determinants of off farm work and its effects on farm performance the case of norwegian grain farmers limited attention has been given in the literature to the impact of off farm work on farm performance more knowledge about the determinants of part time farming and its effects on farm performance could help policymakers to introduce better targeted rural development policies the aim in this article is to fill part of the above mentioned gaps by analyzing factors that influence the choices of off farm work by either the farmer alone or jointly by both the farmer and partner and simultaneously examining how off farm work influences farm performance these analyses were based on an unbalanced panel data set from norwegian grain farms during 1991 to 2005 among the determinants of off farm work hours we found that in addition to demographic time trend and some regional effects there was a significant negative effect of farm output on farmers off farm work hours the production function results revealed that off farm work had a positive effect on farm output at first increasing but then decreasing with increase in hours spent in off farm work furthermore our analysis revealed no systematic effect of off farm work on farm technical efficiency

can financial ignorance be bliss financial illiteracy is widespread and leads to bad financial decisions individuals cannot answer basic questions about inflation compounding and diversification this article argues that financ

monetary integration and economic reform recent research in contract theory views ownership as a substitute for complete contracts here this approach is applied to monetary integration countries face a coordination problem conducting monetary policy negative spillovers ensure uncoordinated policy generates too high inflation ex ante policy makers can undertake politically costly economic reform this has a positive spillover because it improves the outcome of the monetary policy game ex post contracting over policy may be possible but it supposed that ex ante contracting over reform and monetary policy is not this paper analyses when monetary union is a good substitute for this inability to commit

trade and direct investment in producer services and the domestic market for expertise foreign producer services can provide substantial benefits for domestic firms we build on earlier monopolistic competition models of intermediate producer services in this paper results show that 1 while foreign services are partial equilibrium substitutes for domestic skilled labour they may be general equilibrium complements 2 service trade can provide crucial missing inputs that reverse comparative advantage in final goods 3 the optimal tax on imported services may be a subsidy and 4 in our dynamic formulation there may be earnings losses for immobile workers along a transition path that suggest potentially important equity consequences of reform jel classification f12 f16 f23 commerce international et investissement direct dans les services de production et le marche interieur de l expertise les services de production en provenance de l etranger peuvent engendrer des avantages substantiels pour les entreprises domestiques dans ce memoire les auteurs construisent sur la base de certains modeles anterieurs de concurrence monopolistique de services de production intermediaires les resultats montrent que 1 alors que les services de l etranger sont des substituts pour le travail domestique specialise en equilibre partiel en equilibre general ils peuvent etre des complements 2 le commerce de services peut fournir des intrants cruciaux qui manquent et ce faisant renverser les avantages comparatifs dans les produits finaux 3 la fiscalite optimale imposee sur les services importes peut etre une subvention et 4 dans la formulation dynamique du modele il peut y avoir perte de revenus pour les travailleurs immobiles le long du sentier de transition ce qui suggere qu il peut y avoir des consequences importantes au plan de l equite associees a certaines reformes

monetary union and labor market reform abstract policy makers incentives to undertake costly labor market reform depend on the international monetary system a regime of noncooperative monetary policy is compared with monetary union we find that noncooperative policy leads to more reform of factors that affect the inflation bias which regime leads to more reform of factors affecting labor market flexibility depends on the size of monetary policy spillovers and the degree of correlation of supply shocks we show that monetary union produces higher expected inflation but a lower variance of inflation welfare can be higher or lower with monetary union

structural convergence under reversible and irreversible monetary unification abstract we explore endogenous monetary unification in the context of a model in which a country with serious structural distortions and hence high inflation is admitted into a monetary union once its economic structure has converged sufficiently towards that of the existing participants if unification is reversible so that the new entrant can always be forced to leave the union again later convergence stops for a while after the high inflation country has joined with irreversible unification in contrast temporary divergence occurs and unification will be delayed

liquidity profiles of poor mexican households summary buffer stock savings theories predict that more vulnerable households build up liquid savings in order to cope with income variability using data from 1801 marginalized mexican households this paper examines how household liquidity levels vary by income level and use of banking the paper finds strong evidence of buffer stock savings in poor and vulnerable households it also shows that membership in a financial cooperative is a determinant of higher household liquidity levels financial instruments are used more to confront idiosyncratic shocks than systemic shocks idiosyncratic shocks and remittances are important determinants of liquidity levels in unbanked households

