some macroeconomics for the 21st century this note describes a numerical simulation of a model of economic growth a simplified version of robert tamura s 1996 model of world income dynamics based on technology diffusion the model makes predictions for trends in average world income growth and about the evolution of the relative income distribution that accord well with observation the model is used to forecast the course of world income growth and income inequality over the century to come

structural change in an open economy we study the importance of international trade in structural change our framework has both productivity and trade cost shocks and allows for non unitary income and substitution elasticities we calibrate our model to investigate south korea s structural change between 1971 and 2005 we nd that the shock processes propagated through the model s two main transmission mechanisms non homothetic preferences and the open economy explain virtually all of the evolution of agriculture and services labor shares and the rising part of the hump shape in manufacturing counterfactual exercises show that the role of the open economy is quantitatively important for explaining south korea s structural change

measuring investment performance with a stochastic parameter regression model abstract this paper develops a generalization of the hildreth and houck 1968 random coefficient model for use in evaluating the macroforecasting ability of portfolio managers most studies have assumed that astute managers ignore the strength of the market trend and create a binary portfolio beta with one value during up markets and a lower value during down markets in contrast this paper examines a model in which the superior manager adjusts beta period by period according to changing market conditions the findings indicate that portfolio managers are not superior macroforecasters

brand names and price discrimination this paper explains the fact that firms market both labeled and unlabeled products as a practice of price discrimination that emerges as a non cooperative equilibrium outcome the authors consider a market for a differentiated product where the possibility to price discriminate by the selective use of labels is due to the fact that buyers differ in the intensity of their preferences and that before they buy they are unable to distinguish among the different brands without the aid of identifying labels copyright 1987 by blackwell publishing ltd

imperfect price discrimination and welfare we develop a model in which a monopolist uses differences across consumers in their valuation of time to imperfectly price discriminate though it is customary to analyse price discrimination problems by the calculus of variations after postulating a continuum of types we assume a finite number of types and exploit the geometry and duality of the contract set and the structure of the programming specification we analyse in detail the qualitative properties of the model s solution and show by construction that our results exhaust the implications of the model for equilibrium contract pairs we show that imperfect discrimination is not bounded in welfare terms between perfect discrimination and single price monopoly and that the deadweight loss consumer surplus and output comparisons between single price monopoly and imperfect discrimination are ambiguous

a new test of the relationship between regulatory change in financial markets and the stability of beta risk of depository institutions the us economy experienced major regulatory changes in the banking and finance industry with the passage of five major acts over the period 1980 to 1991 this has generated an extensive literature investigating the effects of these changes on the us banking industry in particular this body of research has examined the share market reaction to regulatory changes as well as their impact on the risk return market value and profitability of banking industry stocks generally it has been found that the regulatory changes have had a substantial impact although the effect has not been uniform across all depository institutions this paper extends this literature by analysing the stability of a sample of eighteen us banking industry stock betas across five periods a pre regulatory change period a monetary experiment period a deregulation period a reregulation period and a post regulatory change period based on an analysis of weekly returns we find that the level of bank risk has increased further we also find a tendency towards greater beta instability in both the monetary experiment and deregulation samples the degree of beta instability is lowest in the pre regulatory change and post regulatory change samples overall the monetary experiment and regulatory change coincided with an increased tendency towards beta instability we also compare our results to a randomly selected control sample of non banks and find some more general effects of regulatory change on individual stock betas

how important are dual economy effects for aggregate productivity this paper brings together development accounting techniques and the dual economy model to address the role that factor markets have in creating variation in aggregate total factor productivity tfp development accounting research has shown that much of the variation in income across countries can be attributed to differences in tfp the dual economy model suggests that aggregate productivity is depressed by having too many factors allocated to low productivity work in agriculture data show large differences in marginal products of similar factors within many developing countries offering prima facie evidence of this misallocation using a simple two sector decomposition of the economy this article estimates the role of these misallocations in accounting for the cross country income distribution a key contribution is the ability to bring sector specific data on human and physical capital stocks to the analysis variation across countries in the degree of misallocation is shown to account for 30 40 of the variation in income per capita and up to 80 of the variation in aggregate tfp

