variations in trading volume return volatility and trading costs evidence on recent price formation models patterns in stock market trading volume trading costs and return volatility are examined using new york stock exchange data from 1988 intraday test results indicate that for actively traded firms trading volume adverse selection costs and return volatility are higher in the first half hour of the day this evidence is inconsistent with the admati and pfleiderer 1988 model which predicts that trading costs are low when volume and return volatility are high interday test results show that for actively traded firms trading volume is low and adverse selection costs are high on monday which is consistent with the predictions of the foster and viswanathan 1990 model academics investors and regulators alike are now intensively focused upon understanding the volatility of asset returns and its relation to trading volume this interest was undoubtedly piqued by the market break of october 1987 a time during which volatility and trading volume reached unprecedented levels but even beforehand researchers observed regular differences in the return process for various hours of the day and days of the week research concerning temporal patterns in stock market volatility and volume falls in two groups studies that document observed patterns and studies that develop models to predict patterns among the studies in the first group are oldfield and rogalski 1980 french and roll 1986 stoll and whaley 1990 harris 1986 and wood mcinish and ord 1985 who report evidence on seasonalities in daily and weekly return variances among the regularities that have been documented using interday data is that volatility is higher when the market is open than when it is closed oldfield and rogalski 1980 french and roll 1986 and stoll and whaley 1990 for example point out significant differences in return volatility between trading

temptation and social security in a dynastic framework abstract we investigate welfare and aggregate implications of a pay as you go payg social security system in a dynastic framework in which individuals have self control problems the presence of self control problems induces individuals to save less because of their urge for temptation towards current consumption individuals efforts to balance between the short term urge for temptation and the long term commitment for consumption smoothing result in self control costs in this environment payg social security works as a self control cost reducing device in contrast the presence of altruism induces individuals to save more this in turn mitigates the adverse effects of self control problems and payg social security on savings but magnifies the self control costs we find that in our environment the adverse welfare effects of a payg system are further mitigated relative to the environments that incorporate altruism and self control issues separately however the level of mitigation is quite modest

effects of budgetary policies in open economies the role of intertemporal consumption substitution an economy s optimal response to temporary and anticipated future changes in government spending is examined in the context of a two country model which highlights the role of the elasticity of int

nontraded goods oil price increases and the current account abstract an intertemporal maximizing model is used to examine the current account response to oil price increases the analysis shows that the introduction of a nontraded goods sector influences the current account response whether the current account worsens or improves depends crucially on relative production technologies in the traded and nontraded goods sectors

compositional effects of government spending in a two country two sector production model abstract we employ a two country two sector two period heckscher ohlin model to analyze the production side channels through which a change in the composition of government spending in one country affects real exchange rates rental rates and current account balances throughout the world with one traded and one non traded consumption good the model highlights the way in which the world capital stock reshuffles internationally in response to changes in the composition of government spending these international capital flows correspond to temporary current account imbalances and serve as the transmission mechanism linking real exchange rate changes at home and abroad

trading horizons and the value of money abstract this paper shows that fiat money can be feasible and essential even if the trading horizon is finite and deterministic the result hinges on two features of our model first individual actions can affect the future availability of productive resources so agents may be willing to sell for money even if on that date they have no reason to accept it this makes monetary trade feasible in all preceding dates second agents are anonymous and direct their search for partners so gift giving arrangements may be prevented because agents can misrepresent their consumption needs this makes money essential in exploiting any gains from specialization and trade

on savings and investment dynamics in a small open economy abstract this paper constructs a stochastic overlapping generations two country model of savings and investment under conditions of perfect international capital mobility the focus of the analysis is on the relationship between savings and investment dynamics in a small open economy in response to stochastic variations in domestic and or foreign production technologies the model is simulated under alternative specifications of the stochastic distribution governing both technologies this provides insight into the very complicated nature and rich diversity of possible relationships between savings and investment dynamics

