rational versus adaptive expectations in present value models using data on stock price and dividends and on long term and short term interest rates we test an important implication of present value models that current value is a linear function of the conditional expectations of the next period value and the current determining variable this implication combined with rational expectations re is strongly rejected combined with adaptive expectations ae it is accepted the latter model can also explain the observed negative relation between the rate of return and stock price thus the re assumption should be used with caution the ae assumption may be useful in econometric practice

group loyalty and the taste for redistribution interpersonal preferences preferences that depend on the characteristics of others are typically hard to infer from observable individual behavior as an alternative approach this paper uses survey data to investigate interpersonal preferences i show that self reported attitudes toward welfare spending are determined not only by financial self interest but also by interpersonal preferences these interpersonal preferences are characterized by a negative exposure effect individuals decrease their support for welfare as the welfare recipiency rate in their community rises and racial group loyalty individuals increase their support for welfare spending as the share of local recipients from their own racial group rises these findings help to explain why levels of welfare benefits are relatively low in racially heterogeneous states

pattern based expectations international experimental evidence and applications in financial economics abstract we study how subjects extrapolate simple patterns in financial time series in order to develop a descriptive model of actual agent behavior the laboratory experiment for this analysis was conducted in germany and japan statistical analyses indicate considerable similarity in expectations formation across cultures and document that agents expectations are at variance with the notion of standard trend extrapolation the paper then proposes a method for computing expectations for any economic time series based on the experimental data such pattern based expectations are shown to explain stock prices and the dynamics of the forward discount on the foreign exchange market

international business cycles and financial frictions abstract in this study i build a two country dsge model to investigate the impact of financial integration on business cycle co movements with financial frictions in this model the investor can borrow but faces a collateral constraint that is tied to the value of her capital and real estate holdings i show quantitatively that the degree of financial integration and real exchange rate adjustment are important for understanding business cycle synchronization under different types of shocks with the technology shock greater financial integration leads to lower cross country correlations while with the financial shock greater financial integration leads to stronger cross country correlations these findings are consistent with the empirical evidence from the literature

expectations in an open economy hyperinflation evidence from germany 1921 23 abstract we reconsider the beladi et al 1993 technique to measure expectations in hyperinflation episodes by allowing money to be substitutable with foreign assets as well as goods we determine new correctness conditions for adaptive and rational expectations formation in this context and show that taking into account these conditions the data for the german hyperinflation of the 1920s is consistent with rational expectation formation

how to measure labour market effects of immigration a review abstract this paper surveys available empirical evidence on labour market effects of immigration many different approaches have been used already to try to find out whether immigration hurts the labour market opportunities of natives no doubt new approaches will follow in the future as globalization will keep the migration issue on the agenda this literature review discusses the different approaches concentrating on both the methodology and the results at the end it tries to summarize available evidence

economic research and labour immigration policy the design of labour immigration policy requires nation states to make fundamental decisions on how to regulate i the number of migrants to be admitted ii the selection of migrants and iii the rights of migrants after admission in practice the debate over these three elements of immigration policy involves a wide range of economic social legal moral and political considerations recognizing the inherent inter disciplinarity of the subject this paper focuses on the implications of economic theories and research for regulating the number selection and rights of migrant workers in high income countries it examines the asymmetric economic interests of migrant receiving and migrant sending countries in the debate over the optimal design of labour immigration policy and in light of this analysis provides a brief economic assessment of the core components of labour immigration policy in the uk

does the welfare state affect individual attitudes toward immigrants evidence across countries abstract this paper analyzes welfare state determinants of individual attitudes toward immigrants within and across countries and their interaction with labor market drivers of preferences we consider two mechanisms through which a redistributive welfare system might adjust as a result of immigration under the first model immigration has a larger impact on high income individuals while under the second one low income individuals are those most affected individual attitudes are consistent with the first welfare state model and with labor market determinants in countries where immigration is unskilled income is negatively correlated with pro immigration preferences while skill is positively correlated with them these relationships are reversed in economies characterized by skilled migration

