has canadian house price growth been excessive the dramatic rise in the ratio of canada s average house price to average rent has led to speculation that there is a bubble in the canadian housing market others have argued however that the currently high level of house prices may be rationalized by the low cost of financing given the decline in interest rates over the last two decades in this article we assess these arguments through the lens of a simple asset pricing model applied to city level data we quantify the extent to which excess growth in canadian house prices depends on the nature of the current regime governing real interest rates expectations of rent growth in different cities and variations in property taxes

federal borrowing and short term interest rates this paper is an empirical study of the effects of federal government borrowing on short term interest rates it is often taken for granted that increases in federal borrowing cause higher short term rates but little empirical support exists for this assumption in fact this paper demonstrates that federal borrowing is a relatively unimportant and insignificant determinant of short term rates an implication of this result is that financial crowding out effects of government deficit spending may not be overly large postulates about interest rate behavior are the driving force behind many hypotheses of the crowding out literature however these interest rate effects have received relatively little direct attention in this literature this is surprising since as a general rule the stronger the interest rate effect is the stronger the crowding out effect will be an empirical determination of the size of the deficit spending interest rate effect gives some empirical content to the crowding out controversy in section ii of this paper the relationship between federal borrowing interest rates and crowding out is discussed and a loanable funds model of short term interest rates is developed in section iii the regression model is generated and tested the essential result is that variation in three month treasury bill rates is caused by expected inflation changes in the monetary base and by changes in the level of economic activity there is no statistically significant relation between short term interest rates and federal borrowing in section iv additional regression tests are performed which confirm the results in section iii and the problem of simultaneous equation bias is discussed the final part of the paper is a discussion of some implications of the results reported in sections iii and iv

population growth and savings in ldcs a survey article both population growth and savings have traditionally taken a certain place of pride among models of growth and development the purpose of this paper is to examine the literature concerning the hypothesis that the savings rate itself is a function of the population growth rate and this effect exacerbates the negative effect of population on economic growth the evidence is examined from three perspectives i macroeconomic effects of variations in the age structure of the population ii choice theoretic models of family decision making particularly the joint determination of fertility decisions and savings decisions and iii market level interactions of variables which determine individual decisions the paper concludes that both population growth and savings rates are inextricably tied up in the process of economic development there are many ways in which the two variables may interact but no generalizations can be safely made across countries

capital flows to the new world as an intergenerational transfer the late nineteenth century saw international mass migrations of capital and labor from the old world to the new factors chased each other and the abundant resources at the frontier demographic structure also contributed to the massive capital flows from britain to the new world the dependency hypothesis is confirmed by estimation of savings functions in three new world economies argentina australia and canada in which high dependency rates may have significantly depressed domestic savings rates and pulled in foreign investment in effect an intergenerational transfer from old savers in the old world to young savers in the new

the differing effects of pre and post 1981 federal budget deficits on tax adjusted real interest rates this paper employs an estimating equation relating tax adjusted real interest rates to deficits and other economic variables to examine the differing effects of pre and post 1981 federal budget deficits on ex ante and ex post real tax adjusted short term interest rates over the period 1961 1 1992 2 the results for the 1961 1 1992 2 period taking into account a shift in the linkage between the ratio of alternative measures of the deficit to potential gdp occurring in 1981 1 indicate that the ratio of both the nipa deficit and the cyclically adjusted deficit to potential gdp have a significant effect on ex ante and ex post real tax adjusted interest rates for the post 1981 period but no significant effect before 1981

the economics of corporate social responsibility a firm level perspective survey this paper analyzes the economics of corporate social responsibility csr as a private response to market imperfections in order to satisfy social preferences depending on whether they affect regulation competition or contracts market imperfections driving csr decisions are classified in three categories public goods and bads and altruism imperfect competition and incomplete contracts we successively present these drivers of csr decisions and highlight the nature of incentives external or internal at work and the testable and tested hypotheses in the reviewed studies we finally review the link between csr and financial performance as well as between csr and social and environmental performance a twofold discrepancy appears in the literature opening future research paths a disconnection between our understanding of csr drivers and csr impacts and a knowledge gap between csr financial and social consequences the latter having received little attention

