the macroeconomic effects of government debt in a stochastic growth model abstract this paper studies how government liabilities affect macroeconomic aggregates in a standard general equilibrium growth model there are two principal results i though it is often thought that fiscal deficits crowd out investment this paper shows that deficit financed cuts in distortionary income taxation may stimulate investment even if agents expect future taxes on capital income to be higher this result is dependent on the values of two key parameters the elasticity of labor supply and the degree of persistence in the government debt process ii the economy s response to an increase in government expenditure depends on how it is financed distortionary tax finance may lead to a decline in output consumption and investment in contrast deficit finance may increase output and consumption

disentangling demand and supply shocks in the crude oil market how to check sign restrictions in structural vars given the growing dissatisfaction with exclusion and long run restrictions in structural vector autoregressive analysis sign restrictions are becoming increasingly popular so far there are no techniques for validating the shocks identied via such restrictions although in an ideal setting the sign restrictions specify shocks of interest sign restrictions may be invali dated by measurement errors data adjustments or omitted variables we model changes in the volatility of the shocks via a markov switching ms mechanism and use this devise to give the data a chance to object to sign restrictions the approach is illustrated by considering a small model for the market of crude oil

differences between continuous and discrete contingent value estimates in a split sample contingent valuation study of willingness to pay wtp for food safety improvements the dichotomous choice dc elicitation method consistently generated much larger estimates of wtp than did a continuous method little or none of these differences was due to bias introduced by the statistical techniques used with the dc data most or all of the difference was due to differences in respondent behavior in addition the continuous wtp responses showed a significant scope effect while the dc responses did not the observed difference in behavior may be attributable in part to yea saying by dc respondents

altruism and the demand for environmental quality this paper asks whether individuals consider the value that future generations will receive from environmental quality when deciding what level of environmental protection to provide using data on life expectancy i develop two tests for altruism towards future generations one a test for strong altruism asks whether individual motives are purely altruistic when deciding to provide environmental quality the second a test for weak altruism combines an individual s concern for both self interest and the interest of future generations using data from a washington post survey on environmental attitudes to implement the test i find evidence of weak altruism

the european central bank and the federal reserve in the 4 years of its existence the european central bank ecb has made significant contributions to the macroeconomic stability of the euro area this paper takes a critical look at the ecb and compares its institutional structure policy framework and operational procedures with those of the longer established us central bank we discuss the implications of various differences between the ecb and the federal reserve with a view toward identifying successful elements of the practices of both these institutions the paper recommends that the ecb abandon the first pillar of its monetary policy strategy that affords a special role to monetary aggregates in the evaluation of financial market conditions it also suggests that the federal reserve should follow the ecb s lead and provide an explicit definition of price stability copyright 2003 oxford university press

incentive incompatibility and starting point bias in iterative valuation questions we test for incentive incompatibility and starting point bias to describe the effects of iterative valuation questions on willingness to pay we compare double triple and multiplebounded models with data from two surveys with similar designs of the valuation questions we find that incentive incompatibility is present in both sets of data and starting point bias is present in one the efficiency of the willingness to pay estimate is improved in only one set of data the potential loss from using iterative questions without controlling for both incentive incompatibility and starting point bias is biased willingness topay estimates

fiscal expansions unemployment and labor force participation theory and evidence structural vars indicate that for many oecd countries labor force participation employment and the unemployment rate significantly increase following increases in government expenditures under a variety of specifications and identification schemes fiscal expansions also tend to increase real wages existing models have difficulties in generating such responses we show that the empirical regularities can be reproduced with two additions into a standard new keynesian model with matching frictions a a labor force participation choice and b workers heterogeneity

housing finance and monetary policy we document three facts concerning how the structure of housing finance affects the monetary transmission mechanism first the characteristics of residential mortgage markets differ markedly across industrialized countries second the impact of monetary policy shocks to residential investment and house prices is significantly stronger in those countries with larger flexibility development of mortgage markets third the transmission to consumption is stronger only in those countries where mortgage equity release is common and mortgage contracts are predominantly of the variable rate type we then build a two sector dsge model with financial constraints to rationalize those facts

sensitivity of willingness to pay estimates to bid design in dichotomous choice contingent valuation models this paper addresses the sensitivity of dichotomous choice contingent valuation method dc cvm based mean willingness to pay wtp estimates to the dc cvm sample design and to alternative measures of wtp this issue is examined both analytically and empirically the analysis of ten different dc cvm data sets revealed a sensitivity in estimated mean wtp to the sample design and to the measure chosen to calculate mean wtp