timing decisions and the behavior of mutual fund systematic risk the investment performance of professionally managed portfolios in general and mutual funds in particular has been the subject of considerable attention in finance fama 9 has suggested that overall portfolio performance be broken down in such a manner that the individual sources of performance can be identified two basic sources are 1 the ability of the portfolio manager to forecast price movements of individual common stocks relative to stocks in general selectivity or microforecasting and 2 the ability to forecast the direction of the stock market relative to fixed income securities timing or macroforecasting

the food problem and the evolution of international income levels in most poor countries large fractions of land labor and other productive resources are devoted to producing food for subsistence needs we show that a model incorporating the food problem can provide new and useful insights into the evolution of international income levels in particular we find that the food problem can explain why some countries started to realize increases in per capita output more than 250 years later in history than others we also show that the food problem has important implications for growth miracles and the speed at which a country converges to its balanced growth path

structural change and economic growth this paper presents a model in which a country s measured average propensity to save endogenously rises when its economy industrializes the model has agricultural and manufacturing sectors only agriculture uses land if at early dates income per capita is low agricultural consumption is important land is valuable and capital gains on land may constitute most wealth accumulation leaving the country s nipa aps low if exogenous technological progress raises incomes over time engel s law shifts demand to manufactured goods then land s portfolio importance relative to reproducible capital diminishes and the national income and products account saving rate can rise this paper presents a model illustrating that structural change due to the operation of engel s law can systematically affect an economy s measured saving rate according to the model a country s national income and product account average propensity to save will rise naturally if and when technological progress sufficiently lifts its income per capita this suggests a new interpretation of time series evidence while saving rates historically tend to be higher after industrialization than before one cannot automatically infer that changing wealth accumulation behaviour led to modernization rather structural change accompanying growth may have caused the rise in saving rates this paper also warns that international trade could lead to a contrasting pattern in cross sectional data highincome nations might contemporaneously have lower measured saving rates than poor countries recent work by mankiw romer and weil 1992 islam 1995 mankiw 1995 and others investigates long run patterns the analyses assume that each economy has attained or is moving toward a steady state equilibrium as in solow 1956 a country s steady state level of per capita gdp depends on its average propensity to save aps its rate of population growth the efficiency of its production sector etc regression outcomes seem consistent with the solow model s prediction that a higher aps will ceteris paribus lead to a higher level of income per capita the idea is that heterogeneity of exogenous preferences leads to international differences in aps s and in turn to long run differences

the role of the structural transformation in aggregate productivity we investigate the role of sectoral differences in labor productivity in explaining the process of structural transformation the secular reallocation of labor across sectors and the time path of aggregate productivity across countries using a simple model of the structural transformation that is calibrated to the growth experience of the united states we measure sectoral labor productivity differences across countries productivity differences between rich and poor countries are large in agriculture and services and smaller in manufacturing moreover over time productivity gaps have been substantially reduced in agriculture and industry but not nearly as much in services in the model these sectoral productivity patterns generate implications that are broadly consistent with the cross country evidence on the structural transformation aggregate productivity paths and relative prices we show that productivity catch up in industry explains about 50 percent of the gains in aggregate productivity across countries while low relative productivity in services and the lack of catch up explains all the experiences of slowdown stagnation and decline observed across countries

barriers and the transition to modern growth abstract this paper argues that barriers affect both the beginning date and the subsequent pace of modern growth and taking into account this fact enriches our knowledge of cross country income differences the model matches the observed inverted u shape of cross country income differences which implies that a substantial fraction of current income differences is transitional hence the model requires smaller barriers to account for current income differences relative to models that focus only on steady states empirically i find that differences in the beginning dates of modern growth explain large differences in incomes

structural change in a multisector model of growth we study a multi sector model of growth with differences in tfp growth rates across sectors and derive sufficient conditions for the coexistence of structural change characterized by sectoral labour reallocation and constant aggregate growth path the conditions are weak restrictions on the utility and production functions commonly applied by macroeconomists we present evidence from us two digit industries that is consistent with our predictions about structural change and successfully calibrate the historical shift from agriculture to manufacturing and services we show quantitatively that reasonable deviations from our conditions do not have a big impact on the properties of the model