sustainability indexes why join in a study of the corporate sustainability index ise in brazil abstract in the past decade indicators have been created to assess the sustainability performance of companies listed in stock exchange markets academics and practitioners expect companies to benefit from being listed in such indexes but evidence of value creation is still scarce since virtually all studies about the corporate sustainability index ise of the sao paulo stock exchange brazil the object of the present study focused on the value of shares we initially looked for answers in the finance theory we collected secondary data about the financial and economic performance of companies forming the ise s theoretical portfolio as these kinds of indexes are also known in a second stage we sought additional motivations for companies to make efforts to be listed in the index we collected additional data and interviewed representatives of key companies listed in the ise as well as industry leaders who chose not to participate in the selection process the results support the main propositions of the institutional theory as well as the pays to be green literature that the intangible value created by voluntary environmental initiatives such as access to knowledge new capabilities and reputational gain better explain the efforts companies make to be listed in the ise index

recent theoretical results for time series models with garch errors this paper provides a review of some recent theoretical results for time series models with garch errors and is directed towards practitioners starting with the simple arch model and proceeding to the garch model some results for stationary and nonstationary arma garch are summarized various new arch type models including double threshold arch and garch arfima garch charma and vector arma garch are also reviewed copyright 2002 by blackwell publishers ltd

government deficits capital flows and interest rates 1988 government deficits capital flows and interest rates applied economics vol 20 no 6 pp 753 765

inflation and government deficits there is a pronounced positive correlation of inflation andgovernment deficits in the united states since world war ii the purpose of this paper is to test the three leading explanationsof this correlation these three explanations are a a deficitincreases prices through a wealth effect b a deficit results inthe federal reserve purchasing debt thus increasing the moneysupply and prices and c expected inflation increases the deficit which is the change in the nominal value of bonds no supportis found for either of the first two hypotheses the results indi cate that expected government deficits have no significance forfuture inflation since world war ii the united states has experienced large federal government deficits and a sustained peacetime inflation three differentconnections between the deficits and inflation are prominent in theliterature the most direct connection between government deficits and inflationis that by increasing the real value of outstanding bonds and perceived netwealth a deficit can raise total spending and the price level this connec tion is also the most long standing and is suggested by metzler 1951 andpatinkin 1965 for example monetarists generally and buchanan and wagner 1977 in particularhave emphasized a different link between deficits and inflation they sug gest that the federal reserve purchases government bonds when the trea sury sells bonds thus increasing high powered money the money supply and the price level the federal reserve might behave this way for exam ple because it is attempting to hold down interest rates on governmentsecurities when deficits occur recently barro 1978 1979 has put forward a hypothesis that deficitsare a result of inflation rather than inflation being a result of deficits thegovernment deficit is the change in the nominal value of outstanding gov ernment bonds if the anticipated inflation rate increases then the nomi nal value of bonds must increase i e the government will run a deficit tokeep the same anticipated real amount of bonds all three of these possible connections between government deficitsand inflation are consistent with the observed positive correlation of defi cits and inflation the implications however are strikingly different con

population age structure saving capital flows and the real exchange rate a survey of the literature this paper surveys the existing literature on the effects of population age structure on saving capital flows and the real exchange rate we build on previous surveys of age structure and saving behaviour by including extensive discussion of international linkages specifically the impact on capital flows and real exchange rates we also point to unresolved issues that need to be addressed given that population aging has serious policy implications in the developed economies these days

fertility and savings in the united states 1830 1900 a long tradition in the development literature has been to associate the aggregate savings rate with the dependency ratio the ratio of dependent children to adults in this paper i formalize the relationship by developing a life cycle model in which offspring are assets from the viewpoint of their parents the model is used to help explain the increase in nineteenth century u s savings rates i find that between 1830 and 1900 about one quarter of the 6 percentage point rise in the savings rate can be attributed to a decline in the dependency rate

the interest rate neutrality of fiscal deficits testing for ricardian equivalence and capital inflow abstract this paper examines the extent to which the ricardian equivalence theorem as restated by barro 1974 and the capital inflow hypothesis of dwyer 1985 provide valid explanations of the observed interest rate neutrality of fiscal policy in open economies a theoretical open economy macromodel is specified and subsequently tested on a multi country dataset which spans the recent period of floating exchange rates on balance the empirical results favour the capital inflow hypothesis which emphasizes the importance of international financial integration in facilitating the financing of public deficits by the savings of agents who reside across political frontiers

