occupations using aggregate data on gdp openness and occupations from 115 countries we find evidence for these patterns of occupational choice

does trade cause capital to flow evidence from historical rainfall abstract we use a historical quasi experiment to estimate the causal effect of trade on capital flows we argue that fluctuations in regional rainfall within the ottoman empire capture the exogenous variation in exports from the empire to germany france and the u k during the period of 1859 1913 the identification is based on the following historical facts first only surplus production was allowed to be exported from the empire provisionistic policy second different products grown in different regions were subject to variation in regional rainfall third different bundles of products were exported to germany france and the u k by the empire using the export bundle weighted regional rainfall as an instrument for ottoman exports to each country our instrumental variable regression suggests the following when a given region of the empire received more rainfall than others the resulting surplus production was exported more to countries that historically imported more of those products and this leads to higher foreign investment by those countries in the empire our findings support theories predicting complementarity between trade and finance in which causality runs from trade to capital flows

tariffs foreign capital and national welfare with sector specific factors abstract this paper examines the effect on national welfare of an endogenously determined inflow of foreign capital in the context of a well known model with sector specific inputs both for the case of unrestricted international trade and investment and in the presence of a tariff the second best problem of the optimal tax on foreign investment for a given tariff level is also investigated by application of the concept of shadow prices for primary factors in distorted open economies the results obtained are then related to analogous propositions derived previously for the standard heckscher ohlin model

trade and capital flows a financial frictions perspective the classical heckscher ohlin mundell paradigm states that trade and capital mobility are substitutes in the sense that trade integration reduces the incentives for capital to ow to capital scarce countries in this paper we show that in a world with heterogeneous nancial development the classic conclusion does not hold in particular in less nancially developed economies south trade and capital mobility are complements within a dynamic framework the complementarity carries over to nancial capital ows this interaction implies that deepening trade integration in south raises net capital in ows or reduces net capital out ows it also implies that at the global level protectionism may back re if the goal is to rebalance capital ows when these are already heading from south to north our perspective also has

sectoral growth and poverty alleviation a multiplier decomposition technique applied to south africa abstract how does an increase in a sector s output affect poverty alleviation in this paper a multiplier decomposition for a socioeconomic system represented by a social accounting matrix sam is used to study this linkage the decomposition applied to south africa reveals that growth in agriculture services and some manufacturing sectors can alleviate poverty for the black african population for sectoral growth to be effective however the need for appropriate skill acquisition for the poor must be addressed directly only long term policies geared towards improving both economic growth and the human capital stock of the poor can lead to significant poverty alleviation

does inequality lead to a financial crisis abstract the recent global crisis has sparked interest in the relationship between income inequality credit booms and financial crises rajan 2010 and kumhof and ranciere 2011 propose that rising inequality led to a credit boom and eventually to a financial crisis in the us in the first decade of the 21st century as it did in the 1920s data from 14 advanced countries between 1920 and 2000 suggest these are not general relationships credit booms heighten the probability of a banking crisis but we find no evidence that a rise in top income shares leads to credit booms instead low interest rates and economic expansions are the only two robust determinants of credit booms in our data set anecdotal evidence from us experience in the 1920s and in the years up to 2007 and from other countries does not support the inequality credit crisis nexus rather it points back to a familiar boom bust pattern of declines in interest rates strong growth rising credit asset price booms and crises

forecasting aggregate consumers expenditure in the u k using the dhsy model the performance of the dhsy model in predicting the growth of aggregate consumers expenditure in the uk over the period 1985 1988 is examined the model is applied to four different combinations of consumption variable and data type results show in all cases the predictive performance of the dhsy model to be poor however applied to seasonally adjusted data an improvement can be achieved by allowing for systematic variation in coefficients in particular a variable coefficient dhsy model displays no tendency to underpredict the growth of total consumers expenditure and accurately captures the volatility of non durable expenditure