a dynamic network model of the unsecured interbank lending market abstract we introduce a dynamic network model of interbank lending and estimate the parameters by indirect inference using network statistics of the dutch interbank market from february 2008 to april 2011 we find that credit risk uncertainty and peer monitoring are significant factors in explaining the sparse core periphery structure of the market and the presence of relationship lending shocks to credit risk uncertainty lead to extended periods of low market activity intensified by reduced peer monitoring moreover changes in the central bank s interest rate corridor have both a direct effect on the market as well as an indirect effect by changing banks monitoring efforts

immigration integration and support for redistribution in europe immigration poses individual or collective economic risks that might increase citizen support for government redistribution but it can also generate fiscal pressure or undermine social solidarity to diminish such support these offsetting conditions obscure the net effects of immigration for welfare states this article explores whether immigration s effects are mediated by the economic and social integration of immigrants integration can be conceptualized and measured as involving the degree to which immigrants suffer unemployment rates depend on welfare state benefits and harbor social attitudes similarly to the native population such integration may alter how immigration reduces solidarity and imposes fiscal and macroeconomic pressures but does not much alter how immigration spurs economic risks for natives where migrants are more integrated by such measures immigration should have less negative or more positive implications for native support for government redistribution and welfare states than where migrants are less integrated the article explores these arguments using survey data for twenty two european countries between 2002 and 2010 the principal finding is that economic integration more than sociocultural integration softens the tendency of immigration to undermine support for redistributive policies

social policy by popular demand why are unemployment benefits more generous in some countries this article argues that citizens trade off the redistributive and insuring effect of social insurance as a result the distribution of risk in a society has important consequences via popular demand for social policy making at the microlevel the article shows that in addition to income the risk of unemployment is a key predictor of individual level preferences for unemployment benefits based on the microlevel findings the article argues that at the macrolevel the homogeneity of the risk pool is an important determinant of benefit generosity the more equally unemployment risk is distributed the higher unemployment replacement rates are empirical testing at both levels finds support for this account of social policy by popular demand

immigration globalization and unemployment benefits in developed eu states at a time of mounting concern about how traditional welfare states will react to globalization there has been increasing interest in specifying how global economic forces affect welfare policies in industrialized states building on theories from the political economy and comparative institutional literatures we analyze the influence of an important aspect of globalization the flow of immigration focusing on states in the european union we present a theoretical model that illustrates the interactive relationships between immigration eu labor market integration and domestic institutions our findings highlight how immigration in conjunction with domestic political institutions affects unemployment provisions while labor market integrative forces remain in the background the story of immigration and unemployment compensation in the eu is less about the opening of borders and the market forces of integration and more about the domestic political pressures

us monetary policy and the global financial cycle us monetary policy shocks induce comovements in the international financial variables that characterize the global financial cycle a single global factor that explains an important share of the variation of risky asset prices around the world decreases significantly after a us monetary tightening monetary contractions in the us lead to significant deleveraging of global financial intermediaries a decline in the provision of domestic credit globally strong retrenchments of international credit flows and tightening of foreign financial conditions countries with floating exchange rate regimes are subject to similar financial spillovers

budget deficit and inflation the peruvian experience the purpose of this paper is to investigate the role of huge budget deficits in peru s near hyperinflation during recent years we use the rational expectations macro model of inflation to find out effect of the anticipated budget deficits on inflation rates by using the quartely data of peru for the period 1973 1 to 1988 1 our major finding has been that the budget deficits as well as the rate of growth of money supply do have significant impact on the inflation rates in peru