the impact of macroeconomic variables demographic structure and compulsory superannuation on share prices the case of australia this paper investigates the impact of the population in the 40 64 age band on share prices using an annual time series data set for the period 1965 2002 and the impact of the superannuation fund on share prices using quarterly time series data for the period 1988 q1 to 2002 q4 in accordance with poterba s suggestion we have also used real gdp interest rates and inflation as control variables in both models using cointegration and the error correction mechanism we found that the specified models are robust the variables under study for both models are cointegrated and long run relationships exist between the variables we also found that the population in the 40 64 age band and the superannuation fund positively and significantly affect share prices separately in the long run

ces production functions and economic growth we examine inconsistencies and controversies related to the use of ces production functions in growth models first we show that not all variants of ces functions commonly used are consistently specified second using a simple growth model we find that a higher elasticity of substitution leads to a higher steady state and makes the emergence of permanent growth more probable it is also pointed out that the effect of a higher elasticity of substitution on the speed of convergence depends on the relative scarcity of the factors of production finally we discuss possible explanations of variations in the elasticity of substitution jel classification o41 o11

the determinants of private saving in india abstract this paper examines the determinants of private saving in the process of economic development in the light of the indian experience it is found that the saving rate rises with both the level and the rate of growth of disposable income the real interest rate on bank deposits has a significant positive impact but the magnitude of the impact is modest public saving seems to crowd out private saving but less than proportionately furthermore the spread of banking facilities in the economy and the inflation rate have a positive impact and changes in the external terms of trade a negative impact on private saving

capital is back wealth income ratios in rich countries 1700 2010 how do aggregate wealth to income ratios evolve in the long run and why we address this question using 1970 2010 national balance sheets recently compiled in the top eight developed economies for the united states united kingdom germany and france we are able to extend our analysis as far back as 1700 we find in every country a gradual rise of wealth income ratios in recent decades from about 200 300 in 1970 to 400 600 in 2010 in effect today s ratios appear to be returning to the high values observed in europe in the eighteenth and nineteenth centuries 600 700 this can be explained by a long run asset price recovery itself driven by changes in capital policies since the world wars and by the slowdown of productivity and population growth in line with the s g harrod domar solow formula that is for a given net saving

in quest of the slutsky diamond the slutsky equation can be constructed as a parallelogram a diamond the area of which is proportional to the elasticity of substitution this construction permits to show immediately that demand functions become concave on an interval if the elasticity of substitution increases sufficiently also the diamond sheds light on the fact that the production level increases with the elasticity of substitution as an application the author shows that the elasticity of substitution has a direct bearing not only on the rate of growth of an economy but also on the very existence of sustained growth copyright 1989 by american economic association

bequest and wealth accumulation are some pieces of the puzzle missing the lively debate between laurence j kotlikoff and franco modigliani presented in the spring 1988 issue of this journal concerns an old question what is the main motivation for saving and therefore for the accumulation of wealth more specifically what are the respective contributions to aggregate wealth of 1 saving for retirement also known as hump saving 2 precautionary savings and unintended bequests due to uncertainty about the length of life and 3 planned bequests of course other wealth holding motives are possible but let us follow kotlikoff and modigliani in setting them aside for now if modigliani s life cycle hypothesis is to be viewed as a close to approximation of reality then the bulk of existing wealth should have resulted from some combination of hump and precautionary saving our comment on this dispute attempts to advance two issues first the controversy involves an enormous gap between empirical estimates of the share of inherited wealth in total accumulation even though the estimates are often based on the same data we hope to clarify why the estimates vary so widely second the kotlikoff modigliani dispute is presented as an american issue with little extension abroad we will present some results from other countries that bear on the controversy some of the estimates from kotlikofi s paper originated in a 1981 paper he wrote with lawrence summers which is why we sometimes refer to his position as the kotlikoff summers argument in this comment the problem of conceptualizing the contribution of bequest to aggregate savings can be summarized with a thought experiment assume all bequests were confiscated