consumption responses to a large shock to financial wealth evidence from italy we estimate marginal propensities to consume from wealth shocks for italian households early in the great recession large asset price shocks in 2007 2008 underpin instrumental variables a euro fall in risky financial wealth resulted in cuts in annual total non durable consumption of 8 5 9 5 5 5 7 cents we find small effects on food spending counterfactuals indicate financial wealth effects were relatively important for consumption falls in italy in 2007 08 the estimated effects are consistent with a simulated lifecycle model that captures the wealth shock also consistent with the model are findings of stronger wealth effects for agents who were pessimistic about stock returns

house prices and consumer spending recent empirical work shows large consumption responses to house price movements this is at odds with a prominent theoretical view which using the logic of the permanent income hypothesis argues that consumption responses should be small we show that in contrast to this view workhorse models of consumption with incomplete markets calibrated to rich cross sectional micro facts actually predict large consumption responses in line with the data to explain this result we show that consumption responses to permanent house price shocks can be approximated by a simple and robust rule of thumb formula the marginal propensity to consume out of temporary income times the value of housing in our model consumption responses depend on a number of factors such as the level and distribution of debt the size and history of house price shocks and the level of credit supply each of these effects is naturally explained with our simple formula

the composition of growth matters for poverty alleviation this paper contributes to explain the cross country heterogeneity of the poverty response to changes in economic growth it does so by focusing on the structure of output growth the paper presents a two sector theoretical model that clarifies the mechanism through which the sectoral composition of growth and associated labor intensity can affect workers wages and thus poverty alleviation then it presents cross country empirical evidence that analyzes first the differential poverty reducing impact of sectoral growth at various levels of disaggregation and the role of unskilled labor intensity in such differential impact the paper finds evidence that not only the size of economic growth but also its composition matters for poverty alleviation with the largest contributions from labor intensive sectors such as agriculture construction and manufacturing the results are robust to the influence of outliers alternative explanations and various poverty measures

poverty in bangladesh measurement decomposition and intertemporal comparison this article using the methodology developed by foster greer and thorbecke to measure and decompose poverty provides estimates of the levels of poverty in rural and urban areas in bangladesh it investigates in the context of bangladesh the most powerful effect of poverty in terms of a shortfall in food for daily calorie intake by the poor it provides intertemporal comparison of poverty and its decomposition among subgroups it also makes comparisons between the results obtained in this study with those currently available the results of the study show a significant improvement in poverty situations in rural areas from 1982 to 1986 the article also discusses the policy implications of its findings

housing wealth and consumption a micro panel study there is strong evidence that house prices and consumption are synchronised there is however disagreement over the causes of this link this study examines if there is a wealth effect of house prices on consumption using a household level panel data set with information about house ownership income wealth and demographics for a large sample of the danish population in the period 1987 96 we model the dependence of the growth rate of total household expenditure with unanticipated innovations to house prices controlling for factors related to competing explanations we find little evidence of a housing wealth effect

intertemporal consumption and credit constraints does total expenditure respond to an exogenous shock to credit there is continuing controversy over the importance of credit constraints this paper investigates whether total household expenditure and debt is affected by an exogenous increase in access to credit provided by a credit market reform that enabled danish house owners to use housing equity as collateral for consumption loans we find that the magnitude of the response is correlated with the amount of equity released by the reform and that the effect is strongest for younger households even for this group the response was moderate the aggregate effect of the reform was significant but small

the sectoral structure of poverty during an adjustment period evidence for indonesia in the mid 1980s the authors examine the structure of poverty in indonesia by sector of employment and how it changed during the adjustment period 1984 to 1987 they find that while aggregate poverty decreased during the period the gains to the poor were quite uneven across regions and sectors gains to the rural sector in key regions were quantitatively important to indonesia s success in alleviating poverty they found most poverty exists and most gains in alleviating poverty were made in the rural farming sector these gains were associated with crop diversification and continued growth in off farm employment the government s adjustment program favored rural areas and were crucial to indonesia s evident success at maintaining momentum in alleviating poverty however one should not underrate the favorable conditions in indonesia when adjustment started