differential mortality and the progressivity of social security abstract there is a well established negative correlation between earnings and mortality risk using a calibrated general equilibrium macroeconomic model this paper examines how this correlation interacts with the welfare implications of social security s benefit earnings rule my primary findings suggest that the welfare ranking of alternative benefit earnings rules is somewhat sensitive to differential mortality due to their relatively high mortality risk households with unfavorable earnings histories heavily discount the expected utility from old age consumption and therefore do not put much weight on better work retirement consumption smoothing because of this reason social security s benefit earnings rule warrants less redistribution in the presence of differential mortality compared to when mortality risk is uncorrelated to earnings i find that this result continues to hold when household level labor supply distortions are ignored and also when an alternative maximin welfare criterion is considered but not when accidental bequests from the deceased are redistributed to the survivors

fiscal deficits and relative prices in a growing world economy abstract this paper studies the transmission of fiscal disturbances between countries and the effect of those disturbances on worldwide capital intensity in a context of growth the model developed to address these issues allows for the production of both nontradable and relatively capital intensive tradable goods a central finding is that factor markets can be a major channel for the communication of fiscal policy shocks to world interest rates to private saving decisions and ultimately to global asset supplies and their distribution among countries particular predictions of the model illustrate how changes in public debt ratios and shifts in government spending patterns affect resource allocation and the welfare of various generations both at home and abroad

the evolution of wealth inequality over half a century the role of taxes transfers and technology over the last 50 years the u s tax system went through a striking transformation that reduced the effective tax rates for top income groups and raised transfers to seniors this paper investigates the macroeconomic repercussions of this change in policy particularly for the distributions of income wealth and consumption changes in taxes and transfers account for nearly half of the rise in wealth concentration nonetheless their impact on the distributions of income and consumption has been minor due to changes in equilibrium prices and the offsetting effects of tax cuts and transfers on the dispersion of consumption results highlight the role of increasing wage dispersion during this period as the main driver of trends in inequality

inter vivos transfers and bequests in three oecd countries reforms reducing the generosity of pensions have distributional effects on future generations if individuals care about their descendants welfare but only affect elderly individuals if bequests are the unintentional result of precautionary savings and safety net programmes such as unemployment insurance may displace sources of private help such as that provided by living parents to their children in need this paper provides comparable measures of how expected bequests and transfers vary with cumulated parental earnings in the united states west germany and the united kingdom the strength of bequest motives is empirically very weak in the available data private inter vivos transfers which appear to depend on the recipients economic situation are partly crowded out by public unemployment insurance programmes together involuntary bequests and intentional inter vivos transfers appear to be an important channel of intergenerational inequality transmission and strengthen substantially the relationship between an individual s and his parents economic status ernesto villanueva

labor supply and government programs a cross country analysis abstract there are substantial cross country differences in labor supply late in the life cycle age 50 a theory of labor supply and retirement decisions is developed to quantitatively assess the role of social security disability insurance and taxation for understanding differences in labor supply late in the life cycle across european countries and the united states the findings support the view that government policies can go a long way towards accounting for the low labor supply late in the life cycle in the european countries relative to the united states with social security rules accounting for the bulk of these effects

a quantitative analysis of capital income taxation this paper studies the quantitative impact of eliminating capital income taxation on capital accumulation and steady state welfare in a general equilibrium model with overlapping generations of sixty five period lived individuals who face idiosyncratic earnings risk borrowing constraints and life span uncertainty under a wide range of parameter configurations the capital income tax rate that maximizes steady state welfare is positive even though eliminating it completely would raise the steady state capital stock toward the golden rule this is because the tax burden is shifted toward the younger and liquidity constrained years reducing the individuals ability to self insure copyright 1998 by economics department of the university of pennsylvania and the osaka university institute of social and economic research association

the role of intergenerational transfers and life cycle saving in the accumulation of wealth he purpose of this paper is to review what economists know at present about the following question how large a portion of the existing wealth is the result of a bequest motive that is of accumulation for the specific purpose of leaving bequests i will also endeavor to clarify why an answer to this question is of interest in the early keynesian period when the study of national saving first attracted wide interest relatively little attention was paid to what led people to save though it was generally understood that the main systematic reason was to leave bequests j m keynes in the famous chapter 9 of the general theory of employment interest and money 1936 had listed seven distinct motives for saving besides the leaving of bequests but five of these which include to increase one s future income or to insure one s independence and power implied that all or nearly all the accumulation would finally wind up as bequeathed wealth this in turn meant that most private wealth originated through bequests that is it either had been received through bequests or was destined to be bequeathed and indeed how else could society accumulate wealth however keynes 1936 p 107 also mentioned two further motives precaution that is to build up a reserve against unforeseen contingencies and foresight that is to provide for an anticipated future relation between the income and the needs of the individual or his family different from that which exists in the present as for example in relation to old age family education or the maintenance of dependents these motives in contrast to most of the previous ones have the