shocking stuff technology hours and factor substitution the response of hours to technology shocks is a key controversy in macroeconomics we show that differences between rbc and nk models hinge on highly restrictive views of technology we introduce ces production technologies and demonstrate that the response of hours depends on the factor augmenting nature of shocks and the capital labor substitution elasticity in both models we develop analytical expressions to establish the thresholds determining its sign this opens new margins for shock identification combining theory and var evidence we discuss how our models provide new robust restrictions for empirical work especially using the labor income share

on the long run evolution of inheritance france 1820 2050 this paper attempts to document and account for the long run evolution of inheritance we find that in a country like france the annual flow of inheritance was about 20 25 of national income between 1820 and 1910 down to less than 5 in 1950 and back up to about 15 by 2010 a simple theoretical model of wealth accumulation growth and inheritance can fully account for the observed u shaped pattern and levels using this model we find that under plausible assumptions the annual bequest flow might reach about 20 25 of national income by 2050 this corresponds to a capitalized bequest share in total wealth accumulation well above 100 our findings illustrate the fact that when the growth rate g is small and when the rate of return to private wealth r is permanently and substantially larger than the growth rate say r 4 5 vs g 1 2 which was the case in the 19th century and early 20th century and is likely to happen again in the 21st century then past wealth and inheritance are bound to play a key role for aggregate wealth accumulation and the structure of lifetime inequality contrarily to a widely spread view modern economic growth did not kill inheritance

recycling energy taxes impacts on a disaggregated labour market abstract this paper analyses the impacts of energy taxes whose revenue is recycled to reduce gross wages and increase employment the main novel feature of this paper is the attempt to assess the effectiveness of this fiscal reform by using a labour market model in which both skilled and unskilled workers are used in the production process this segmentation enables us to compare a policy which aims at reducing unskilled workers wages as in the original delors white book with a policy in which the environmental fiscal revenue is used to reduce the gross wage of all workers moreover two policy scenarios will be considered a non co operative one in which each country determines the optimal domestic energy tax to achieve a given employment target and a co operative one in which the energy taxes are harmonised to equalise marginal abatement costs in the eu and in which the employment target is set for the eu our results show that i an employment double dividend can be achieved in the short run only even if a trade off between environment and employment always exists ii the effect on employment is larger when the fiscal revenue is recycled into all workers gross wages rather than into unskilled workers only iii a co operative policy leads to even larger benefits in terms of employment provided that an adequate redistribution of fiscal revenues is adopted by eu countries

the normalized ces production function theory and empirics abstract the elasticity of substitution between capital and labor and in turn the direction of technical change are critical parameters in many fields of economics until recently though the application of production functions with specifically non unitary substitution elasticities i e non cobb douglas was hampered by empirical and theoretical uncertainties as recently revealed normalization of production technology systems holds out the promise of resolving many of those uncertainties we survey and assess the intrinsic links between production as conceptualized in a production function factor substitution as made most explicit in constant elasticity of substitution functions and normalization defined by the fixing of baseline values for relevant variables first we recall how the normalized constant elasticity of substitution function came into existence and what normalization implies for its formal properties then we deal with the key role of normalization in recent advances in the theory of business cycles and of economic growth next we discuss the benefits normalization brings for empirical estimation and empirical growth research finally we identify promising areas of future research

the macroeconomics of social pacts in this paper we analyze macroeconomic interactions between trade unions the central bank and the fiscal policymaker we explicitly model unions concern for public expenditure paving the way for an analysis of the potential gains from cooperation between the fiscal policymaker and the unions i e the so called corporatist or social pacts that have characterized economic policies in a number of european countries in the last few decades we also highlight the profoundly different incentives generated by institutional arrangements such as the maastricht criteria and the stability and growth pact the former has unambiguously induced more efficient outcomes the latter is likely to backfire

