wealth accumulation over the life cycle and precautionary savings this article constructs and simulates a life cycle model of wealth accumulation and estimates the parameters of the utility function the rate of time preference and the coefficient of risk aversion by matching the simulated median wealth profiles with those observed in the panel study of income dynamics and in the survey of consumer finances the estimates imply a low degree of patience and a high degree of risk aversion the results are used to study the importance of precautionary savings in explaining wealth accumulation they imply that wealth accumulation is driven mostly by precautionary motives at the beginning of the life cycle whereas savings for retirement purposes become significant only closer to retirement

unemployment risk and precautionary wealth evidence from households balance sheets this paper examines precautionary behavior by relating job loss risk to household net worth we use existing best practice and some new strategies to deal with some problematic issues inherent in this literature regarding proxying uncertainty instrumentation and incorporating theoretical restrictions we do not find precautionary variation in the wealth holdings of households with low permanent income but do find precautionary effects for moderate and higher income households when the dependent variable is total net worth these findings are robust to several alternative specifications but we do not find precautionary responses in subaggregates of wealth that exclude home equity

portfolio choice and liquidity constraints we study the infinite horizon model of household portfolio choice under liquidity constraints and revisit the portfolio specialization puzzle we show why the puzzle is robust to several model variations and argue that positive correlation between earnings shocks and stock returns is unlikely to provide an empirically plausible resolution we find that relatively small fixed costs for stock market entry are sufficient to deter stockholding because for a plausible range of parameter values households can achieve desired consumption smoothing with small or zero holdings of stocks such costs could arise from informational considerations sign up fees and investor inertia

the role of information revelation in elimination contests in this article we investigate how information revelation rules affect the existence and the efficiency of equilibria in two round elimination contests we establish that no symmetric separating equilib rium exists under the full revelation rule and find that the non existence result is very robust we then characterise a partially efficient separating equilibrium under the partial revelation rule when players valuations are uniformly distributed we finally investigate the no revelation rule and find that it is both most efficient and optimal in maximising the total efforts from the contestants within our framework more information revelation leads to less efficient outcomes contests are widely used by various organisations wishing to select the best person or the best team sports for example are undoubtedly always in the form of contests science contests in schools are another example we can consider a contest as an auction in which players compete for prizes by submitting bids these bids once submitted have to be paid regardless of winning or losing rd 2 in political competition e g for the us presidency candidates first spend resources to secure their party s nomi nation and later if they are nominated spend more resources to get elected and 3 science contests among university or high school students e g the mathematics olympiad

precautionary wealth accumulation evidence from canadian microdata this paper estimates the effect of labour income uncertainty on wealth accumulation using two data sources wealth information is obtained from the master files of the new canadian survey of financial security 1999 sfs labour income risk proxies are constucted by industry using the canadian survey of labour and income dynamics slid between 1996 and 2001 the empirical results suggest the presence of a strong precautionary saving motive among canadian households for broad definitions of wealth furthermore consistent with the buffer stock saving model the level of precautionary funds significantly increases when households face liquidity constraints ce texte calcule l effet de l incertitude du revenu de travail sur l accumulation de la richesse a l aide de deux sources de donnees les donnees sur la richesse sont tirees des resultats de l enquete sur la securite financiere esf de 1999 les coefficients de risque attaches aux diverses industries sont developpes a partir des resultats de l enquete sur la dynamique du travail et du revenu edtr entre 1996 et 2001 les resultats empiriques suggerent la presence d une forte motivation des menages canadiens aepargner aux fins de precaution si l on accepte des definitions assez comprehensives de la richesse de plus d une maniere qui correspond au modele d epargne pour stockage tampon le niveau des fonds aux fins de precaution s accroit de maniere significative a proportion que les menages font face a des contraintes de liquidite

