the inflation tax in a real business cycle model money is incorporated into a real business cycle model using a cash in advance constraint the model economy is used to analyze whether the business cycle is different in high inflation and low inflation economies and to analyze the impact of variability in the growth rate of money in addition the welfare cost of the inflation tax is measured and the steady state properties of high and low inflation economies are compared

limited participation and exchange rate dynamics does theory meet the data the paper explores the empirical dimensions of a new open economy macronomy model characterized by credit market frictions we find that these frictions are essential for the model to match a large set of moments of german data moreover the simulated impulse response functions to supply and nominal shocks are consistent with var findings since the model is estimated on moments rather than on conditional irfs this underlines the ability of the model to match the data finally monetary shocks do not seem to be the primary driving force behind the aggregate dynamics which is consistent with the var literature

impact of pension system structure on international financial capital allocation abstract recent findings indicate that pension system structure affects private savings and through them the aggregate foreign asset position of a country we present a two country overlapping generations model that explores the relationship between the magnitude of pension guarantees and the resulting portfolio choices of workers the existence of a pay as you go pension system lowers the wealth of the young workers who consequently borrow from abroad to supplement their current consumption and lowers the overall riskiness of their lifetime wealth prompting them to invest in risky equity financed by the selling of safe bonds in particular we are able to replicate and explain the venture capitalist positive net equity accompanied by negative net debt portfolio profile of the united states more broadly we find empirical support for our results in a cross country analysis using data from 110 economies greater amounts of pension spending are associated with international indebtedness long equity positions and short debt positions

real business cycles and labor markets with imperfectly flexible wages abstract one of the principal criticisms of real business cycle models is that the assumptions made about labor markets do not accord with the actual structure of these markets this paper replaces the standard spot labor market with a market characterized by imperfectly flexible wages which corresponds to impressions of contractual labor relations it is found that the behavior of the model in terms of the predicted variances and correlations is similar to that of the standard real business cycle model but that the variability of hours worked and the correlation of hours worked with wages will depend on the structure of the labor market

how important is precautionary saving we estimate how much of the wealth of a sample of psid respondents is held because some households face more income uncertainty than others we begin by solving a theoretical model of saving which we use to develop appropriate measures of uncertainty we then regress measures of wealth on our measures of uncertainty and find evidence that households engage in precautionary saving finally we simulate the wealth distribution that our empirical results imply would prevail if all households had the same uncertainty as the lowest uncertainty group we find that between 39 and 46 percent of wealth in our sample is attributable to the extra uncertainty that some consumers face compared to the lowest uncertainty group

on the policy ineffectiveness proposition and a keynesian alternative a rejoinder i the basis of rush and waldo s rw results is the introduction of a war dummy variable in the dg equation this is however difficult to justify in the context of a rational expectations model under incomplete learning wars by their very nature are unique events and it is not clear how the public are supposed to learn the quantitative effects that the ending of three totally different wars may have had upon the growth of real government expenditure the fact that in i946 the public knew that world war ii was over does not mean that they could also estimate its precise quantitative effect on government expenditure rw estimate their dg equation using data for the whole of the period i943 73 and i943 85 thus implicitly assuming that all these data were available to the public in i946 for the computation of the coefficient of the war dummy in the dg equation but in i946 the public could not possibly have known about the timing and the intensities of the korean or the vietnam wars the assumption of complete learning that underlies the rational expectations hypothesis in general and rw s version of the nc model in particular is especially troublesome when the model contains dummy variables that correspond to unique events

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

monetary information and monetary neutrality abstract the monetary theory of business fluctuations in market clearing models constructed under the rational expectations assumption as advanced by lucas and others involves the idea that suppliers and demanders will typically misinterpret movements in the general level of prices as representing more or less favorable relative opportunities for real activities the present paper examines the consequences of agents possessing contemporaneous monetary information of a potentially noisy variety for the non neutrality of unanticipated monetary events within such an equilibrium business cycle model this modification of the information structure has the strong testable implication that real activity will be uncorrelated with contemporaneous monetary data

theories of policy diffusion lessons from latin american pension reform what accounts for the waves of policy diffusion that increasingly sweep across regions of the world why do many diverse countries adopt similar changes focusing on the spread of chilean style pension privatization in latin america this article assesses the relative merit of four theoretical explanations that scholars of diffusion have proposed as the principal mechanism driving innovations spread these approaches emphasize external pressures emanating especially from international financial institutions the quest for symbolic or normative legitimacy rational learning and cost benefit calculation and cognitive heuristics respectively the article assesses which one of these frameworks can best account for the three distinctive features of diffusion namely its wavelike temporal pattern its geographical clustering and the spread of similarity amid diversity while several approaches contribute to understanding policy diffusion the analysis suggests that the cognitive psychological framework offers a particularly persuasive account of the spread of pension reform