the terms of trade and the current account the harberger laursen metzler effect the paper examines the effect of terms of trade changes on a small country s spending and current account assuming optimizing behavior in an intertemporal framework with perfect international capital mobility a temporary future terms of trade deterioration implies a deterioration improvement of the trade balance whereas a permanent terms of trade deterioration has an ambiguous effect depending on the rate of time preference nominal and real variables are considered via exact price indexes two periods and an infinite horizon are examined

regression toward mediocrity in economic stature this paper provides estimates of the correlation in lifetime earnings between fathers and sons intergenerational data from the national longitudinal survey are used earlier studies conducted for the united states report elasticities of children s earnings with respect to parent s earnings of 0 2 or less suggesting extensive integenerational mobility these estimates however are biased downward by error contaminated measures of lifetime economic status estimates presented in this paper correct for the problem of measurement error and find the intergenerational correlation in income to be on the order of 0 4 this suggests considerably less intergenerational mobility than previously believed jel j62

trading networks and liquidity provision abstract we study the profitability of traders in two fully electronic and highly liquid markets the dow and standard poor s 500 e mini futures markets using unique information that identify counterparties to a transaction we show and seek to explain the fact that the network pattern of trades captures the relations between behavior in the market and returns our approach includes a simple representation of how much a shock is amplified by the network and how widely it is transmitted this representation provides a possible shorthand for understanding the consequences of a fat finger trade a withdrawing of liquidity or other market shock

experimentation in financial markets in this paper we use a unique data set on the italian interdealer bond market to empirically estimate the process of strategic experimentation the results show how the information generated in the process of interdealer trading affects the incentive to experiment upon receipt of an order dealers deliberately engage in trade with other dealers either to exploit the information contained in the order they receive or if they are uncertain about its quality to assess it by actively experimenting with other dealers we therefore identify hiding and experimenting as main types of dealer strategies

intergenerational income mobility in the united states social scientists and policy analysts have long expressed concern about the extent of intergenerational income mobility in the united states but remarkably little empirical evidence is available the few existing estimates of the intergenerational correlation in income have been biased downward by measurement error unrepresentative samples or both new estimates based on intergenerational data from the panel study of income dynamics imply that the intergenerational correlation in long run income is at least 0 4 indicating dramatically less mobility than suggested by earlier research copyright 1992 by american economic association

random earnings differences lifetime liquidity constraints and altruistic intergenerational transfers abstract this paper develops a model of private savings behavior in which households care about their descendants cannot have negative net worth and have lifetime earnings depending on random draws from an exogenous distribution of abilities the elements interact very lucky parents are likely to leave large estates constrained children are unusually likely to receive intergenerational transfers the paper proves the existence of a stationary cross sectional distribution of wealth endogenously determines where liquidity constraints will bind and shows that the long term interest rate must be such that ricardian neutrality fails its last section generates several illustrative numerical simulations

a welfare analysis of social security in a dynastic framework in this article we study the welfare effects of unfunded social security in a general equilibrium model populated with overlapping generations of altruistic individuals that differ in lifetime expectancy and earnings ability contrary to previous research our results indicate that steady state welfare increases with social security for most households although by very different amounts this result is mainly due to two factors first the presence of two sided altruism significantly mitigates the crowding out effect of unfunded social security second ability shocks and uncertain lifetimes generate significant heterogeneity among households to yield different induced preferences for social security

social security and self control preferences abstract we analyze the welfare effects of an unfunded social security system we do so using an overlapping generations economy wherein agents have self control preferences face mortality risk individual income risk and borrowing constraints given our specification of preferences unfunded social security helps reduce the agents temptation to consume in every period consequently the welfare costs it otherwise entails are substantially mitigated while both social security and self control when considered separately reduce welfare their combination renders this effect considerably less severe moreover if the cost of resisting temptation is very high the introduction of social security might even improve welfare