a combined monopoly and optimal packaging this paper specifies the conditions under which a profit maximizing monopoly will market a package of two different commodities even when the demands for and the cost of production of each commodity are entirely independent of the other packaging is here a useful way of implicitly discriminating by price especially when explicit price discrimination is not possible some of the welfare applications are discussed

a shifting regimes approach to the stationarity of the market model parameters of individual securities recent studies indicate that the widespread assumption of parameter stationarity in empir ical applications of asset pricing models may be inappropriate this paper investigates the feasibility of modeling parameter instability as a sequence of persistent stable regimes reeursive residual and log likelihood techniques are combined to detect and locate shift points the results indicate that regime shifts are widespread frequent and often large enough to significantly effect empirical findings the nature of the shifts appears to be a rotation of the regression line indicating that correction of both alpha and beta parameters is required

beyond balanced growth balanced growth models are commonly used in macroeconomics because they are consistent with the well known kaldor facts regarding economic growth these models however are inconsistent with one of the most striking regularities of the growth process the massive reallocation of labour from agriculture into manufacturing and services this paper presents a simple model consistent with both the kaldor facts and the dynamics of sectoral labour reallocation

what determines productivity lessons from the dramatic recovery of the u s and canadian iron ore industries following their early 1980s crisis great lakes iron ore producers had faced no competition from foreign iron ore in the great lakes steel market for nearly a century as the 1970s closed in the early 1980s as a result of unprecedented developments in the world steel market brazilian producers were offering to deliver iron ore to chicago the heart of the great lakes market at prices substantially below prices of local iron ore the u s and canadian iron ore industries faced a major crisis that cast doubt on their future in response to the crisis these industries dramatically increased productivity labor productivity doubled in a few years whereas it had changed little in the preceding decade materials productivity increased by more than half capital productivity increased as well i show that most of the productivity gains were due to changes in work practices work practice changes reduced overstaffing and hence increased labor productivity by increasing the fraction of time equipment was in operating mode changes in work pra

how strongly can industrial structural transformation affect gdp abstractit is well known that when a country develops its leading industry shifts from agriculture to non agriculture this industrial structural transformation has recently attracted considerable attention from scholars then how strongly can this industrial structural transformation affect a country s income in this study we shed light on this research question more specifically we measure magnitudes of the industrial structural transformation s influence on gdp by examining the following counterfactual gdp we calculate a country s counterfactual gdp when the country specializes in agriculture if the counterfactual gdp is considerably small without the non agricultural sector this suggests that the industrial structural transformation from agriculture to non agriculture is considerably important in terms of gdp we use japan as our sample economy consequently we find that the counterfactual gdp is surprisingly small which suggests that the industrial structural transformation s influence o