a critique of the proposed tests of the natural rate rational expectations hypothesis the failure of the governments of most industrialised countries over the past decade to deal successfully with the problems of rising unemployment and high and often accelerating rates of price and wage inflation has revived interest in the pre keynesian macro economics of sound money and has renewed the controversy of the 1930 s over what governments should or should not do if they wish to achieve full employment with reasonable price stability in democratic societies keynesian economics has come under attack both by those who primarily oppose interventionist policies on ideological grounds and by the so called new classical macro economists who adhere to the natural rate of unemployment hypothesis nrh advanced by phelps i967 and friedman i 968 and the hypothesis of rational formation of expectations reh originally due to muth i96i armed with this joint natural rate rational expectations nr re hypothesis the new classical macro economists have argued that in a world capable of being represented by linear or log linear relations with a unique and stable equilibrium and no information discrepancy between the government and the private sector no government macro economic policy whether monetary or fiscal no matter how ingeniously formulated and how effectively implemented can have any systematic or lasting impact upon the level of output or the rate of unemployment 2 clearly this fundamental policy

current real business cycle theories and aggregate labor market fluctuations hours worked and the return to working are weakly correlated traditionally the ability to account for this fact has been a litmus test for macroeconomic models existing real business cycle models fail this test dramatically we modify prototypical real business cycle models by allowing government consumption shocks to influence labor market dynamics this modification can in principle bring the models into closer conformity with the data our empirical results indicate that it does

an olg model of global imbalances in this paper we investigate the relationship between east asian countries high propensity to save and global imbalances in a two country olg model with production the saving behavior of emerging economies and capital outflows to the united states can be attributed to their poor pay as you go systems the model predicts that emerging countries run a trade surplus only as long as the long run growth rate of the economy is higher than the real interest rate capital overaccumulation case the low real interest rate in the us is therefore evidence in favor of the hypothesis that there is a global saving glut in the world economy the model can explain why the us current account deteriorated gradually and only in the late 1990s although the net foreign asset position had already turned negative in the early 1980s finally the analysis also implies that an improvement of the pay as you go system in china would have the effect of reducing the imbalances in accordance with the theory we find that the higher is the percentage of the working population covered by the pay as you go system the lower are savings and the current account balance in a cross section of countries

the optimal monetary response to technology shocks i introduction during the past decade many economists adopted the view that shocks to the aggregate production function or technology shocks represent the dominant source of fluctuations in the united states economy as noted by shapiro 1987 a number of elements came together to shape this view most important a series of severe supply shocks hit the economy during the 1970s standard keynesian models with their emphasis on the demand side had great difficulty tracking the economy s response to these shocks the view solidified after kydland and prescott 1982 demonstrated that many features of the business cycle can be replicated in a model where technology shocks are the only source of fluctuations kydland and prescott s work launched the now extensive literature on real business cycles surveyed by mccallum 1989 the observation that supply side disturbances are important in generating business cycles however need not imply that monetary factors play no role in accounting for variations in economic activity greenwood and huffman 1987 and cooley and hansen 1989 add cash in advance constraints to otherwise standard real business cycle models as a simple way of including the nominal sector in these cash in advance models monetary shocks have little effect on the cyclical behavior of real variables these models preserve the emphasis on technology shocks in explaining the business cycle nevertheless the models show how sustained inflation can affect the real economy by acting as a distortionary tax on productive activity the models of greenwood and huffman and cooley and hansen imply that optimal monetary policy involves a steady contraction of the money supply that keeps the nominal interest rate at zero as called for by friedman 1969 this optimal policy makes no attempt to respond to technology shocks instead it simply removes the distortionary inflation tax more recently cho and cooley 1992 yun 1994a and dow 1995 have investigated the effects of introducing various forms of price rigidity into monetary versions of the real business cycle model technology shocks continue to play a major role in these studies but the presence of nominal rigidities allows monetary shocks to affect the business cycle as well in fact these studies show that the addition of price rigidity improves the model s ability to match the cyclical properties of the data this paper complements these studies by deriving the implications of nominal price rigidity for optimal monetary policy i begin by outlining a model that shares the basic features of those cited above including technology shocks a cash in advance constraint and nominal price rigidity in the model both technology and monetary shocks have important effects on aggregate output and employment unlike flexible price cash in advance models for instance the model developed here gives rise to a phillips curve relationship between money and output the model is used to answer the following question does the presence of nominal price rigidity rationalize a monetary policy that responds actively to technology shocks or does the optimality of friedman s constant money growth rule still apply the results show that optimal policy does in fact exploit the monetary authority s ability to influence the real economy when prices are sticky that is the optimal policy is activist on the other hand the results also show that the friedman rule while no longer optimal comes very close to the optimum in welfare terms in this sense the main policy implication of flexible price cash in advance models appears robust to the introduction of nominal price rigidity section ii presents the model section iii describes the key features of its equilibrium section iv derives the optimal activist policy and compares its performance to that of the friedman rule section v concludes ii the model the economic environment infinitely lived households firms and a monetary authority populate an economy where time periods are indexed by t 0 1 2