economic growth and the elasticity of substitution two theorems and some suggestions at the beginning of the twentieth century the work of the swedish economist knut wicksell 1901 marked an important advance in our understanding of the relationship between the structure of production functions and income distribution wicksell had asked the following question among many others suppose that the marginal productivities are equal to the remuneration rates of each factor what then should be the form of the corresponding production function he pointed out p 125 that the general integral of the partial differential equation implied by this relationship was of the form y lf kil which meant in turn that the product y was necessarily a homogeneous of degree one function of capital k and labor l as an example he gave a function where the shares of k and l in y were constant and wrote down the function which would be rediscovered decades later by charles w cobb and paul h douglas 1928 however it is only half a century later in robert m solow s nobel prize winning 1956 essay that implications between the structure of the production function and long run equilibrium or disequilibrium of the economy were drawn in his classic article a contribution to the theory of economic growth solow had considered three cases analytically other cases were also discussed geometrically using a phase diagram he had labeled the two first cases 1hlarrod domar and cobb douglas respectively and he referred to the third type of production function as offering a bit of variety it was y ak 2 l 2 2 a particular case of y akp lp 1p in those early days solow had not pointed out to the reader that his cases could have been numbered 0 1 and 2 following the elasticity of substitution of the corresponding production function it would be only five years later in 1961 that with his coauthors kenneth j arrow et al he would find the general form of the two factor constant elasticity of substitution ces production function by integrating the differential equation corresponding to the observed relationship between output per capita and the wage rate solow s third case was indeed highly interesting since it allowed the possibility of everincreasing income per head even without any technical progress indeed solow showed that due to the efficiency of the system entailed by the particular production function he had chosen there existed a threshold for the savings rates s to generate investment per head large enough for income per head to grow forever that threshold was s nla2 where n is the growth rate of the population it was then natural to ask whether one could express that threshold in terms of the elasticity of substitution a the value of that threshold was determined by de la grandville 1989 to be equal to s no3 or where a is k s coefficient in a normalized ces function equal to a in solow s third case where u 2 for any s and n values this relationship gives also the threshold value in implicit form by the solution of ao1 1 log 3q or ilog nls by totally differentiating the last relationship one could observe that the threshold for the elasticity of substitution to entail ever sustained growth was an in klump faculty of mathematics and economics university of ulm helmholtzstrasse 20 d 89081 ulm germany de la grandville department of economics university of geneva 102 boulevard carl vogt ch 1211 geneva 4 switzerland we gratefully acknowledge the comments of seminar participants at stanford university and at the universities of stuttgart hohenheim and munich where parts of the paper were presented also we would like to thank without implicating in any way robert solow for his insightful remarks and an anonymous referee for very helnfuil supgestions wicksell cobb and douglas would no doubt burst with pride if they knew that one of our first year students wrote in a paper of his of course we recognize here a kirk douglas production function

the role of shocks and institutions in the rise of european unemployment the aggregate evidence two key facts about european unemployment must be explained the rise in unemployment since the 1960s and the heterogeneity of individual country experiences while adverse shocks can potentially explain much of the rise in unemployment there is insufficient heterogeneity in these shocks to explain cross country differences alternatively while explanations focusing on labour market institutions explain current heterogeneity well many of these institutions pre date the rise in unemployment based on a panel of institutions and shocks for 20 oecd nations since 1960 we find that the interaction between shocks and institutions is crucial to explaining both stylised facts

aggregate consumption function and public social security the first time series study for a developing country turkey this article is the first attempt in the literature to investigate the effects of public social security on aggregate consumption in a time series setting for a developing country turkey that has one of the most generous social security systems in the organization for economic cooperation and development oecd region in order to quantify the social security variable this article uses the social security wealth ssw series calculated for turkey in a separate study this study indicates that ssw is the largest part of the household wealth in turkey and therefore should not be ignored in the aggregate consumption studies the results show that its effect on consumption is positive and robust

life cycle individual thrift and the wealth of nations this paper provides a review of the theory of the determinants of individual and national thrift that has come to be known as the life cycle hypothesis lch of saving applications to some current policy issues are also discussed part i deals with the state of the art on the eve of the formulation of the lch some 30 years ago part ii sets forth the theoretical foundations of the model in its original formulation and later amendment calling attention to various implications distinctive to it and sometimes counter intuitive it also includes a review of a number of crucial empirical tests both at the individual and the aggregate level part iii reviews some applications of lch to current policy issues though only in sketchy fashion as space constraints prevent fuller discussion this abstract was borrowed from another version of this item