liquidity provision and stock return predictability this paper examines the trading behavior of two groups of liquidity providers specialists and competing market makers using a six year panel of nyse data trades of each group are negatively correlated with contemporaneous price changes to test for return predictability we sort stocks into quintiles based on each group s past trades and then form long short portfolios stocks most heavily bought have significantly higher returns than stocks most heavily sold over the two weeks following a sort cross sectional analysis shows smaller more volatile less actively traded and less liquid stocks more often appear in the extreme quintiles time series analysis shows the long short portfolio returns are positively correlated with a market wide measure of liquidity a double sort using past trades of specialists and competing market makers produces a long short portfolio that earns 88 basis points per week act as complements finally we identify a chain of liquidity provision designated market makers nyse specialists initially trade against order flows and prices changes specialists later mean revert their inventories by trading with competing market makers who appear to spread trades over a number of days alternatively specialists may trade with competing market makers who arrive to market with delay

currency appreciation and deindustrialisation a european perspective during the 1980s policy advisers were successful in promoting the view that movements in the value of the dollar have an inverse relationship to u s international competitiveness this article explains their hypothesis as well as the counterargument that exchange rates positively reflect a country s competitiveness economic policies that boost competitiveness also raise the value of the domestic currency the mirror image of these hypotheses apply to u s trading partners including europe the evidence indicates that european countries were not deindustralized from 1985 to 1990 when the ecu rose in value by more than the dollar had risen in 1980 1985 instead european competitiveness rebounded strongly in the late 1980s reversing the stagnant performance of the early 1980s similarly during the early 1980s when the united states was on one unsupported view deindustralizing european nations generally did not enjoy a surge in their share of output or capital formation instead they suffered from euroscierosis this abstract was borrowed from another version of this item

opening and closing the market evidence from the london stock exchange we investigate the performance of call markets at the open and close using a unique natural experiment provided by the london stock exchange where traders can choose between a call and an off exchange dealership system although the call market dominates dealers in terms of price discovery it suffers from a high failure rate to open and close trading especially when trading conditions are difficult the call s trading costs increase with asymmetric information slow trading order flow imbalances and uncertainty traders resort to use of call auctions is negatively correlated with firm size implying that the call may not be the optimal method for opening and closing trading of medium and small sized stocks

automation versus intermediation evidence from treasuries going off the run this paper examines the choice of trading venue by dealers in u s treasury securities to determine when services provided by human intermediaries are difficult to replicate in fully automated trading systems when treasury securities go off the run their trading volume drops by more than 90 this decline in trading volume allows us to test whether intermediaries knowledge of the market and its participants can uncover hidden liquidity and facilitate better matching of customer orders in less active markets consistent with this hypothesis the market share of electronic intermediaries falls from 81 to 12 when securities go off the run electronic trading systems have been steadily increasing their share of securities trading in almost all financial markets as the amount of automation in financial markets increases it is natural to ask what services human intermediaries provide that are difficult or impossible to replicate in a fully automated trading system existing theory suggests that human intermediaries play at least two important functions first an intermediary s knowledge of the market and its participants may uncover hidden liquidity that facilitates quicker and more efficient matching of customer orders grossman 1992 the value of this matching function is greater when trading volume is low and matches are difficult to find second when information asymmetry is high the repeated interaction between an intermediary and its customers allows the intermediary to protect itself against informed trades and offer better prices to its customers seppi 1990 these two factors explain for example why electronic communications networks ecns have a greater market share for the largest and most actively traded nasdaq stocks while nasdaq market makers have a larger share in smaller less liquid stocks characterized by greater information asymmetry barclay hendershott and mccormick 2003 and why nyse specialists have higher participation rates in smaller less liquid stocks madhavan and sofianos 1998

centralised order books versus hybrid order books a paired comparison of trading costs on nsc euronext paris and sets london stock exchange this article compares the cost of trading large capitalisation equities on the hybrid order driven segment of the london stock exchange and the centralised electronic order book of euronext using samples of stocks matched according to economic sector free float capitalisation and trading volume our study shows that transaction costs are lower on the centralised order book than on the hybrid order book the presence of dealers outside the electronic order book favours the frequency of large trades but is associated with higher execution costs for all other trades and higher adverse selection and inventory costs inside the order book