pricing to market limited participation and exchange rate dynamics abstract explaining the wide gap between exchanges rates fluctuations and those of their macroeconomic fundamentals since 1973 remains a challenging task for international macroeconomics betts and devereux 1996 the exchange rate in a model of pricing to market european economic review 96 1007 1021 among others stress the role of pricing to market ptm hairault et al 2004 overshooting and the exchange rate disconnect puzzle a reappraisal journal of international money and finance 23 615 643 highlight an alternative explanation based on credit market frictions through the limited participation assumption lp the paper investigates the combined role of both types of frictions in a two country framework given ptm and lp we show that monetary shocks generate amplified exchange rate volatilities the model hence contributes to a better understanding of the large observed exchange rate fluctuations

taxes and growth in a financially underdeveloped country evidence from the chilean investment boom this paper argues that taxation of retained profits is particularly distortionary in an economy with good growth prospects and poorly developed financial markets because it primarily reduces the investment of financially constrained firms investment that has marginal product greater than the after tax market real interest rate contrarily taxes on distributed profits or capital gains primarily reduce the investment of financially unconstrained firms chile experienced a banking crisis over the period from 1982 to 1986 and in 1984 reduced its tax rate on retained profits from 50 percent to 10 percent we show that consistent with our theory there was a large increase in aggregate investment after the reform which was entirely funded by an increase in retained profits further we show that investment grew by more in industries that depend more on external financing according to the rajan and zingales 1998 measure finally we present some weak evidence from comparisons of investment rates across firms for several different measures of their likelihood of being financially constrained

a head to head comparison of augmented wealth in germany and the united states we examine the composition of augmented household wealth i e the sum of net worth and pension wealth in the united states and germany pension wealth makes up a considerable portion of household wealth of about 48 percent in the united states and 61 percent in germany when pension wealth is included in household wealth the gini coefficient falls from 0 889 to 0 700 in the united states and from 0 755 to 0 508 in germany if the wealth shares in germany were the same as in the united states this would lead to a 12 6 percent increase in the gini coefficient in the augmented wealth distribution in germany

intertemporal substitution and the liquidity effect in a sticky price model abstract the liquidity effect defined as a decrease in nominal interest rates in response to a monetary expansion is a major stylized fact of the business cycle this paper first confirms that with separable preferences a low degree of intertemporal substitution in consumption is a necessary condition for the existence of the liquidity effect in contrast to this result in a model with non separable preferences and capital accumulation it takes an implausibly high elasticity of intertemporal substitution to produce a liquidity effect the robustness of these results to alternative degrees of nominal rigidities capital adjustment costs and stochastic monetary processes is also analysed we conclude that price stickiness by itself does not guarantee the existence of a liquidity effect

autoregressive modelling and money income causality detection abstract a step wise procedure based on granger s concept of causality and abaike s final prediction error criterion is suggested as a practical means to identify the order of lags of each variable in a multivariate autoregressive process the model seems useful because it can serve as a reduced form formulation to avoid imposing often spurious or false restrictions of the model it also provides a reasonably powerful test of causality the idea is applied to u s postwar money and income data it is found that between m1 and gnp a bivariate feedback model fits the data best between m2 and gnp a one way causal model from money to income performs better diagnostic checks applied to our model seem to indicate the adequacy of our approach