animal spirits financial crises and persistent unemployment this article uses a rational expectations model with multiple equilibrium unemployment rates to explain financial crises the model has equilibria where asset prices are unbounded above i argue that this is an important feature of any rational agent explanation of a financial crisis since for the expansion phase of the crisis to be rational investors must credibly believe that asset prices could keep increasing forever with positive probability i explain the sudden crash in asset prices that precipitates a financial crisis as a large shock to expectations that leads to a permanent increase in the unemployment rate

optimal annuitization with stochastic mortality and correlated medical costs the conventional wisdom since yaari 1965 is that households without a bequest motive should fully annuitize their investments numerous frictions do not break this sharp result we modify the yaari framework by allowing a household s mortality risk itself to be stochastic due to health shocks a lifetime annuity still helps to hedge longevity risk but the annuity s remaining present value is correlated with medical costs such as those for nursing home care thereby reducing annuity demand even without ad hoc liquidity constraints we find that most households should not hold a positive level of annuities and many should hold negative amounts jel d14 d82 g23 i12 j14 j26

vacancy posting job separation and unemployment fluctuations abstract what is the relative importance of hiring and separation in driving unemployment fluctuations this paper presents a framework to decompose the moments of unemployment and study the respective contributions of vacancy posting a measure of firms hiring efforts and separation separation accounts for about 40 of unemployment s variance compared to 60 for vacancy posting and contributes to about 60 of unemployment steepness asymmetry the fact that unemployment increases faster than it decreases further while vacancy posting is on average the most important contributor of unemployment fluctuations the opposite is true around business cycle turning points when separation is responsible for most of unemployment movements

labour policy instruments and the cyclical behaviour of vacancies and unemployment the standard mortensen pissarides mp model cannot match the observed elasticity of vacancies and unemployment in the data this paper shows that by introducing labour policy instruments the original mp model can replicate the observed fluctuations in unemployment and job vacancies in response to shocks these instruments reduce the benefit of forming a match thereby increasing the impact that shocks have on firms incentives to post vacancies and workers to accept job offers additionally the analysis shows that the design of labour policy instruments e g whether taxation is progressive or regressive has non trivial consequences on the model s performance

building a composite help wanted index abstract this paper builds a measure of vacancy posting over 1951 2009 that captures the behavior of total print and online help wanted advertising and can be used for time series analysis of the us labor market

markups technology and capital utilization in the great recession abstract a two level ces aggregate production function is used to empirically analyze the fluctuations in markups technology and utilization in the great recession quarterly us gross output data suggest a strong markup increase limited technology movements and a low labor capital substitution elasticity

factor substitution and labor market friction in the united states 1948 2010 we re estimate the capital labor elasticity of substitution and the biased factor augmenting technological progress using a system approach for the aggregate u s economy from 1948 to 2010 due to

the new stability and growth pact a first assessment abstract the paper proposes a theoretical model of fiscal policy offering new insights on some of the key policy trade offs involved in the recent reform of the stability and growth pact as suggested by the proponents of the reform greater room for case specific economic judgment in the implementation of the pact may improve welfare in our model these gains occur because the consolidation path implied by the implementation of the pact does not discourage high quality measures in practice however the difficulty to extract true policy intent from budget figures may hinder the qualitative assessment of fiscal policy hence reforming a rules based fiscal framework with a view to enhance its economic rationale would also require closer monitoring a better grasp of the policies underlying the budget and ultimately stricter enforcement in that sense recent reforms are at best unhelpful

confidence crashes and animal spirits this article is an attempt to reformulate what i take to be two key insights from keyness general theory keynes 1936 the first is that there is something profoundly different about the labour market from most other markets in the economy the second is that the beliefs of participants in the asset markets have an independent influence on economic activity in the language of modern dynamic general equilibrium theory we would say that there is a continuum of labour market equilibria and that beliefs about the value of the stock market select an equilibrium the general theory contains many ideas some of which are internally inconsistent and keynes did not try to reconcile his theory with walrasian economics that task was carried out by a group of interpreters including hansen 1936 and hicks 1937 the current dominant paradigm new keynesian economics originated with the third edition of samuelson s 1955 undergraduate textbook in which he introduced the idea of the neoclassical synthesis according to this doctrine the economy is keynesian in the short run but classical in the long run the short run is defined as the period over which not all prices have had time to adjust to their walrasian levels this article introduces a different interpretation of the key ideas from the general theory 1 although my work is inspired by keynesian economics this article is not about the history of thought i offer a way of formulating the idea that market economies are not inherently self stabilising without assuming that prices or wages are prevented from adjusting to their equilibrium levels by some kind of friction instead i claim that high persistent unemployment is a potentially permanent feature of a market economy in a steady state equilibrium