keynesian models of deflation and depression revisited abstract this paper extends tobin s tobin j 1975 keynesian models of recession and depression american economic review 65 195 202 keynesian analysis of deflation to include a range of additional channels through which deflation exacerbates keynesian unemployment the paper provides further theoretical reasons why downward price level adjustment may not solve the keynesian problem these arguments challenge the received wisdom that keynes general theory is a special case resting on downwardly rigid prices and nominal wages this conventional wisdom has led many economists to recommend policies promoting downward flexibility these policies have created an environment in which deflation is more likely giving new relevance to keynesian analysis of deflation

cyclical dynamics in idiosyncratic labor market risk is individual labor income more risky in recessions this is a difficult question to answer because existing panel data sets are so short to address this problem we develop a generalized method of moments estimator that conditions on the macroeconomic history that each member of the panel has experienced variation in the cross sectional variance between households with differing macroeconomic histories allows us to incorporate business cycle information dating back to 1930 even though our data do not begin until 1968 we implement this estimator using household level labor earnings data from the panel study of income dynamics we estimate that idiosyncratic risk is i highly persistent with an annual autocorrelation coefficient of 0 95 and ii strongly countercyclical with a conditional standard deviation that increases by 75 percent from 0 12 to 0 21 as the macroeconomy moves from peak to trough

the nature of precautionary wealth abstract this paper uses the panel study of income dynamics to provide some of the first direct evidence that wealth is systematically higher for consumers with predictably greater income uncertainty however the apparent pattern of precautionary wealth is not consistent with a standard parameterization of the life cucle model in which consumers are patient enough to begin saving for retirement early in life wealth is estimated to be far less sensitive to uncertainty than implied by that model instead our results suggest that over most of their working life time consumers behave in accordance with the buffer stock models of saving described in carroll 1992 1997 or deaton 1991 in which consumers hold wealth principally to insulate consumption against near term fluctuations in income

behavioral responses to risk in rural china does risk perpetuate poverty in a credit constrained economy jalan and ravallion study portfolio and other behavioral responses to measured risk using household panel data for rural china one quarter of wealth is held in unproductive liquid forms but only a small share of this appears to be a precaution against income risk the authors estimate that eliminating income risk would reduce the share of wealth held in liquid form by less than 1 percentage point moreover that effect is confined largely to middle income groups high income households do not it seems need to hold unproductive cautionary wealth and the poor probably cannot afford to do so the authors find no evidence that income risk discourages schooling but risk does inhibit the out migration of labor generally the results provide only limited support for the idea that uninsured risks promote unproductive portfolio behavior in this setting there is such an effect but it is small in magnitude and cannot be deemed an important cause of poverty

credit card debt and default over the life cycle this paper solves an empirically parameterized model of life cycle consumption which allows for uncollaterized borrowing and the possibility of default the simulation results show that i social stigma and credit limit have a very large impact on default rates ii education level also has a significant effect on the probability of default namely through differences in the shape of lifetime labor income profiles and iii the response of simulated default rates to labor income shocks is determined by the nature of labor income uncertainty temporary versus permanent additionally the model generates simultaneous consumer holdings of credit card debt and liquid assets

international evidence on sticky consumption growth abstract this paper estimates the degree of stickiness in aggregate consumption growth sometimes interpreted as reflecting consumption habits for thirteen advanced economies we find that after controlling for measurement error consumption growth has a high degree of autocorrelation with a stickiness parameter of about 0 7 on average across countries the sticky consumption growth model outperforms the random walk model of hall 1978 and typically fits the data better than the popular mankiw 1989 model though in a few countries the sticky consumption growth and campbell mankiw models work about equally well

precautionary behavior migrant networks and household consumption decisions an empirical analysis using household panel data from rural china abstract we develop a test of precautionary behavior in the consumption decisions of rural agricultural households among surveyed households facing a median level of consumption risk 10 of savings can be attributed to a precautionary motive and this increases to 15 for households with consumption per capita below the poverty line we next use distant lags of local rainfall shocks uncorrelated with current consumption growth to identify the size of migrant networks outside the village and then present evidence that both poor and nonpoor households engage in less precautionary saving as the size of the village migrant network increases