liquidity loanable funds and real activity abstract this paper develops a general equilibrium model of two traditional explanations of the monetary black box linking money and real activity the liquidity effect and the loanable funds effect these effects are modeled with a monetary production economy in which central bank injections of cash are funnelled into the economy through the credit market since only borrowers have direct access to the newly injected cash monetary injections cause nominal interest rates to fall if firms are borrowers then monetary injections also increase current and future real activity

constructing and estimating a realistic optimizing model of monetary policy abstract a dynamic stochastic general equilibrium dsge model with real and nominal both price and wage rigidities succeeds in capturing some key nominal features of u s business cycles additive technology shocks as well as multiplicative shocks are introduced and shown to be crucial monetary policy is specified as an interest rate targeting rule following developments in the structural vector autoregression var literature the interaction between real and nominal rigidities is essential to reproduce the liquidity effect of monetary policy the model is estimated by maximum likelihood on u s data and its fit is comparable to that of an unrestricted first order var besides producing reasonable impulse responses and second moments this model replicates a feature of u s business cycles never captured by previous research with dsge models that an increase in interest rates predicts a decrease in output two to six quarters in the future

are output fluctuations transitory according to the conventional view of the business cycle fluctuations in output represent temporary deviations from trend the purpose of this paper is to question this conventional view if fluctuations in output are dominated by temporary deviations from the natural rate of output then an unexpected change in output today should not substantially change one s forecast of output in say five or ten years our examination of quarterly postwar united states data leads us to be skeptical about this implication the data suggest that an unexpected change in real gnp of 1 percent should change one s forecast by over 1 percent over a long horizon

anticipated monetary policy in a cash in advance economy this paper analyses the effects of perfectly foreseen monetary policy within the framework of a standard cash in advance economy anticipated monetary policy is shown to have real effects by influencing inflationary expectations in a cash in advance economy an increase in the anticipated rate of inflation reduces the return to labour supply and induces a substitution away from time spent in the labour market the paper analyses the implication of this substitution for the time paths of output prices interest rates real and nominal and stock market prices

non nested tests of new classical versus keynesian models further evidence this paper re runs the experiment conducted by dadkhah and valbuena 1985 using data generated by the australian canadian japanese swiss and swedish economies the aim of this exercise is to discriminate between new classical and keynesian accounts of the business cycle the results obtained in the present study are broadly supportive of dadkhah and valbuena s earlier findings in that the keynesian model generally outperforms the new classical alternative

the demand and liquidity effects of monetary shocks abstract this paper examines the effect of a monetary shock in a stochastic growth model with a cash in advance constraint and a financial intermediary it explores the differences between the results of restrictions on nominal price adjustment the demand effect and restrictions on savings behavior the liquidity effect it is found that the model that produces the appropriate response to a temporary monetary shock includes both demand and liquidity effects

has the effect of money shocks on interest rates really vanished further evidence of the liquidity effect the liquidity effect of money shocks on the short term interest rate has been an integral part of traditional macroeconomic policies and has witnessed renewed interest in recent years the paper reports contrary to some previous work extensive evidence of the effect in several non g7 countries using the single equation distributed lag garch p q estimation and the systems var estimation the liquidity effect is shown to be alive and well in a sample of nine countries and this will shed much light on policy implications

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

overshooting and the exchange rate disconnect puzzle a reappraisal transitions to floating exchange rate regimes have led to sharp increases in exchange rate volatilities with no corresponding changes in the distribution of macroeconomic fundamentals in the spirit of dornbusch 1976 we assess whether nominal exchange rate overshooting is responsible for this phenomenon as long as uncovered interest rate parity holds nominal exchange rate overshooting is linked to a persistent fall in the spread between domestic and foreign nominal interest rates we thus develop a limited participation model in a small open economy setting with small adjustment costs on money holdings overshooting substantially contributes to the nominal exchange rate volatility

in search of the liquidity effect in a modern monetary model abstract this paper examines the impact of a monetary policy shock in a dynamic stochastic general equilibrium model with sticky prices and financial market frictions first we examine the shortcomings of monetary models emphasizing these frictions individually the model then is specified to limit the response of prices and savings to a current period monetary disturbance our results show that this model can account for the following key responses to an expansionary monetary policy shock a fall in the nominal interest rate a rise in output consumption and investment and a gradual increase in the price level finally a detailed sensitivity analysis shows the model s results depend on the parameters assigned to critical structural features