the fiscal impact of immigration on the advanced economies this paper is concerned with the advanced economies it begins with a discussion of the demo graphic issues that have played such a large role in the debate on immigration this is followed by a section on the main problems involved in estimating the fiscal impact of immigration and then a summary of the international evidence on this topic mostly from europe and america separate sections on the uk and on low fertility countries follow the main conclusions are as follows highly skilled migrants normally make a large fiscal contribution whereas unskilled migrants are likely to impose a net cost on native taxpayers if they settle in the receiving country however even unskilled migrants may be net contributors if they eventually depart and make few claims on government expenditure while in the country most empirical studies find that the fiscal contribution of the immigrant population as a whole is quite small the positive contribution of some migrants is largely or wholly offset by the negative contribution of others this finding holds across a variety of countries and methodologies estimates of the net fiscal contribution of immigration normally lie within the range 1 per cent of gdp there are a few exceptions but these refer to countries experiencing demographic collapse and they are based on unrealistic assumptions about the inter generational allocation of future taxes and government expenditure with more realistic assumptions the overall fiscal benefit of immigration is quite small even in these countries these findings suggest that in general there is no strong fiscal case for or against sustained large scale immigration the desirability or otherwise of large scale immigration should be decided on other grounds

external adjustment and the global crisis abstract the period preceding the global financial crisis was characterized by a substantial widening of current account imbalances across the world since the onset of the crisis these imbalances have contracted to a significant extent in this paper we analyze the ongoing process of external adjustment in advanced economies and emerging markets we find that countries whose pre crisis current account balances were in excess of what could be explained by standard economic fundamentals have experienced the largest contractions in their external balance we subsequently examine the contributions of real exchange rates domestic demand and domestic output to the adjustment process allowing for differences across exchange rate regimes and find that external adjustment in deficit countries was achieved primarily through demand compression rather than expenditure switching finally we show that changes in other investment flows were the main channel of financial account adjustment with official external assistance and ecb liquidity cushioning the exit of private capital flows for some countries

switching equilibria the present value model for stock prices revisited abstract this paper analyzes the dynamic features displayed by alternative rational expectations equilibria in the context of the present value model for stock prices with feedback in particular it shows that there exists a unique equilibrium implying cointegration and that equilibrium is characterized by either the fundamental or alternatively the backward solution depending on the size of the feedback parameter it is shown analytically that the existence of switching equilibria induces large stock market swings using us data and structural estimation the hypotheses of feedback and switching equilibria are tested the empirical results provide evidence of both switching equilibria and feedback

is there a core of practical macroeconomics that we should all believe with emphasis on the adjective practical and the normative verb should my answer to the question of this session is a resounding yes indeed i spent a good deal of time between january 1993 and january 1996 acting on the belief that there is such a core macro model so i certainly hope it exists this believable core model falls well short of perfection leaves many questions unanswered and is subject to substantial stochastic errors nonetheless it is both useful and extensively used in policy analysis where contact with reality is a necessity and you cannot beat something with nothing it also closely resembles but does not quite match the way macroeconomics is taught to beginning and intermediate but not to graduate students in this short presentation i will describe briefly the main practical elements that i think we should agree on without worrying too much about their theoretical underpinnings then i will turn to two critical failings of the standard macro model which cry out for theoretical and empirical repair my organizing principle is the textbook exposition that has been standard though not universal in teaching intermediate macroeconomics for years the question is how does it differ from the core model used in policy analysis

the great retrenchment international capital flows during the global financial crisis the current crisis saw an unprecedented collapse in international capital flows after years of rising financial globalization we identify the stylized facts and main drivers of this development the retrenchment in international capital flows is a highly heterogeneous phenomenon first across time being especially dramatic in the wake of the lehman brothers failure secondly across types of flows with banking flows being the hardest hit due to their sensitivity of risk perception and thirdly across regions with emerging economies experiencing a shorter lived retrenchment than developed economies our econometric analysis shows that the magnitude of the retrenchment in capital flows across countries is linked to the extent of international financial integration its specific nature with countries relying on bank flows being the hardest hit as well as domestic macroeconomic conditions and their connection to world trade flows gian maria milesi ferretti and cedric tille