demographic growth harrodian in stability and the supermultiplier a basic kaleckian model is enriched by three simple intuitive assumptions first there is a redistributive system of the wage bill between employed and unemployed workers the latter receiving subsistence income second only individuals with an income above the subsistence level build savings the combination of these two assumptions gives rise to an autonomous consumption component whose rate of growth depends on population growth consequently the rate of capital accumulation spontaneously converges towards the rate of population growth the supermultiplier effect a dynamic that offers a solution to one of the two harrodian instability problems the third assumption corresponds to entrepreneurs attempts to adjust investments to restore the normal rate of capacity utilisation although this assumption usually generates knife edge instability we show here that the stabilising properties of the supermultiplier provided that the accelerator effect is not overly strong help overcome this instability and realise the normal rate of capacity utilisation therefore the model may offer a simple simultaneous solution to the two harrodian instability problems

consumer bankruptcy a fresh start consumer bankruptcy provides partial insurance against bad luck but by driving up interest rates makes life cycle smoothing more difficult we argue that to assess this trade off one needs a quantitative model of consumer bankruptcy with three key features life cycle component idiosyncratic earnings uncertainty and expense uncertainty exogenous negative shocks to household balance sheets we find that transitory and persistent earnings shocks have very different implications for evaluating bankruptcy rules more persistent shocks make the bankruptcy option more desirable larger transitory shocks have the opposite effect our findings suggest the current us bankruptcy system may be desirable for reasonable parameter values jel d14 d91 k35

portfolio choices for homeowners abstract in this paper i show that introducing frictions associated with housing into standard life cycle models can partially resolve the portfolio choice puzzle i calibrate a model in which a representative household endogenously transits from renting to mortgage financed homeownership the household can later adjust housing status either voluntarily or because of a forced move by paying transaction costs it is shown that homeownership crowds out stock market participation risky owner occupied housing substitutes for stocks while bonds provide liquidity young and middle aged households regardless of whether they are currently homeowners hold much less stock than predicted by traditional models without housing

demand led growth and accommodating supply we model of demand led growth with endogenous adjustment of labour supply and productivity an approach that reconciles harrod s warranted rate of demand growth with supply the model delivers a range of growth paths and unemployment rates rather than a single natural rate theoretically the steady state growth path may be dynamically stable or unstable but empirical calibration favours stability we show analytically that if demand dynamics are stable supply will converge to the demand determined growth path while a minimum unemployment rate ultimately imposes a supply constraint on growth empirical results show that a wide range of growth rates are feasible across different demand regimes the results explain how economies can become trapped with low growth due to weak demand or fiscal austerity and suggest policy responses to stagnant demand

a model of mortgage default in this paper we solve a dynamic model of households mortgage decisions incorporating labor income house price inflation and interest rate risk using a zero profit condition for mortgage lenders we solve for equilibrium mortgage rates given borrower characteristics and optimal decisions the model quantifies the effects of adjustable versus fixed mortgage rates loan to value ratios and mortgage affordability measures on mortgage premia and default mortgage selection by heterogeneous borrowers helps explain the higher default rates on adjustable rate mortgages during the recent u s housing downturn and the variation in mortgage premia with the level of interest rates

saving and liquidity constraints this paper is concerned with the theory of saving when consumers are not permitted to borrow and with the ability of such a theory to account for some of the stylized facts of saving behavior the models presented in the paper seem to account for important aspects of reality that are not explained by traditional life cycle models copyright 1991 by the econometric society

optimal dynamic capital requirements we characterize welfare maximizing capital requirement policies in a macroeconomic model with household firm and bank defaults calibrated to euro area data we optimize on the level of the capital requirements applied to each loan class and their sensitivity to changes in default risk we find that getting the level right so that bank failure risk remains small is of foremost importance while the optimal sensitivity to default risk is positive but typically smaller than under basel irb formulas when starting from low levels initially both savers and borrowers benefit from higher capital requirements at higher levels only savers are in favour of tighter and more time varying capital charges