permanent and transitory components in macroeconomic fluctuations fluctuations in real gnp have traditionally been viewed as transitory deviations from a deterministic time trend the purpose of this paper is to review some of the recent developments that have led to a new view of output fluctuations and then to provide some additional evidence using post war quarterly data it is hard to reject the view that real gnp is as persistent as a random walk with drift we also consider the hypothesis that the recent finding of persistence are due to the failure to distinguish the business cycle from other fluctuations in real gnp we use the measured unemployment rate to decompose output fluctuations we find no evidence for the view that business cycle fluctuations are more quickly trend reverting this abstract was borrowed from another version of this item

sluggish inflation and optimizing models of the business cycle abstract many researchers have added sticky prices to quantitative business cycle models i simulate several of these models in order to evaluate their success at reproducing two features of us data the lagged reaction of inflation to monetary growth and the persistence of inflation

freedom and other variables in the choice of public pension systems there are three types of public pension systems popular throughout the world pay as you go defined benefit funded defined contribution and mixed the latter two systems were largely adopted in the 1990s after chile successfully built its funded system in this paper we analyze the choice of these types of pension system identifying factors that affect countries choice several measures of freedom economic and political are associated with these choices the estimated effects of the two freedoms on pension choice and percent elderly are quite interesting and intuitive

are cyclical fluctuations in productivity due more to supply shocks or demand shocks measured productivity is strongly procyclical real business cycle theories suggest that actual fluctuations in productivity are the source of fluctuations in aggregate output keynesian theories maintain that fluctuations in aggregate output come from shocks to aggregate demand keynesian theories appeal to labor hoarding or off the production function behavior to explain the procyclicality of productivity if observed productivity shocks are true productivity shocks a function of factor prices should covary exactly with productivity in annual data for united states industries that function of factor prices and conventionally measured productivity move together very closely moreover their difference is uncorrelated with aggregate output this abstract was borrowed from another version of this item

non nested tests of three competing theories of business cycles this paper tests the keynesian new classical and real business cycle theories against each other as non nested hypotheses using quarterly data for the us covering the period 1959 1 1989 2 the results indicate that no one theory stands out as the dominant explanation of the business cycle this contrasts with the findings of earlier work which is mostly concerned with testing the keynesian against the new classical theory we find that the introduction of a third theory the real business cycle theory which accounts of real factors blurs the distinction between the demand sided keynesian and the new classical theories

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

does anticipated monetary policy matter an econometric investigation a heated debate has arisen over the policy ineffectiveness proposition associate with the work of lucas sargent and wallace it postulates that anticipated aggregate demand policy will have no effect on business cycle fluctuations so that one deterministic feedback policy rule is as good as any other from the point of view of stabilizing the economy this paper develops a methodology for empirically analyzing rational expectations models displaying this neutrality result and then applies it to the important question of whether anticipated monetary policy matters to the business cycle

on the policy ineffectiveness proposition and a keynesian alternative one of the most controversial macroeconomic developments of the last decade has been the rise of the so called new classical nc approach to macroeconomic theory and policy lucas i972 sargent and wallace i975 and barro i 976 have presented models which combine the friedman i968 phelps i970 natural rate theory with assumptions of market clearing and rational expectations as is well known these models deliver the striking result that the mean values of real variables cannot be affected by the government s monetary policy the publication of the theoretical work establishing the impotency result led to much empirical testing of the nc models one of the most successful approaches from the point of view of nc advocates is contained in a series of papers by barro i977 i978 i98i barro and rush i980 and rush i986 recently pesaran i982 has questioned barro s results and claimed that once an implausible assumption is discarded barro s work can be rejected in favour of a keynesian alternative because pesaran has put forth an explicit counter model to barro s work his results are potentially quite important this paper examines in detail pesaran s work and conclusions

discount rate heterogeneity and social security reform abstract as many countries consider the privatization of existing pay as you go social security systems the option to make participation in the new system voluntary may appeal to policy makers who need to obtain the political support of their workers a critical issue in evaluating such a reform and its economic consequences is the unobserved heterogeneity in households preferences for consumption this paper estimates the distribution of rates of time preference from the wealth data in the survey of consumer finances 1992 and a flexible life cycle model of consumption under income uncertainty the estimated distribution is then applied to a variety of reform proposals that incorporate a voluntary choice of how much to contribute to a dedicated retirement account and a rebate of the existing payroll tax that increases with the magnitude of the contribution the main finding is that an appropriate menu of reform plans can induce the voluntary buy out of 84 of existing payroll taxes at an immediate cost to national saving of less than 0 25 percentage point