productivity shocks non traded goods and optimal capital accumulation this paper considers the interaction of saving and investment in determining the current account for a small open economy subjected to productivity shocks by emphasizing the distinction between traded and non traded goods the analysis highlights the crucial role of the real exchange rate in macroeconomic adjustment our results demonstrate the importance of intertemporal substitution for determining the response of investment to anticipated productivity disturbances we also show how the correlation of movements in saving and investment following an anticipated disturbance depends critically on relative sectoral factor intensities

social security reform with self control preferences abstract this paper analyzes a fully funded social security system under the assumption that agents face temptation issues agents are required to save through individually managed personal security accounts without and with mandatory annuitization when the analysis is restricted to crra preferences our results are congruent with the literature in indicating that the complete elimination of social security is among the reform scenarios that maximize welfare however when self control preferences are introduced and as the intensity of self control becomes progressively more severe the social security elimination scenario loses ground very rapidly in fact in the case of relatively severe temptation the elimination of social security becomes the least desirable alternative under the light of the above findings any reform proposal regarding the social security system should consider departures from standard preferences to preference specifications suitable for dealing with preference reversals

does exchange rate appreciation deindustrialize the open economy a critique of u s evidence does exchange rate appreciation deindustrialize the open economy a critique of u s evidence i introduction the sharp appreciation of the dollar in the early 1980s followed by its decline since 1985 has generated considerable interest in the output effects of exchange rate changes many academics practitioners and policymakers believe that the initial rise in the value of the dollar significantly depressed growth in the tradable goods sector of the u s economy particularly in manufacturing output and prevented the tradable goods sector from participating in the initial stages of the general u s economic expansion since 1982 the dollar s subsequent sharp decline in turn they hope will provide an independent stimulus to the nation s manufacturing sector according to this view development within the u s economy was two tiered through 1985 growth was robust in those parts of the economy not directly sensitive to international relative price changes i e nontradables such as services construction transport public utilities etc while growth languished in those parts of the economy producing either exportable or import competing goods i e tradable goods such as manufactures agriculture forestry products etc brinner 1985 marris 1985 cline 1986 branson 1986 and branson and love 1986 1987 1988 provide empirical evidence linking depressed output in manufacturing industries to the strong dollar 1 these results have been interpreted by some as evidence that the appreciation of the dollar has caused or contributed to the deindustrialization of the u s economy e g brinner 1985 2 a major shortcoming of the literature however is that it typically fails to distinguish between exchange rate changes that are truly exogenous and exchange rate changes that are endogenously determined with output changes by policy and other shocks this is especially true in the deindustrialization debate where exchange rate shocks may be largely due to domestic macro economic policies output levels and exchange rates in a general context are both endogenous variables and the association between them depends on the underlying disturbances and policy reactions depending on the underlying disturbance an appreciation of the exchange rate may be associated with an expansion as well as contraction of aggregate output in different sectors for example a disturbance emanating from the foreign exchange market that has the effect of appreciating the dollar e g an exogenous shift in international investors portfolio preferences toward dollar assets may be considered exogenous in some sense and will likely have a depressing effect on output in the tradables sector however a policy induced exchange rate appreciation arising for example from a fiscal expansion in a mundell fleming world with high capital mobility or a monetary contraction has ambiguous effects on aggregate and sectoral output movements 3 while exchange rate effects reduce output in both cases in the case of fiscal stimulus the overall net effect on output is likely to be positive while in the case of monetary contraction negative focusing on the relation between exchange rates and output alone is analogous to attributing output movements along a supply or demand curve to price changes rather than to the underlying factors causing the curves to shift in this paper we take a critical look at the arguments and empirical evidence offered in support of the hypothesis that exchange rate appreciation has been an independent cause of decline in the u s manufacturing sector in section ii we discuss several methodological problems in estimating and interpreting the relation between output and exchange rates in particular we show how the overall association of exchange rate changes with outout depends on the source of the exchange rate change i

does risk sharing motivate interdealer trading we use unique data from the london stock exchange to test whether interdealer trade facilitates inventory risk sharing among dealers we develop a methodology that focuses on periods of extreme inventories inventory cycles we further distinguish between inventory cycles that are unanticipated and those that are anticipated because of worked orders the pattern of interdealer trade during inventory cycles matches theoretical predictions for the direction of trade and the inventories of trade counterparts we also show that london dealers receive higher trading revenues for taking larger positions