expectation volatility and liquidity in the housing market measuring housing price volatility is fundamental to understanding the dynamics of housing price risk this article aims to explore whether a liquidity factor plays a role in explaining the second moment i e the volatility of housing prices housing price volatility is measured as the conditional variance of a generalized auto regressive conditional heteroscedasticity garch model under the adaptive expectations framework the empirical evidence reveals that volatility transmits from smaller housing units to larger housing units which indirectly supports the trade up effect discussed in the literature in addition less liquid housing classes are more sensitive to unexpected liquidity shocks and the starter housing class is extraordinarily sensitive to negative liquidity shocks consistent with friction search theory pricing errors are alleviated as the trading volume increases because the valuation price tends to be more accurate as more information is available

financial globalisation monetary policy spillovers and macro modelling tales from 1001 shocks abstract we hypothesise that new keynesian dsge models that do not feature powerful financial spillover channels confound the effects of domestic and foreign disturbances when confronted with the data we derive several predictions from this hypothesis and subject them to data using monetary policy shock estimates for 29 economies obtained from more than 190 structural monetary models in the literature consistent with the predictions from our hypothesis we find that monetary policy shock estimates obtained from new keynesian dsge models are in general contaminated by a common component the more so the more strongly economies are financially integrated in the data moreover we find that the common component is correlated with the actual monetary policy stance of the us and the euro area again the more so the more strongly economies are financially integrated this finding is consistent with the hypothesis that in the data federal reserve and ecb monetary policies spill over to financial conditions in small open economies through a global and regional financial cycle but that this is in general not accounted for by the new keynesian dsge models used in the literature

preferences for redistribution in the land of opportunities this paper explores how individual preferences for redistribution depend on future income prospects in addition to estimating the impact of individuals socioeconomic background and of their subjective perceptions of future mobility we employ panel data to construct dobjectivet measures of expected gains and losses from redistribution for different categories of individuals we find that such measures have considerable explanatory power and perform better than dgeneral mobilityt indexes we also find that preferences for redistribution respond to individual beliefs on what determines one s position in the social ladder ceteris paribus people who believe that the american society offers equal opportunities are more averse to redistribution d 2004 published by elsevier b v

on information and market dynamics the case of the u s beef market abstract the paper investigates the nature of dynamic prices and expectations in a competitive market the approach is applied to the u s beef market which exhibits cyclical patterns and significant biological lags in the production process beef price equations are estimated under different expectation regimes the empirical results indicate the presence of heterogeneous price expectations with a significant number of market participants neglecting information about the existence of a beef cycle

immigration to the land of redistribution negative perceptions about migrants in europe are driven by concerns that foreigners abuse welfare paradoxically instruments of social inclusion are becoming weapons of mass exclusion we compare evidence on welfare access and the net fiscal position of migrants with perceptions based on a largely unexploited database eu silc we find no evidence that legal migrants notably skilled migrants are net recipients of transfers from the state however there is evidence of residual dependency on non contributory transfers and self selection of unskilled migrants in the countries with the most generous welfare states alternative strategies to unbundle migration from welfare access are discussed

interpreting pre trends as anticipation impact on estimated treatment effects from tort reform abstract while conducting empirical work researchers sometimes observe changes in outcomes before adoption of a new policy the conventional diagnosis is that treatment is endogenous this observation is also consistent however with anticipation effects that arise naturally out of many theoretical models this paper illustrates that distinguishing endogeneity from anticipation matters greatly when estimating treatment effects it provides a framework for comparing different methods for estimating anticipation effects and proposes a new set of instrumental variables to address the problem that subjects expectations are unobservable finally this paper examines a specific set of tort reforms that was not targeted at physicians but was likely anticipated by them interpreting pre trends as evidence of anticipation increases the estimated effect of these reforms by a factor of two compared to a model that ignores anticipation