prosperity and depression prosperity and depression are relative concepts today both france and japan are depressed relative to the united states equivalently the united states is prosperous relative to these countries i say these countries are depressed relative to the united states because their output per working age person is 30 percent less than the u s level an interesting and important policy question is why are these countries depressed the answers for these two countries turn out to be very different the united states is prosperous relative to france because the u s intratemporal tax wedge that distorts the trade off between consumption and leisure is much smaller than the french wedge i will show that if france modified its intratemporal tax wedge so that its value was the same as the u s value french welfare in consumption equivalents would increase by 19 percent consumption would have to increase by 19 percent now and in all future periods to achieve as large a welfare gain as that resulting from this tax reform the united states is prosperous relative to japan because production efficiency is higher in the united states in the united states total factor productivity is approximately 20 percent higher than in japan if japan suddenly became as efficient in production as the united states its welfare gain in consumption equivalents would be 39 percent equally interesting and important are big changes over time in relative output per working age person across countries why are new zealand s and switzerland s economies depressed by over 30 percent relative to their 1970 trend corrected levels both of these countries have small populations but depressions are not restricted to small countries japan with its 125 million people is now depressed by 20 percent relative to its 1991 trend corrected level on the prosperity side why are ireland and south korea so prosperous now relative to their 1970 trend corrected levels this lecture is concerned primarily with big international differences among relatively rich industrial countries and changes in these differences over time the countries that receive primary attention all have market economies and healthy well educated populations in the countries considered the variations in aggregate output per working age person are large and reasonably good measures of the factor inputs are available this permits in many cases the identification of the change in policy or the difference in policy that gave rise to prosperity or depression this is in contrast to business cycle theory which provides little guidance to policy except for the important policy implication that a stabilization effort will have either no effect or a perverse effect the output variations studied and analyzed in this lecture are big an order of magnitude larger than the much studied business cycle fluctuations the variations studied however are an order of magnitude smaller than the muchstudied differences between the richest and poorest countries surprisingly only recently have depressions been systematically studied from the perspective of growth theory which is the theory used university of minnesota and federal reserve bank of minneapolis i thank my colleagues at the university of minnesota and the federal reserve bank of minneapolis for helpful discussions and comments in particular i thank tim kehoe ellen mcgrattan and nancy stokey for their help i also thank martin weale and franck portier for providing some british and french tax information used in this lecture thanks also go to sami alpanda and james macgee for research assistance and helpful discussions this lecture draws heavily on collaborative research with fumio hayashi i thank the economic and social research institute cabinet office government of japan and the u s national science foundation for financial support the views expressed herein are those of the author and not necessarily those of the federal reserve bank of minneapolis or the federal reserve system

on the evolution of the world income distribution the post world war ii period has seen substantial changes in the distribution of gdp per worker around the world in the upper half of the distribution a number of countries have exhibited large increases in income relative to the richest countries in the bottom half several countries have seen incomes fall relative to the richest countries the net result of these changes is a movement in the shape of the world income distribution from something that looks like a normal distribution in 1960 to a bi modal twin peaks distribution in 1988 projecting these changes into the future suggests a number of interesting ndings first it seems likely that the united states will lose its position as the country with the highest level of gdp per worker second growth miracles have been more common in recent decades than growth disasters if these dynamics continue the future income distribution will involve far more rich countries and far fewer poor countries than currently observed

unit trust objectives and investor choice the widespread use by unit trusts of terms such as income gorwth or balanced portfolio to describe their investment aims suggests that such descriptions accurately characterize the type ans particularly the rist return characteristics of unit trust portfolios this study examines the usefulness of such objectives and finds little evidence that they are helpful to investors it is generally difficult if not impossible to distinguish on the basis of different objectives between the returns or the risk of unit trusts that invest predominantly in uk equities although objectives do distinguish between trusts that invest heavily in overseas or fixed interest securities attempts to identify a meaningful grouping or trusts on the basis of their return before and after adjustment for risk were unsuccessful

a model of labeling with horizontal differentiation and cost variability we study optimal disclosure of variety by a multiproduct firm with random costs the prices for labeled varieties are increasing functions of the cost differential and do not reveal which variety is cheaper to produce nondisclosure is most common under moderate uncertainty about costs and not too much idiosyncrasy in valuations and quality asymmetry mandatory disclosure decreases expected welfare when cost variability is large and quality asymmetry is small the cheaper variety tends to be oversupplied undersupplied when disclosure is voluntary mandatory competition among multiproduct firms that source inputs in the same upstream market may not lead to more disclosure

uk unit trust performance 1980 1989 a passive time varying approach abstract this paper indirectly tests the efficient markets hypothesis by analysing the performance of 30 authorised unit trusts from 1980 through 1989 the risk return relationship of the funds is allowed to vary in a generalised manner thus allowing for passive structural change in underlying economic relationships our findings suggest that 21 of the 30 trusts in the sample were able to supply investment opportunities to the individual investor which were superior to a buy and hold strategy

testing for nonstationarity of market risk an exact test and power considerations this paper reexamines the issue of common stock market risk stationarity by applying a newly available exact test for random walk regression coefficients for each eight year subperiod tested in the 1951 1974 interval betas for individual new york stock exchange listed stocks appeared to be nonstationary the statistical powers of the exact test and of locally most powerful tests are compared to the power of the test employed previ ously by sunder these power considerations are cited to explain the differences between test results obtained here and those reported by sunder