quantifying the laffer curve on the continued activity tax in a dynastic framework it is argued that the tax on continued activity should be removed by implementing actuarially fair schemes however these schemes cannot fund the expected social security ss deficit this article proposes to give individuals a fraction of the actuarially fair incentives in the case of postponed retirement ss faces a trade off between giving enough incentives to make individuals delay retirement and giving little increase in pensions in order to help finance its expected deficit this trade off is captured by a laffer curve finally when the ss system aims to maximize welfare the optimal tax on postponed retirement is still strictly positive erratum vol 49 issue 4 1539

progressive taxation in a dynastic model of human capital abstract we develop a quantitative theory of economic inequality to investigate the effects of replacing the current u s progressive income tax system with a proportional one the cross sectional implications of the theory are used to discipline the assessment of the effects of tax policy and circumvent the lack of conclusive micro evidence on the parameterization of the human capital production technology we find that the elimination of progressive taxation increases steady state level of output by 12 6 capital by 21 8 and consumption by 13 2 moreover it increases economic inequality and its persistence across generations

capital movements intersectoral resource shifts and the trade balance abstract in this paper i consider the interactions between the internal structure of the economy and its external balance in an intertemporal set up with perfect foresight a simple pattern emerges current account deficits are associated with depreciating real exchange rates the incorporation of real investments and government spendings change this pattern in a systematic way depending on factor intensities the composition of government spending and its timing

the current account and the optimal government debt abstract in this paper we analyze the optimal response of the current account and the government debt to real disturbances permanent and temporary lumpsum taxes are not feasible and the government income is raised according to the ramsey rule for optimum taxation we show that permanent disturbances have no effects on either the private or the government current account if initially there are no deficits starting off from the same initial situation both the private sector and the government develop a deficit on current account in response to a temporary disturbance

temporary import quota and the current account this paper studies the effects of a temporary import quota on the real exchange rate and the current account response is determined by the interaction between two opposing forces the intertemporal relative price effect tends to improve the current account while the wealth the intertemporal relative price effect tends to improve the current account while the wealth effect contributes to a deterioration for a sufficiently low degree of intertemporal consumption substitution the wealth effect is shown to dominate in this event the current account deteriorates in response to a temporary quota and improves only after the quota is lifted

transaction costs and asset prices a dynamic equilibrium model in this article we study the effects of transaction costs on asset prices we assume an overlapping generations economy with a riskless liquid bond and many risky stocks carrying proportional transaction costs we obtain stock prices and turnover in closed form surprisingly a stock s price may increase in transaction costs and a more frequently traded stock may be less adversely affected by an increase in transaction costs calculations based on the marginal investor overestimate the effects of transaction costs for realistic parameter values transaction costs have very small effects on stock prices but large effects on turnover

can social security be welfare improving when there is demographic uncertainty abstract this paper studies the welfare implications of a payg pension system in an overlapping generations olg model with demographic uncertainty and incomplete markets in the absence of public pensions small cohorts tend to be favoured by the changes in relative prices implied by demographic shocks payg defined benefit systems can help to share the financial risks created by this type of demographic uncertainty across generations our careful quantitative analysis test this possibility with unfavourable results the overall welfare impact of the public pensions is negative due to the prominence of the crowding out effect over the insurance effect

anonymity adverse selection and the sorting of interdealer trades this article asks why london security dealers use more than one trading venue to trade with one another we argue that differences in the exclusivity liquidity anonymity and post trade transparency of each system permit a more efficient sorting of interdealer trades than if there were just one system our evidence comes from detailed data on where london dealers chose to place interdealer trades contrary to intuition we show that uninformed interdealer trades as measured by subsequent price impact tend to migrate to third party brokered systems where trade is anonymous by contrast informed interdealer trades tend to migrate to the direct nonanonymous public market additionally we show that this distribution of trades is supported by differences in the price improvement dealers receive in the direct and brokered markets our findings have implications for three strands of the market microstructure literature first they contribute to our understanding of the importance of anonymity and transparency in securities trading most theoretical models of the effects of anonymity and transparency predict that anonymous trading systems will attract more informed trades