attitudes toward highly skilled and low skilled immigration evidence from a survey experiment past research has emphasized two critical economic concerns that appear to generate anti immigrant sentiment among native citizens concerns about labor market competition and concerns about the fiscal burden on public services we provide direct tests of both models of attitude formation using an original survey experiment embedded in a nationwide u s survey the labor market competition model predicts that natives will be most opposed to immigrants who have skill levels similar to their own we find instead that both low skilled and highly skilled natives strongly prefer highly skilled immigrants over low skilled immigrants and this preference is not decreasing in natives skill levels the fiscal burden model anticipates that rich natives oppose low skilled immigration more than poor natives and that this gap is larger in states with greater fiscal exposure in terms of immigrant access to public services we find instead that rich and poor natives are equally opposed to low skilled immigration in general in states with high fiscal exposure poor rich natives are more less opposed to low skilled immigration than they are elsewhere this indicates that concerns among poor natives about constraints on welfare benefits as a result of immigration are more relevant than concerns among the rich about increased taxes overall the results suggest that economic self interest at least as currently theorized does not explain voter attitudes toward immigration the results are consistent with alternative arguments emphasizing noneconomic concerns associated with ethnocentrism or sociotropic considerations about how the local economy as a whole may be affected by immigration

tests of the rational expectations hypothesis this paper reviews evidence on the structure of anticipation from a number of empirical studies jack muth s rational expectations hypothesis is compared with a variety of alternative models including ferber s law the implicit expectations model of edwin mills and muth s new errors in the variables model the cumulative evidence is of such strength as to compel the suspension of belief in the concept of rational expectations this implies that it is a mistake to proceed under the maintained hypothesis that expectations are rational instead it is necessary to test the sensitivity of empirical and theoretical results to alternative assumptions about the structure by which anticipations are generated copyright 1986 by american economic association

support for free trade self interest sociotropic politics and out group anxiety although it is widely acknowledged that an understanding of mass attitudes about trade is crucial to the political economy of foreign commerce only a handful of studies have addressed this topic these studies have focused largely on testing two models both of which emphasize that trade preferences are shaped by how trade affects an individual s income the factor endowments or heckscher ohlin model posits that these preferences are affected primarily by a person s skills the specific factors or ricardo viner model posits that trade preferences depend on the industry in which a person works we find little support for either of these models using two representative national surveys of americans the only potential exception involves the effects of education initial tests indicate that educational attainment and support for open trade are directly related which is often interpreted as support for the heckscher ohlin model however further analysis reveals that education s effects are less representative of skill than of individuals anxieties about involvement with out groups in their own country and beyond furthermore we find strong evidence that trade attitudes are guided less by material self interest than by perceptions of how the u s economy as a whole is affected by trade

the monetary dynamics of sustained high inflation taiwan 1945 1949 taiwan experienced a sustained period of very high price inflation in the period 1945 1949 which led to an eventual rise in prices even greater than that experienced during some of the classic european hyperinflations analyzed by cagan 3 and others makinen and woodward 22 90 note that on the list of recognized hyperinflations one will not find taiwan but nevertheless argue that this episode should be classed as such although the average rate of taiwanese inflation during this period was not as high as in the episodes examined by cagan the very length of the period during which inflation remained high singles the taiwanese experience out as an extremely interesting period for analysis by monetary economists in this paper a primary aim is to examine whether the salient features of the demand for money during this period can be adequately characterized by an application of cagan s model of money demand under conditions of hyperinflation in particular we apply a test of cagan s model which is not contingent on any particular assumption concerning expectations formation except that agents errors in forecasting inflation are stationary using these first stage estimates we then examine subject only to the same weak assumption of stationary forecasting errors the hypothesis that the monetary authorities expanded the money supply in such a way as to maximize the inflation tax revenue ensuing from money creation finally we test the rational expectations version of the hyperinflation model of money demand the remainder of the paper is set out as follows in section ii we discuss the background to the taiwanese hyperinflation of 1945 1949

international currency exposures valuation effects and the global financial crisis abstract we examine the evolution of international currency exposures with a particular focus on the 2002 12 period during the run up to the global financial crisis there was a widespread shift towards positive net foreign currency positions such that relatively few countries exhibited the archetypal emerging market short foreign currency position on the eve of the global financial crisis during the crisis the upheaval in currency markets generated substantial currency generated valuation effects much of which were not reversed there is some evidence that the distribution of valuation effects was stabilizing in the sense of showing a negative covariation pattern with pre crisis net foreign asset positions