government debt government spending and private sector behavior a current period tax reduction financed by issuing government debt shifts the timing of tax collection from the current period to the future if the future taxes implied by government debt are not fully perceived and discounted by the private sector there will be a net wealth effect that increases private sector consumption thus reducing capital accumulation and growth if on the other hand the implied future taxes are perceived and discounted by the private sector the current period tax reduction will be used to increase private saving to pay for the future taxes and government debt will be absorbed without any real effects on the economy the effects of government spending financed by current period taxation also depend upon private sector perceptions 2 if the benefits of government spending are ignored private sector consumption will decrease in accordance with the reduction in permanent disposable income to the extent that government spending is on consumption type goods that are perceived as substitutes for privately provided consumption goods there will be a relatively greater reduction in private sector consumption to the extent that government spending is on investment type goods yielding future goods and services that are perceived as substitutes for future privately provided consumption goods there will be a relatively smaller reduction in private sector consumption the standard approach to modeling private sector consumption saving behavior involves a rather asymmetric set of assumptions as to how the private sector perceives the various elements of government fiscal policy 3 current period taxes are assumed to be fully perceived but current period government spending is implicitly assumed to be completely ignored by the private sector in considering permanent personal disposable income the private sector is assumed to be forward looking in its assessment of income and taxation the stock of government debt is nevertheless included as part of the stock of private wealth the implicit assumption associate professor of economics graduate school of business university of chicago 1101 east 58th street chicago il 60637 i thank eugene fama levis kochin michael mussa paul evans and an anonymous referee for helpful comments i am particularly grateful to daniel benjamin for contributing many hours of discussion and laura lahaye who was a research assistant and valuable adviser on earlier drafts the theoretical debate on the burden of the debt has been long standing gerald o driscoll 1977 documents ricardo s nineteenth century position robert barro 1974 reopened the debate by introducing the fundamental issue of intergenerational transfers also discussed in merton miller and charles upton 1974 the empirical side of the debate was initiated by levis kochin s 1974 attempt to test for the effects of deficits on consumption and by martin feldstein s 1974 attempt to test for the effects of social security wealth on consumption other empirical contributions include jess yawitz and laurence meyer 1976 myself 1978 and j earnest tanner 1978 1979 with respect to the effects of government deficits and debt and barro 1978 michael darby 1979 and dean leimer and selig lesnoy 1982 with respect to social security wealth see also interesting recent papers by john seater 1982 who generates detailed tests of the effects of deficits and debt on consumption charles plosser 1982 who explores the effects of government spending and debt shocks on interest rates and feldstein 1982 who attempts tests similar to some in this paper see fn 29 2martin bailey s 1962 1971 development of the effects of government spending on private consumption and aggregate economic activity is the seminal contribution paul david and john scadding 1974 extend bailey s ideas and provide some supporting empirical evidence more recently willem buiter 1977 and myself 1978 developed models based on bailey s earlier work barro 1981 has an interesting paper on related issues see also david aschauer 1982 3the standard approach incorporates fiscal policy through the concept of personal disposable income and by including the stock of government debt as part of personal wealth see for example the empirical specification of albert ando and franco modigliani 1963 which has been the basis of most empirical consumption studies since and feldstein 1974 for one of the more influential papers based on the ando modigliani specification

government financing decisions and asset returns abstract this paper presents an empirical investigation of the relation between government financing decisions and asset returns in particular the focus is on whether a substitution of debt financing for tax financing of a given level of expenditures is associated with an increase in interest rates the paper brings a different perspective to empirical investigations of government fiscal policies by examining the response of asset prices in an efficient capital market to such policies rather than focusing on aggregate consumption behavior the results are consistent with the idea that asset prices are unrelated to how the government finances its expenditures the results however also indicate that the capital market is not indifferent with respect to the level of government expenditures as higher interest rates are associated with increases in government purchases

is a military really a luxury good an international panel study of ldcs this paper introduces country specific fixed effects into a theoretical and empirical model of military expenditure contrary to the existing literature the model indicates that the share of military expenditure decreases with a country s income