sticky price and sticky information price setting models what is the difference using a partial equilibrium framework mankiw and reis 2002 show that a sticky information model can generate a lagged and gradual inflation response after a monetary policy shock whereas a sticky price model cannot our paper demonstrates that that finding is sensitive to their model s parameterization to determine a plausible parameterization we specify a general equilibrium model with sticky information in that model we find that inflation peaks only one period after a monetary disturbance a sensitivity analysis of our results reveals that the inflation peak is delayed by including real rigidities when the monetary policy instrument is money growth whereas inflation peaks immediately when the policy instrument is the nominal interest rate

small menu costs and large business cycles a macroeconomic model of monopoly i introduction the conflict between modern neoclassical and traditional keynesian theories of the business cycle centers upon the pricing mechanism in neoclassical models prices are fully flexible they represent the continuous optimization of economic agents and the continuous intersection of supply and demand in keynesian models prices are often assumed to be sticky they do not necessarily equilibrate all markets at all times one of the reasons for the resurgence of the equilibrium approach to macroeconomics has been the absence of a theoretical underpinning for this keynesian price stickiness this note shows that sticky prices can be both privately efficient and socially inefficient the business cycle results from the suboptimal adjustment of prices in response to a demand shock to the extent that policy can stabilize aggregate demand it can mitigate the social loss due to this suboptimal adjustment in some keynesian models prices are simply exogenously fixed 2 in others agents must set their prices in advance of the transaction date the act of altering a posted price is certainly costly these costs include such items as printing new catalogs and informing salesmen of the new price yet these menu costs are small and therefore generally perceived as providing only a weak foundation for these fixed price models however this inference is flawed small menu costs can cause large welfare losses the claim that price adjustment costs are small does not rebut the claim that they are central to understanding economic fluctuations

household saving behaviour in an extended life cycle model a comparative study of china and india abstract this paper examines the determinants of household saving in china and india over the last few decades using the life cycle model with appropriate modifications to account for the expected benefits of pension saving consistent with the predictions made in the life cycle model higher income growth promotes more household saving and higher age dependency does the opposite an increase in the inflation rate appears to encourage household saving interestingly the evidence suggests that an increase in expected pension benefits tends to discourage household saving in china in the long run but the reverse is found in india

is pension reform conducive to higher saving declining fertility mortality and productivity rates in developed countries and the popularity of the social security privatization in chile as a pathway to financial development have sparked a global interest in social security reform this paper analyzes the effect of social security on saving using a panel of countries over 25 years variation in the characteristics of social security systems is used to determine whether less reliance on a pay as you go unfunded system is associated with higher national saving there is little evidence that countries that implement defined contribution reforms have higher trends in saving rates after the reform cross sectionally countries with pay as you go systems tend to have lower saving rates and this effect increases with the coverage rate on the system

real business cycles in this paper we demonstrate how certain very ordinary economic principles lead maximizing individuals to choose consumption production plans that display many of the characteristics commonly associated with business cycles our explanation is entirely consistent with i rational expectations ii complete current information iii stable preferences iv no technological change v no long lived commodities vi no frictions or adjustment costs vii no government viii no money and ix no serial dependence in the stochastic elements of the environment we also provide a completely worked out example of the type of artificial economy we have in mind the time series properties of the example exhibit some major features of observed business cycles although this type of model may not be capable of explaining all of the regularities in actual business cycles we believe that it provides a useful well defined benchmark for assessing the relative importance of factors e g monetary disturbances

the effects of pension funds on markets performance a review the worldwide reforming process of pension systems triggered by the demographic transition and globalization has led several countries to implement multi pillar pension systems and enhance pension funds for this reason the studies on the effects that pension funds exert on markets performance have been flourishing in the last decades in this paper we provide an updated review of the empirical advances in this field of study with particular focus on the effects that pension funds produce on labour markets financial markets and economic growth

keynesian and new classical models of unemployment revisited several keynesian and new classical models of unemployment for the united states are reevaluated the models are examined for adequacy by testing the cross equation restrictions where appropriate and using diagnostic and nonnested tests that explicitly recognize the problem introduced by generated regressors the best new classical model for the 1946 73 period is found to be adequate when it is estimated over the 1946 85 period whereas the keynesian model is not existing results of tests obtained at the single equation level ignoring generated regressors are not always supported when the test statistics are calculated using the correct covariance matrix or maximum likelihood copyright 1991 by royal economic society