a neo kaleckian goodwin model of capitalist economic growth monopoly power managerial pay and labour market conflict this paper presents a neo kaleckian goodwin model of growth and distribution the key innovation is the introduction of managerial pay kaleckian monopoly power determines the functional distribution of income and goodwin labour bargaining power determines the wage bill division the model helps explain slower us growth over the past 30 years for much of that period the functional distribution of income was relatively constant but growth slowed because income inequality increased owing to a wage bill shift from workers to managers the wage bill division effect explains why economies can display wage led and profit led characteristics economies can be profit led regarding functional income distribution and wage led regarding wage bill distribution

does buffer stock saving explain the smoothness and excess sensitivity of consumption one of the lasting contributions to modernday consumer theory is the idea that consumption is determined by the expected value of lifetime resources or permanent income the modern day specification of this concept is typically presented as a special case of intertemporalchoice theory where felicity functions are quadratic labor income is stochastic there are no restrictions on borrowing consumers have infinite horizons and expectations are formed rationally we refer to this model as the permanentincome hypothesis pih although the pih has considerable intuitive appeal a series of influential papers published after its inception revealed two notable discrepancies between the model s predictions and aggregate data first the model predicts that consumption growth should be more volatile than income growth if aggregate income growth has positive serial correlation as the quarterly data suggest it does yet aggregate consumption growth is in fact much smoother than aggregate income growth angus deaton 1987 john y campbell and deaton 1989 jordi gali 1991 second the pih predicts that consumption changes should be orthogonal to predictable or lagged income changes yet the coffelation between consumption growth and lagged income growth has been found to be one of the most robust features of aggregate data for example marjorie a flavin 1981 alan s blinder and deaton 1985 campbell and n gregory mankiw 1989 orazio p attanasio and guglielmo weber 1993 thus aggregate consumption growth has been described as exhibiting two puzzles it is both excessively smooth relative to current labor income growth and excessively sensitive to lagged labor income growth 2 in response to these and other empirical anomalies researchers have recently sought out modifications of the pih framework chief ludvigson federal reserve bank of new york 33 liberty street new york ny 10045 michaelides university of cyprus p o box 20537 1678 nicosia cyprus a previous version of this paper appeared under the title can we explain the consumption excesses yet aggregate consumption implications of buffer stock saving behavior for many helpful comments we thank orazio attanasio dave backus ben bernanke john y campbell christopher carroll todd clark angus deaton pierreolivier gourinchas bo honore james kahn martin lettau costas meghir christina paxson steve pischke andrew samwick christopher sims mark watson guglielmo weber michael woodford steve zeldes and two anonymous referees conference participants at the national bureau of economic research summer workshop on the aggregate implications of microeconomic consumption behavior july 1998 the tmr workshop on saving and pensions center tilburg university march 1999 and the new york area macroeconomics workshop october 1998 seminar participants at columbia university insead the new york federal reserve university college london london business school city university business school university of cyprus tel aviv university and jeffrey brown for excellent research assistance the views expressed are those of the authors and do not necessarily reflect those of the federal reserve bank of new york or the federal reserve system any errors or omissions are the responsibility of the authors 1 note that the important insight of danny quah 1990 that individuals may be better able than econometricians to distinguish short run from long run innovations to their income cannot resolve the excess smoothness puzzle laid out in campbell and deaton 1989 these authors show that in the context of the pih excess sensitivity and excess smoothness are the same phenomena in addition campbell 1987 demonstrates that superior information of the type emphasized by quah will show up in households saving behavior and using this information allows the econometrician to control for the agent s private information when predicting income since excess sensitivity is well established and controlling for saving does not eliminate it see campbell and deaton 1989 the observed smoothness of consumption cannot be explained by superior information on the part of permanent income consumers see deaton 1992 for further discussion 2 philippe bacchetta and stefan gerlach 1997 and ludvigson 1999 document another kind of excess sensitivity the correlation between consumption growth and predictable changes in consumer credit although we do not explore these findings here ludvigson finds that a bufferstock model with time varying liquidity constraints can replicate such a correlation