a comparison of willingness to pay estimation techniques from referendum questions referendum style willingness to pay questions have been used to estimatepassive use values this referendum question format method may beproblematic for many reasons including the statistical techniques used toestimate willingness to pay from discrete responses this paper comparesa number of parametric semi nonparametric and nonparametric estimationtechniques using data collected from us households regarding federalprotection of endangered fish species the advantages and disadvantagesof the various statistical models used are explored a hypothesis test forstatistical equality among estimation techniques is performed using ajackknife bootstrapping method when the equality test is applied themodeling techniques do show significant differences in some possiblecomparisons but only those that are nonparamentric this can lead toconflicting interpretations of what the data show resource managers andpolicy analysts need to use caution when interpreting results until anindustry standard can be developed for estimating willingness to pay fromclosed ended questions

the unbearable tightness of being in a monetary union fiscal restrictions and regional stability we study how constrained fiscal policy can affect macroeconomic stability and welfare in a two region model of a monetary union with sticky prices and distortionary taxation both government spending and taxes can be used to stabilize regional variables however the best welfare outcome is obtained under some tax variability and constant regional inflations we use a variety of rules to characterize constrained fiscal policy and find that strict fiscal rules coupled with a monetary policy that targets union wide inflation result in regional inflation stability and the welfare costs of such rules are not as unbearable as one would expect fiscal authorities can enhance welfare by targeting the regional output gap while targeting regional inflation is less successful since inflation stability is guaranteed by the central bank

valuation of natural resource improvements in the adirondacks for 20 years acid rain in the adirondack park has been a central issue in the debate about clean air regulation based on a contingent valuation survey of new york residents our study quantifies the total economic value of expected ecological improvements in the park from forthcoming policies our preferred estimates of the mean household willingness to pay range from 48 to 107 annually which imply total statewide benefits ranging from 336 million to 749 million annually alternative assumptions about ecological changes yield benefits up to 1 1 billion the instrument passes external scope sensitivity to bid and sample selection tests

price index convergence among united states cities we study the dynamics of price indices for major u s cities using panel econometric methods and find that relative price levels among cities mean revert at an exceptionally slow rate in a panel of 19 cities from 1918 to 1995 we estimate the half life of convergence to be approximately nine years the surprisingly slow rate of convergence can be explained by a combination of the presence of transportation costs differential speeds of adjustment to small and large shocks and the inclusion of nontraded goods prices in the overall price index do price indices in major u s cities share a common trend and if so how quickly do they revert to that trend following a local shock to the price index to answer this question we study the dynamics of consumer price indices for 19 major u s cities over the period from 1918 to 1995 the panel time series methods we employ are now commonly used for studying real output growth rates and levels of real exchange rates across countries we estimate that price index divergences across u s cities are temporary but surprisingly persistent with a half life of nearly nine years our research has two primary motivations first we hope to gain a better understanding of the sources of persistence in the deviations from purchasing power parity ppp found in studies of national price indices and exchange rate data second and more importantly we see the european monetary union as having many similarities to the united states and believe that studying the behavior of prices across u s cities will help us in understanding the likely nature of inflation convergence in the euro area the european central bank s stated inflation objective is a year on year change in the harmonized index of consumer prices hicp of not more than 2 but how large might we expect regional deviations from this euro area wide average to be and how long are they likely to persist the lack of data prevents us from answering this question directly using european prices under monetary union instead we look to the united states a mature common currency area of similar regional diversity size and industrial development

behavior in group contests a review of experimental research group contests are ubiquitous some examples include warfare between countries competition between political parties team incentives within firms group sports and rent seeking in order to succeed members of the same group have incentives to cooperate with each other by expending individual efforts however since effort is costly each member also has an incentive to abstain from expending any effort and instead free ride on the efforts of other members contest theory shows that the intensity of competition between groups and the amount of free riding within groups depend on the group size sharing rule group impact function contest success function and heterogeneity of players we review experimental studies testing these theoretical predictions almost all studies of behavior in group contests find significant over expenditure of effort relative to the theory we discuss potential explanations for such over expenditure including the utility of winning bounded rationality relative payoff maximization parochial altruism and social identity despite over expenditure most studies find support for the comparative statics predictions of the theory with the exception of the group size paradox finally studies show that there are effective mechanisms that can promote within group cooperation and conflict resolution mechanisms that can de escalate and potentially eliminate between group conflict

yea saying in contingent valuation surveys a number of recent papers have provided estimates of willingness to pay derived in contingent valuation surveys exceeding those revealed in experimental or real life markets one possible explanation for the overestimation of values is the presence of yea saying with the objective of reducing the occurrence of yea saying a new elicitation format referred to as the dissonance minimizing d m format is proposed an empirical comparison of the dm format with the conventional dichotomous choice dc format and the ambivalence reducing polychotomous choice pc format suggested by ready whitehead and blomquist 1995 is made results are encouraging for the dm