social security and two earner households in the past decades elimination of the pay as you go system in u s has been extensively discussed and studied such an elimination would also eliminate the intra cohort redistribution done by the following policies of social security due to spousal and survivor s beneflt provisions the system redistributes mostly to single earner married households not necessarily progressive retirement beneflts are a concave function of past mean earnings hence the system redistributes from high earners to low earners finally the existence of a cap on social security taxable earnings makes the system regressive this is the flrst paper that quantifles redistributive labor supply and welfare implications of these policies using a general equilibrium life cycle model agents start out as permanently married or single and with education levels and wage proflles where the latter depend both on education and gender the household is the decision maker and decides on the labor supply of its member s and saving the aggregate production function has as inputs capital and labor aggregated by e ciency elimination of these policies results in a 6 1 increase in married female labor force participation rate the middle income single earner married households experience the largest welfare losses whereas the high income two earner households together with high income single households experience the largest welfare gains

pension wealth and individual saving some new evidence attemprs to measure the tmpact of soctal security and private pensions on household saving have occupied much of the literature in empirical public finance over the past decade empirical estimates of those impacts have been quite varied see the discussion in aaron 1982 this paper provides new estimates of the impact of changes in holdings of social security and private pension annuities on the level of non pension wealth the data examined are drawn from surveys conducted for the u s president s commission on pension policy the impact of the social security system on individual saving has been a concern since feldstein s 1974 pioneering paper l the theoretical argument of feldstein and of barro 1974 1978 centers around the funding status of social security i e the degree to which an unfunded social security system reduces private saving empirical tests of the effects of social security on saving in this line of research have been conducted in the perfect certainty version of the life cycle model modigliani and ando 1957 modigliani and brumberg 1954 in that approach social security affects non pension saving through its impact on individual intertemporal budget constraints disposable income during the working period falls by the amount of

intergenerational transfers and the accumulation of wealth h t ouseholds acquire wealth from two sources they save out of income they have earned and they receive transfers from other people the first method of wealth accumulation goes under the name of life cycle saving in which people save during their working lives and dissave after retirement the second involves either an inter vivos transfer that is a transfer between living people or a bequest a transfer that occurs at the death of the donor while inter vivos transfers and bequests will arise in dynastic models where preferences include a taste for the well being of one s descendents few empirical life cycle models reflect these concerns indeed a sharp debate has arisen over the ability of the simple life cycle model to explain observed wealth accumulation understanding the relative sizes of these sources of wealth accumulation affects a variety of issues for example the effects of government debt social insurance public transfer programs estate taxes and incentives for charitable giving depend to some extent on the magnitude and nature of private saving and transfers of wealth analyses of the inequality of wealth may depend on whether most of wealth is earned or received as transfers appropriate policies for encouraging private saving may look rather different depending on whether most saving is to be consumed later in life or passed along to the next generation finally evidence on transfer patterns relates to more fundamental

current account effects of a temporary change in government expenditure a perfect foresight model of intertemporal utility maximization is used to analyze the current account effects of a temporary increase in government spending the relationship between the marginal utility of private consumption and the supply of public goods in the economy is shown to play a crucial role in determining the qualitative nature of the optimal current account response the link between the timing of the policy change and the magnitude of the current account effect is also examined

informed speculation with imperfect competition competitive rational expectations models have the unsatisfactory property dubbed the schizophrenia problem by hellwig that each trader takes the equilibrium price as given despite the fact that he influences that price an examination of information aggregation in a non competitive rational expectations model using a nash equilibrium in demand functions shows that the schizophrenia problem is avoided by having each trader take into account the effect his demand has on the equilibrium price given a distribution of private information across traders prices reveal less information than in the competition equilibrium and prices no longer become fully informative in the limit as noise trading vanishes or as traders become risk neutral with small traders the model may become one of monopolistic competition not perfect competition in contrast to the competitive model a reasonable model of endogenous acquisition of costly private information is obtained even when traders are risk neutral

the cross sectional determinants of inventory control and the subtle effects of adrs abstract this paper addresses the effects of international cross listings on the domestic market by investigating the properties of market maker inventories on the london stock exchange we find that the unit root hypothesis can only be rejected for a fraction of dealer inventories and that mean reversion is generally slow inter stock variations in mean reversion can be explained by liquidity and risk related variables as well as the availability of adrs on other exchanges we find that adrs do have an appreciable and significant impact on dealer behaviour and trading costs the findings have implications for our understanding of the subtleties of linkages between markets