the uk consumption function and structural instability improving forecasting performance using a time varying parameter approach previous studies indicate that the poor forecasting performance of constant parameter uk consumption expenditure models is caused by structural instability in the underlying data generating process typically this instability is removed by reparameterization within the constant parameter framework an alternative modelling strategy is to allow some or all of the parameters to vary over time a uk non durable consumption expenditure model with time varying parameters is developed based on the permanent income hypothesis of friedman 1957 this model takes into account temporal changes in the average and marginal propensities to consume the variation in the parameter estimates is given an economic interpretation in terms of the influence of omitted variables namely uk financial liberalization and expectational changes the forecasting performance of this model is superior to that of two widely used constant parameter models further tests show that even if these constant parameter models are respeci

house prices and risk sharing homeowners in the panel study of income dynamics are able to maintain a high level of consumption following job loss or disability in periods of rising local house prices while the consumption drop for homeowners who lose their job in times of lower house prices is substantial these results are consistent with homeowners being able to access wealth gains when housing appreciates as witnessed by their ability to smooth consumption more than renters a calibrated model of endogenous homeownership and consumption is able to reproduce the patterns in the data quite well and provides an interpretation of the empirical results

co movements in relative commodity prices and international capital flows a simple model co movements in relative commodity prices and international capital flows a simple model suppose a number of countries produce a commodity which employs local labor and a type of capital that is internationally mobile within the framework of a specific factors model the paper argues that there is a presumption about the international movement of capital when the relative price of the industry using that capital rises on world markets capital flows towards countries less heavily involved in producing the commodity internal labor flows contribute towards worldwide industry dispersion and the volume of international trade in that commodity tends to fall i introduction fluctuations in the composition of world demand may cause a particular commodity to experience periods during which price is high relative to other commodities to alternate with periods during which price is relatively low a number of countries may share not only in the production of such a commodity but also in the use of some factor call it capital specific to its production but capable of being relocated from one country to another that is some productive activities may combine local factors with inputs that have international markets what can be said about the location of internationally mobile capital as shifts in demand result in changes in relative commodity prices is there anything systematic about the likely degree of international concentration or diversification of production over periods in which a commodity s price is alternatively high and low the purpose of this article is to sketch out a simple model in which a presumption does exist about the location of internationally mobile capital the relative concentration of production and the volume of international trade in a commodity during the course of a cycle in its price relative to the prices of other commodities the model is a variant of the sector specific general equilibrum production model in which one type of capital is internationally mobile so that rates of return remain equalized among countries the presumption is that when a commodity s price is relatively high compared with other commodities real capital specifically used to produce that commodity tends to leave regions that are relatively large producers furthermore this tendency of international capital mobility to encourage a dispersion of world production when a commodity s price is relatively high and a concentration of the world s production when price is low is enhanced by the mobility within each country of factors used jointly with other sectors finally international trade in a commodity experiencing such a price cycle tends to be second best compared with own production in the sense that the volume of trade tends to contract precisely when the commodity s price is high relative to other commodities ii the presumption about international capital flows production structures within countries are assumed to follow the sector specific model as described in jones 1975 mobile labor is combined with each of several types of specific capital goods in producing outputs in one activity capital is assumed to be internationally mobile although retaining its sectoral specificity such mobility serves to equalize the return to this factor in all areas in which it is employed although commodities are traded technologies and factor endowments are not assumed to be the same so the returns to local specific factors and national wage rates can differ from country to country although the argument can be posed in the context of a many country trading world the logic is more easily revealed in a two country setting suppose both home and foreign countries each produce a number of traded commodities and one of these say x1 makes use of a specific factor say k1 which is mobile internationally such mobility ensures that the rental on type 1 capital at home r1 is kept in line with the foreign return r1

pension reform and saving in britain the paper examines the pension programme in britain focusing on reforms that have increased the fraction of the work force opting out of public provision and that have permitted individuals to choose their private pension provider it also examines the issue of pension provision and household saving the paper highlights the disparities in retirement saving behaviour across types of pension provision and different households the paper discusses the policy issues of the adequacy of household saving and the impact of pension reform on household saving and the public finances