from great depression to great credit crisis similarities differences and lessons the great depression of the 1930s and the great credit crisis of the 2000s had similar causes but elicited strikingly different policy responses while it remains too early to assess the effectiveness of current policy it is possible to analyse monetary and fiscal responses in the 1930s as a natural experiment or counterfactual capable of shedding light on the impact of current policies we employ vector autoregressions instrumental variables and qualitative evidence for 27 countries in the period 1925 39 the results suggest that monetary and fiscal stimulus was effective that where it did not make a difference it was not tried they shed light on the debate over fiscal multipliers in episodes of financial crisis they are consistent with multipliers at the higher end of those estimated in the recent literature and with the argument that the impact of fiscal stimulus will be greater when banking systems are dysfunctional and monetary policy is constrained by the zero bound miguel almunia agustin benetrix barry eichengreen kevin h o rourke and gisela rua

fiscal policy in good and bad times in this paper we analyze whether the effect of fiscal policy differs across the business cycle to tackle this question we use a regime switching error correction framework where nonlinearities are only modeled in the short run and have no impact on the long run equilibrium regime specific shocks to government revenue and government purchases are identified using sign restrictions linear combinations of the impulse responses of these basic shocks are used to construct a deficit spending shock and a deficit financed tax cut shock we find that active spending policies have a stronger impact in recession with multipliers exceeding unity and should be preferred to deficit financed tax cuts

three reasons to use annual payments in contingent valuation surveys convergent validity discount rates and mental accounting abstract we present three arguments for using ongoing annual payments in contingent valuation cv surveys that estimate the benefit of a long lasting environmental improvement first by matching the duration of the payments with the duration of the environmental benefits survey respondents are spared from performing complicated present value calculations second willingness to pay wtp estimates from cv surveys that include ongoing annual payments best match wtp estimates obtained using travel cost surveys third respondents are less likely to face binding mental budget constraints with ongoing annual payments than with a larger one time payment in addition respondents discount rates may be estimated by collecting non hypothetical individual time preference data as part of the valuation survey

what does a financial shock do first international evidence in this paper we attempt to evaluate the quantitative impact of financial shocks on key indicators of real activity and financial conditions we focus on financial shocks as they have received wide attention in the recent literature and in the policy debate after the global financial crisis we estimate a panel var for 21 advanced economies based on quarterly data between 1985 and 2011 where financial shocks are identified through sign restrictions we find robust evidence that financial shocks can be separately identified from other shock types and that they exert a significant influence on key macroeconomic variables such as gdp and particularly investment but it is unclear whether these shocks are demand or supply shocks from the standpoint of their macroeconomic impact the financial development and structure of a given country is found not to matter much for the intensity of the propagation of financial shocks moreover we generally find that these shocks play a role not only in crisis times but also in normal conditions finally we discuss the implications of our findings for monetary policy fabio fornari and livio stracca

price level co movements within currency unions an alternative integration metric this paper analyses currency union integration by testing whether price levels in member countries possess a common stochastic trend the trace statistic test for cointegration proposed by johansen 1995 demonstrates the presence of such a trend for most unions a disaggregated analysis identifies a common stochastic trend for several though fewer than half of country pairs within a union some unions such as the eurozone have small shares of cointegrated country pairs yet the share of cointegrated country pairs is large relative to countries outside currency unions comparison to a control group country pairs where one country belongs to a given union and the other country does not indicates that the cointegration found within a currency union is a union specific trait and not a feature of the individual countries within the union these results provide an alternative metric to intraunion trade for gauging the extent of currency union integration

the analytics of svars a unified framework to measure fiscal multipliers ticities implied by the identification schemes generate a large dispersion in the estimates of tax and spending multipliers second i estimate fiscal multipliers consistent with prior distributions of the elasticities computed by a variety of empirical strategies and by employing a simple dynamic stochastic general equilibrium model i document three findings for the u s for the period 1947 2010 first the impact tax multiplier is close to 0 second the impact spending multiplier ranges between 0 35 and 1 third there is a large uncertainty in the estimates of fiscal multipliers at longer horizons yet the probability that the spending multiplier is larger than the tax multiplier is above 0 65 for up to three years after policy interventions

price differentials in monetary unions the role of fiscal shocks we study the effect of regional expenditure and revenue shocks on price differentials for 47 us states and 9 eu countries we identify shocks using sign restrictions on the dynamics of expenditures revenues deficits and output and construct two estimates for structural price differentials dynamics one for the average and one for each unit which optimally weight information contained in the data for all units on average expansionary fiscal disturbances produce positive while distortionary balance budget shocks produce negative price differential responses the negative price differentials responses in some units is partially explained by spillovers and labour supply effects