human capital risk and economic growth this paper develops a tractable incomplete markets model of economic growth in which households invest in risk free physical capital and risky human capital the paper shows that a reduction in uninsurable idiosyncratic labor income risk decreases physical capital investment but increases human capital investment growth and welfare a quantitative analysis based on a calibrated version of the model reveals that these effects are substantial and of the same order of magnitude as the effects of distortionary income taxation the analysis further suggests that government sponsored severance payments to displaced workers increase growth and welfare even if these payments have to be e nanced through distortionary income taxation

tackling the instability of growth a kaleckian harrodian model with an autonomous expenditure component this article presents a basic kaleckian model enriched by the simultaneous addition of an harrodian investment function and an autonomous expenditure component that grows at an exogenous rate the model shows that the usual short run properties wage led growth are only transient since the long run growth rate converges towards that of autonomous expenditures however the impact on the level of variables output capital stock labour etc is permanent the model also provides a conditional solution to the second harrod knife edge problem the destabilising behaviour of firms as they adjust their investment decisions to the discrepancy between the actual and the normal rates of capacity utilisation is now required to achieve the normal rate of capacity utilisation

how does future income affect current consumption this paper tests a straightforward implication of the basic life cycle model of consumption that current consumption depends on expected lifetime income the paper projects future income for a panel of households and finds that consumption is closely related to projected current income but unrelated to predictable changes in income however future income uncertainty has an important effect consumers facing greater income uncertainty consume less the results are consistent with buffer stock models of consumption like those of deaton 1991 or carroll 1992a 1992b where precautionary motives greatly reduce the willingness of prudent consumers to consume out of uncertain future income

the great moderation in micro labor earnings abstract between 1980 and the early 1990s the variability of labor earnings growth rates across the prime age working population fell significantly this decline and timing are consistent with other macro and micro observations about growth variability that are collectively referred to as the great moderation the variability of earnings growth is negatively correlated with age at any point in time and the u s working age population got older during this period because the baby boom was aging however the decrease in variability was roughly uniform across all age groups so population aging is not the source of the overall decline the variance of log changes also declined at multi year frequencies in such a way as to suggest that both permanent and transitory components of earnings shocks became more moderate a simple identification strategy for separating age and cohort effects shows a very intuitive pattern of permanent and transitory shocks over the life cycle and confirms that a shift over time in the stochastic process occurred even after controlling for age effects

inter industry wage differentials revisited wage volatility and the option value of mobility analysis of data from the psid reveals that idiosyncratic wage volatility varies inversely with inter industry wage differentials and is positively correlated with both returns to industry tenure and rates of inter industry mobility an incomplete markets life cycle model in which inter industry mobility decisions and wage differentials are endogenously determined in equilibrium is then developed and shown to be capable of rationalizing these features of the data in the model the ability of worker to switch industries generates option value that is large enough to offset the standard risk premium that workers demand for exposure to excess wage volatility

the sensitivity of consumption to transitory income estimates from panel data on households we investigate the stochastic relation between income and consumption specifically consumption of food within a panel of about 2 000 households our major findings are 1 consumption responds much more strongly to permanent than to transitory movements of income 2 the response to transitory income is nonetheless clearly positive 3 a simple test independent of our model of consumption rejects a central implication of the pure life cycle permanent income hypothesis the observed covariation of income and consumption is compatible with pure life cycle permanent income behavior on the part of80 percent of families and simple proportionality of consumption and income among the remaining 20 percent as a general matter our findings support the view that families respond differently to different sources of income variations in particular temporary income tax policies have smaller effects on consumption than do other more permanent changes in income of the same magnitude this abstract was borrowed from another version of this item