government borrowing and tax adjusted real and nominal interest rates the purpose of this paper is to test for the effect of federal government budget deficits on one year tax adjusted nominal and real interest rates in an is lm as model the results suggest that the specification of the dependent variable is a crucial issue in the debate over the linkage between deficits and interest rates the evidence shows a positive and significant effect of various measures of the federal government deficit and debt on the real tax adjusted treasury bill rate in both the levels and the first differenced equations but not on the nominal tax adjusted rate the positive and significant deficit debt coefficients are also confirmed when the first differenced equation is estimated by instrumental variables and when the equation is estimated over various time periods thus there is robust evidence of a positive linkage between federal government borrowing and the tax adjusted real but not nominal interest rates

measuring risk in environmental finance abstract environmental sustainability indices such as the dow jones sustainability indexes and the ethibel sustainability index quantify the development and promotion of sustainable social ethical and environmental values in the community moreover such indices provide a benchmark for managing sustainability portfolios and developing financial products and services that are linked to sustainable economic environmental social and ethical criteria this paper reviews the existing data and risk indices in environmental finance the main purpose of the paper is to analyse existing sustainability and ethical indices in environmental finance and evaluate empirical environmental risk by estimating conditional volatility clustering that is inherent in these indices financial volatility models are estimated to analyse the underlying conditional volatility or time varying risk that is inherent in alternative environmental sustainability indices volatility clustering is observed for most series but some extreme observations are also evident the log and second moment conditions suggest that valid inferences can be drawn for purposes of sensible empirical analysis

new evidence on deficits and interest rates it is generally assumed on theoretical grounds that increases in government borrowing cause interest rates to rise 1 but empirical support for this proposition has been weak at best several recent papers have uncovered no strong relationship between deficits and short terrn interest rates however the research reported here indicates that although the relationship between deficits and short terrn interest rates may be tenuous there is strong evidence that larger deficits are associated with higher long terrn interest rates much of the debate about whether there is a strong relationship between federal borrowing and interest rates concerns the crowding out question this controversy centers on the direct and indirect eilffects of government fiscal actions on private spending these effects have been well documented in the theoretical literature e g buiter 1977 carlson and spencer 1975 blinder and solow 1973 many of the crowding out effects studied in this literature depend on the connection between government borrowing and high interest rates friedman 1978 meyer 1975 silber 1970 this is called short run indirect crowding out and may occur when increases in government spending and borrowing cause interest rates to rise which then may cause private spending to be reduced buiter 1977 pp 310 13

long run implications of investment specific technological change an attempt is made to disentangle its effects from the more traditional hicksneutral form of technological progress the balanced growth path for the model is characterized and calibrated to u s national income and product account nipa data the quantitative analysis suggests that investment specific technological change accounts for the major part of growth jel e13 030 041 047

secular stagnation the long view four explanations for secular stagnation are distinguished a rise in global saving slow population growth that makes investment less attractive averse trends in technology and productivity growth and a decline in the relative price of investment goods a long view from economic history is most supportive of the last of these four views

the financial system and the natural real interest rate towards a new benchmark theory model the 2008 financial crisis revealed serious flaws in the models that macroeconomists use to research inform policy and teach graduate students in this paper we seek to find simple additions to the existing benchmark model that might let us answer three questions what caused the boom and crisis why has the recovery been slow and how should policy respond to that slow recovery we argue that it is necessary to add financial frictions to the benchmark model this allows us to study the effects of leveraged financial institutions and of a yield curve based on preferred habitats such features will cause endogenous changes in the natural real interest rate and the spread between that interest rate and the rate which influences expenditure decisions they are likely to radically change the way in which the model responds to shocks we point to some promising models that incorporate these features

the dynamic effects of neutral and investment specific technology shocks the neoclassical growth model is used to identify the short run effects of neutral technology shocks which affect the production of all goods homogeneously and investment specific shocks which affect only investment goods the real equipment price crucial for identifying the investment shocks experiences an abrupt increase in its average rate of decline in 1982 so the analysis is based on a split sample on the basis of the preferred specification the two technology shocks account for 73 percent of hours and 44 percent of output s business cycle variation before 1982 and 38 percent and 80 percent afterward the shocks also account for more than 40 percent of hours and 58 percent of output s forecast errors over a three to eight year horizon in both samples the majority of these effects are driven by the investment shocks