agricultural growth and poverty in an archetypical middle income country chile 1987 2003 is a reduced share of agriculture in the economy an obstacle for the agricultural sector to play an important role in poverty alleviation what is the key channel if any by which agriculture is benefiting the poor in chile that would be worthwhile to promote in other countries by answering these questions we expand the literature on poverty and composition of growth by proposing a methodology that allows to disentangle the mechanisms by which agricultural growth can be poverty reducing we find that in chile agriculture plays a large role in reducing poverty and most of this effect is channeled through the labor market

house price shocks negative equity and household consumption in the united kingdom we examine the impact of unanticipated housing capital gains on consumption behavior using data from the british household panel survey and county level house price data we condition the models on household financial expectations and on household real financial capital gains imputed from the family resources survey we find a marginal propensity to consume out of unanticipated shocks to housing wealth of 0 01 omitting the measure of financial expectations biases the results upward we find little evidence of heterogeneity in responses of young and old homeowners but differences between owners and renters we also find asymmetric behavior between house price rises and falls and a disproportionate impact on saving if the household had negative housing equity at the start of the period jel d91 e21 r31 c 2010 by the european economic association

beyond agriculture versus non agriculture decomposing sectoral growth poverty linkages in five african countries summary africa s development debate is often cast as agriculture versus non agriculture with agriculture s proponents arguing that agricultural growth is more effective at reducing poverty this dual economy perspective overlooks the heterogeneity within and synergies between these two broad sectors recent studies decompose agriculture into subsectors and find that agricultural growth led by smallholder farmers is even more effective at reducing poverty than larger scale estate farms in contrast few studies estimate subsectoral growth poverty linkages for non agriculture yet we strongly expect for example that growth led by informal traders or foreign owned mining companies will have quite different implications for poverty reduction different perspectives on what constitutes non agriculture might therefore explain divergent views on its relative importance for poverty reduction to address this gap in our understanding we estimate sectoral poverty growth elasticities using economy wide models for five african countries while our estimated elasticities are higher for agriculture than for non agriculture as a whole the extent to which this is true varies considerably across nonagricultural subsectors and across countries we find that the poverty growth elasticities for trade and transport services and manufacturing especially agro processing are often close to and sometimes exceed agriculture s this means that growth led by these nonagricultural subsectors might be as effective as agriculture at reaching the poor this confirms the need for a more nuanced treatment of non agriculture in africa s policy debate and may explain conflicting perspectives on agriculture s role vis a vis non agriculture

do house prices drive consumption growth the coincident cycles of house prices and consumption in the uk this paper uses a realistic structural lifecycle model of consumption and housing decisions to understand how data might distinguish different mechanisms that explain the correlation between house prices and consumption the model includes price and earnings shocks estimated from data the latter including aggregate and idiosyncratic components and incorporates realistic features of the uk mortgage market we simulate the model using more than 30 years of realized shocks and under counterfactual scenarios our results confirm the intuition of earlier studies house price shocks should have a larger effect on the consumption of older households and earnings shocks on young households

consumption over the life cycle and over the business cycle the main aim of this paper is to assess the validity of the life cycle model of consumption in particular we address an issue that has recently received much attention especially in the macroeconomic literature that of excess sensitivity of consumption growth to income growth we do this using a time series of cross sections and a novel and flexible parameterization of preferences the former allows us to address aggregation issues directly while with the latter we can allow both the discount factor and the elasticity of intertemporal substitution eis to be affected by various observable variables and lifetime wealth the main findings can be summarized as follows i the excess sensitivity of consumption growth to labor income disappears when we control for demographic variables this is true both at life cycle and business cycle frequencies ii estimation of a flexible specification of preferences indicates that the elasticity of intertemporal substitution is a function of several variables including the level of consumption the eis increases with the level of consumption as expected iii the variables that change the eis are also important in explaining why we observe excess sensitivity over the business cycle iv we are able to reconcile our results with those reported both in the macro and micro literature v in our specification the elasticity of intertemporal substitution is not very well determined this result however should be taken with care as we have not made an effort to construct a preferred specification which would probably include additional controls for labor supply behavior the evidence presented shows that the life cycle model cannot be easily dismissed indeed we believe that the model does a good job at representing consumption behavior both over the life cycle and over the business cycle