consumption puzzles and precautionary savings abstract when marginal utility is convex agents accumulate savings as a precautionary measure against labor income eventualities this paper shows that precautionary savings can go a long way in making the excess growth excess smoothness and excess sensitivity features of consumption consistent with the stochastic processes of labor income observed in the u s at the microeconomic level

distribution aggregate demand and productivity growth theory and empirical results for six oecd countries based on a post kaleckian model empirical research based on the bhaduri marglin variant of the kaleckian model has recently shown that aggregate demand in many medium sized and large open economies tends to be wage led in the medium to long run even in a period of increasing globalisation in this paper we extend this type of analysis and integrate the effects on productivity growth theoretically and empirically productivity growth is introduced into the theoretical model making use of the verdoorn effect or of kaldor s technical progress function and hence of a positive relationship between gdp or capital stock growth and productivity growth further on a cost push or marx hicks effect and hence a positive impact of real wage growth or the wage share on productivity growth is taken into account in the empirical part we estimate productivity growth equations for six countries introducing these two effects finally economic policy conclusions are drawn

on the amplification role of collateral constraints abstract this letter explores the role of costly liquidation of the collateralized asset in a stochastic version of the kiyotaki and moore 1997 model we document that the degree of inefficiency in the debt enforcement procedure plays a key role in the endogenous amplification of productivity shocks generated by collateral constraints

intertemporal choice and consumption mobility the theory of intertemporal consumption choice makes sharp predictions about the evolution of the entire distribution of household consumption not just about its conditional mean in the paper we study the empirical transition matrix of consumption using a panel drawn from the bank of italy survey of household income and wealth we estimate the parameters that minimize the distance between the empirical and the theoretical transition matrix of the consumption distribution the transition matrix generated by our estimates matches remarkably well the empirical matrix both in the aggregate and in samples stratified by education our estimates strongly reject the consumption insurance model and suggest that households smooth income shocks to a lesser extent than implied by the permanent income hypothesis jel d52 d91 i30

the effects of pensions on household wealth a reevaluation of theory and evidence this paper examines the extent to which households offset pension wealth with reductions in other wealth systematic econometric biases imply that the estimated offsets in previous empirical studies are smaller than the true offset and may even have the wrong sign new empirical estimates that do not correct for the biases generate little offset between pensions and other wealth estimates that correct for the biases show substantially more offset a smaller impact of pensions on overall saving than in most previous studies the estimates also indicate that the effects of pensions on wealth vary significantly across households

history versus equilibrium and the theory of economic growth a model of cumulative causation is developed and the limits of this model as a characterization of historical rather than equilibrium long run growth outcomes are discussed an extension of the model which postulates that cumulative causation occurs in the context of technological and institutional regimes is proposed outcomes in the extended model are shown to be more influenced by history than those in the original model the extended model also addresses a number of recent criticisms of cumulative causation copyright 1997 by oxford university press