labor market institutions and aggregate fluctuations in a search and matching model abstract this paper explores the influence of labor market institutions on aggregate fluctuations it uses a dynamic stochastic general equilibrium model characterized by search and matching frictions in the labor market and nominal rigidities in the goods market it finds that firing costs and unemployment benefits can have substantial effects on aggregate fluctuations increasing firing costs decreases the volatility of output employment and job flows due to the reduction in the mass of jobs sensitive to disturbances and lower incentives for firms to hire and fire workers hence firms adjust to shocks mainly through prices causing inflation to become more volatile raising unemployment benefits has the reverse effect on aggregate fluctuations

intergenerational wealth mobility and the role of inheritance evidence from multiple generations this study estimates intergenerational correlations in mid life wealth across three generations and a young fourth generation and examines how much of the parent child association that can be explained by inheritances using a swedish data set we find parent child rank correlations of 0 3 0 4 and grandparents grandchild rank correlations of 0 1 0 2 conditional on parents wealth grandparents wealth is weakly positively associated with grandchild s wealth and the parent child correlation is basically unchanged if we control for grandparents wealth bequests and gifts strikingly account for at least 50 per cent of the parent child wealth correlation while earnings and education are only able to explain 25 per cent

anticipation and the valuation of delayed consumption this paper presents a model of intertemporal choice that incorporates savoring and dread i e utility from anticipat ion of delayed consumption the model explains why an individual with positive time preference may delay desirable outcomes or get unpleas ant outcomes over with quickly contrary to the prediction of convent ional formulations of intertemporal choice implications of savoring and dread for savings behavior empirical estimation of discount rate s and public policy efforts to combat myopic behavior are explored the model provides an explanation for common violations of the indepe ndence axiom as applied to intertemporal choice copyright 1987 by royal economic society

factor substitution and factor augmenting technical progress in the united states a normalized supply side system approach abstract using a normalized ces function with factor augmenting technical progress we estimate a supply side system of the u s economy from 1953 to 1998 avoiding potential estimation biases that

free riding convergence and two speed monetary unification in europe this paper shows that two speed monetary unification carries a danger low inflation countries in europe have an interest in delaying entry of the high inflation country because it would raise the average inflation rate however this country might refuse to join when the first group find it qualified to that is when convergence has taken place this is because the high inflation country can employ its monetary policy to stabilize against shocks given that the currency union members have optimally chosen a lower inflation rate hence a tradeoff exists between the necessity for convergence and the free rider problem

psychological characteristics and household savings behavior the importance of accounting for latent heterogeneity abstract we employ a finite mixture model with maximum likelihood ml estimation to analyze latent heterogeneity in the relationship between psychological characteristics and household savings behavior in a one step ml estimation approach we estimate a class membership model and a behavioral model of the classes jointly adopting this approach enables us to simultaneously assess how socio demographic characteristics affect class membership probabilities and estimate class specific regression coefficients to test whether psychological characteristics predict savings behavior differently across latent classes we apply this approach to a representative sample of uk households n 3382 and identify two different latent classes striving versus established households we find that the relationship between psychological characteristics and savings behavior differs across these two classes demonstrating the importance of accounting for latent heterogeneity when studying the drivers of savings behavior our results have implications for policymakers attempting to improve household savings behavior

the phillips curve the persistence of inflation and the lucas critique evidence from exchange rate regimes comment we present evidence from the united states and the united kingdom that the persistence of price inflation is significantly higher under managed exchange rate regimes than under gold based fixed exchange rate regimes these differences are also reflected in expectations augmented phillips curves we use a two country macro model with forward looking price setters to demonstrate that higher monetary accommodation of inflation and exchange rate accommodation of inflation differentials increase inflation persistence the evidence does not contradict this hypothesis it supports the hypothesis of forward looking price setters and highlights the empirical significance of the lucas critique jel e31 e42 f33