growth theory and economic structure new growth theory endogenises growth but neglects aggregate demand and distributional shifts in output and employment a model incorporating demand and structural change is introduced to assess the effects of greater integration of the ec the analysis shows that i the new growth model overstates the long run implications of integration and ii identical effects on productivity growth can be achieved by reducing unemployment it is argued that the benefits of lower unemployment are more certain of achievement than those expected from reduced barriers to trade and resource movement and that stronger demand is a pre requisite for realization of the latter with the rise of the new growth theory romer 1986 many economists foresee the end of the long dominance of neoclassical growth theory new growth theorists make the general point that within their framework the rates of growth of productivity and per capita income and changes in these growth rates are endogenously explained their main criticism of neoclassical growth theory is that it attributes these growth rates to exogenous determinants and that this is not an explanation new growth theory is to be commended for its efforts to endogenize growth but it none the less retains two shortcomings in common with neoclassical growth theory it neglects the effects of 1 distributional shifts in output and employment and 2 aggregate demand in this paper we argue that these must be included in order to develop a research strategy that permits reasonable measures of the impact of policy on growth rates to support this view we first outline the way in which neoclassical and new growth theory analyse and quantify the effects of increased competition and market size using in illustration the 1992 programme for greater economic integration of the ec we then introduce a model that is free of the defects of both approaches and use it to provide a clearer view of the static and dynamic effects of the 1992 changes these are then compared with the effect of policies to reduce unemployment the results show that 1 the new growth model overstates the long run implications of the 1992 measures and 2 identical effects on productivity growth can be achieved by a programme to reduce unemployment we conclude by arguing that the benefits of lower unemploy ment are more certain of achievement that those expected to flow from reduced barriers to trade and resource movement and that stronger demand is a pre requisite if the latter are to be realized we do not attempt to make quantitative estimates of the economic gains from 1992 or from reduced unemployment whether for the short medium or long run rather our paper can be seen as outlining a research strategy for

joint dynamics of house prices and foreclosures this paper studies the joint transitional dynamics of the foreclosures and house prices in a standard life cycle incomplete markets model with housing and a realistic long term mortgage structure we calibrate our model to match several long term features of the u s housing market and analyze the effects of several unexpected and permanent shocks on the house price and the foreclosure rate both across the steady states and along the transition between the steady states we examine permanent unexpected shocks to the risk free interest rate the minimum down payment ratio and unemployment during the transition these shocks create large movements in house prices more importantly the foreclosure dynamics are quite significant along the transition compared to the steady state changes and there are strong feedbacks between foreclosures and house prices we assess the effects of a temporary reduction in the risk free interest rate which has moderate effects on house prices but little effect on foreclosure dynamics we also study the effects of an ex ante macroprudential policy which establishes a minimum down payment requirement at a higher threshold such a macroprudential policy helps substantially stabilize both house prices and foreclosures

precautionary saving and the timing of taxes this paper analyzes the effects of government debt and income taxes on consumption and saving in a world of infinitely lived households having uncertain and heterogeneous incomes the special structure of the model allows exact aggregation across households despite incomplete markets the effects of government debt are shown to be substantial roughly comparable to those resulting from finite horizons and crucially dependent on the length of time until the debt is repaid also anticipated changes in taxes are shown to cause anticipated changes in consumption finally an index of fiscal stance is derived

unemployment and the real wage the economic basis for contesting political ideologies using the keynesian theory of effective demand this paper demonstrates how particular models such as that of cooperative capitalism enunciated by the left keynesian social democrats the marxian model of profit squeeze emphasizing distributive conflict and even the conservative model relying on supply side stimulus fit in as particular variants of a more general theoretical scheme through a reconstruction of the familiar is schedule the argument is weaved around the theme of the relations between unemployment and real wage in the context of both a closed and an open economy to explain the common macroeconomic basis of contesting ideologies copyright 1990 by oxford university press

saving response to unemployment of a sibling abstract standard theoretical models of household saving behavior do not typically assume that household perceptions of the world change in response to observed events in light of the potential importance of such perception changes e g after a financial crisis this paper considers the hypothesis that a household s saving rate rises through informal learning after a sibling direct or in law has been unemployed the empirical results in this paper are consistent with the learning hypothesis with coefficients estimated by the instrumental variable iv method implying that a household s saving rate increases by 2 3 percentage points if a sibling has been unemployed

the impact of deregulation and financial innovation on consumers the case of the mortgage market we develop a technique to assess the impact of changes in mortgage markets on house holds exploiting an implication of the permanent income hypothesis the higher a household s expected future income the higher its desired consumption ceteris paribus with perfect credit markets desired consumption matches actual consump tion and current spending forecasts future income because credit market imperfec tions mute this effect the extent to which house spending predicts future income measures the imperfectness of mortgage markets using micro data we find that since the early 1980s mortgage markets have become less imperfect in this sense and securitization has played an important role the u s mortgage market has experienced phenomenal change over the last 35 years gone are the days when most households get a cookie cutter 30 year fixed rate level payment mortgage from a savings and loan that takes deposits at 3 and lends at 6 also gone are the days when the typical lender holds that mortgage on its books until the maturity of the loan today consumers choose from an extensive menu of mortgages offering flexibility along almost every dimension furthermore most lenders hold the mortgage for only a short time typically they sell the mortgage on the secondary market many researchers have argued that this transformation has enhanced effi ciency by integrating the mortgage market with the broader financial markets however there has been comparatively little research investigating how or even whether the transformation of mortgage markets has directly affected

schumpeter meeting keynes a policy friendly model of endogenous growth and business cycles this paper studies an agent based model that bridges keynesian theories of demandgeneration and schumpeterian theories of technology fueled economic growth we employ the model to investigate the properties of macroeconomic dynamics and the impact of public polices on supply demand and the fundamentals of the economy we find profound complementarities between factors influencing aggregate demand and drivers of technological change that affect both short run fluctuations and longterm growth patterns from a normative point of view simulations show a corresponding complementarity between keynesian and schumpeterian policies in sustaining long run growth paths characterized by milder fluctuations and relatively lower unemployment levels the matching or mismatching between innovative exploration of new technologies and the conditions of demand generation appear to suggest the presence of two distinct regimes of growth or absence thereof characterized by different short run fluctuations and unemployment levels

how prudent are consumers using data from the consumer expenditure survey this paper presents a simple test that provides an explicit estimate of the parameter in the utility function that reflects the strength of the precautionary saving motive the coefficient of relative prudence the test yields a fairly precise estimate of a small precautionary motive in fact the estimate is too small to be consistent with widely accepted beliefs about risk aversion the presence of liquidity constrained households does not appear to explain this finding and there is some evidence that self selection of households into risky environments also cannot explain the results

endogenous economic growth a new approach this new approach incorporates on the demand side the problem of effective demand and unemployment while rejecting on the supply side the oversimplistic use of a production function with or without capital labour substitution the focus on the adoption and diffusion of labour productivity growth permits viewing supply as being driven endogenously by inter class conflict over distribution as well as inter class conflict among rival firms over market shares the result is a race between growth rates in labour productivity and in the real wage rate which drives demand and productivity growth on the one hand while making wage share reasonably constant on the other the existence and stability properties of the steady state are also examined copyright 2006 oxford university press

house prices capital inflows and macroprudential policy this paper evaluates the monetary and macroprudential policies that mitigate the procyclicality arising from the interlinkages between current account deficits and financial vulnerabilities we develop a two country dynamic stochastic general equilibrium dsge model with heterogeneous households and collateralised debt the model predicts that external shocks are important in driving current account deficits that are coupled with run ups in house prices and household debt in this context optimal policy features an interest rate response to credit and a ltv ratio that countercyclically responds to house price dynamics by allowing an interest rate response to changes in financial variables the monetary policy authority improves social welfare because of the large welfare gains accrued to the savers the additional use of a countercyclical ltv ratio that responds to house prices increases the ability of borrowers to smooth consumption over the cycle and is pareto improving domestic and foreign shocks account for a similar fraction of the welfare gains delivered by such a policy

precautionary saving in the small and in the large the theory of precautionary saving is shown to be isomorphic to the arrow pratt theory of risk aversion making possible the application of a large body of knowledge about risk aversion to precautionary saving and more generally to the theory of optimal choice under risk in particular a measure of the strength of the precautionary saving motive analogous to the arrow pratt measure of risk aversion is used to establish a number of new propositions about precautionary saving and to give a new interpretation of the dreze modigliani substitution effect copyright 1990 by the econometric society