does question format matter valuing an endangered species a three way treatment design is used to compare contingent valuation response formats respondents are asked to value an endangered species the red cockaded woodpecker and the restor ation of its habitat following a natural disaster for three question formats open ended payment card and double bounded dichotomous choice differences in survey response rates item non response rates and protest bids are examined bootstrap techniques are used to compare means across formats and to explore differences in willingness to pay wtp distribution functions convergent validity is found in a comparison of mean wtp values although some differences are apparent in the cumulat ive distribution functions differences across formats are also identified in item non response rates and proportion of protest bids overall the payment card format exhibits desirable properties relative to the other two formats

fat tails and truncated bids in contingent valuation an application to an endangered shorebird species a yes response function in a contingent valuation study is said to have fat tails if it has a high and slowly declining yes response rate at high bid levels truncated bids refer to the practice of dropping high bid offers before a yes response rate of near zero is reached this is a common practice in contingent valuation we explore the extent and implications of fat tails and truncated bids in a study of an endangered shorebird species we find among other things that mean willingness to pay is quite sensitive to the highest bid offered so much so that the choice of highest bid nearly dictates outcomes

an experimental testing of anchoring effects in discrete choice questions this paper re examines the openended dichotomous choice question in the lab it hasearlier been suggested that the dichotomous choiceformat suffers from anchoring and yea saying comparing actual economic commitments for a privategood with a significant market value we cannot rejectthe null hypothesis of equal wtp for the two formats we conclude that problems with dc might be due toissues of how the survey is framed not the dcquestion itself

fiscal stimulus with learning by doing using a bayesian svar analysis we document that an increase in government purchases raises private consumption the real wage and total factor productivity tfp while reducing inflation each of these facts is hard to reconcile with both neoclassical and new keynesian models we extend a standard new keynesian model to allow for skill accumulation through past work experience following chang gomes and schorfheide 2002 an increase in government spending increases hours and induces skill accumulation and higher measured tfp and real wages in subsequent periods future marginal costs fall lowering future expected inflation and through the monetary policy rule the real interest rate consumption increases as a result

the macroeconomic effects of distortionary taxation abstract prescott 1986 estimates that technology shocks account for 75 of the fluctuations in the postwar u s economy this paper reestimates the contribution of technological change for a standard business cycle model that includes a public sector and fiscal disturbances i find that a significant fraction of the variance of aggregate consumption investment output capital stock and hours of work can be explained by disturbances in labor and capital tax rates and government consumption i also use the model to quantify the welfare costs of capital and labor taxation for both the time series and welfare calculations maximum likelihood estimates of taste technology and policy parameters are used

the effects of fiscal shocks on employment and the real wage we study the transmission of fiscal shocks in the labor market we employ a structural var and base identification on the restrictions that shocks to government consumption investment and employment must raise output and deficits these restrictions hold in both prototype real business cycle rbc and new keynesian models shocks to government consumption and investment increase real wages and employment contemporaneously both at state level and in the aggregate the dynamics in response to employment shocks are mixed increases in government employment raise the real wage and total employment in the aggregate however in one third of the states they reduce total employment

searching for non linear effects of fiscal policy evidence from industrial and developing countries several recent studies suggest that the response of national saving to scal policy may be non linear in this paper we use two data sets to search for the circumstances in which such non linear response may arise a sample of oecd countries already used in previous studies and a sample of developing countries using more recent world bank data we nd that in both samples non linear e ects tend to be associated with large and persistent scal impulses in the oecd sample the non linearity of the response is stronger for scal contractions than for expansions an increase in net taxes has no e ect on national saving during large scal contractions while it has a positive e ect in less pronounced contractions high or rapidly growing public debt does not appear to be a good predictor of non linear e ects in the world bank sample of developing countries non linearities in the response national saving to scal policy are not limited to large scal contractions and also tend to occur in periods in which debt is accumulating rapidly regardless of its initial level 2000 elsevier science b v all rights reserved jel classixcation e21 e62 h31

strategic interactions of fiscal policies in europe a global var perspective abstract the paper analyses the strategic interactions of fiscal policies in the european union context by modelling the interdependencies arising between public and private sectors saving investment balances in a global vector autoregressive framework we use two empirical specifications to reflect some important differences in the sequencing of the policy decision making process in this setting we draw policy implications with respect to fiscal policy coordination and fiscal policy discretion we highlight the importance of several factors such as global capital flows uncertainty with respect to policy actions and nature of the shocks as key elements defining the dimension of the prevailing policy tradeoffs

what are the effects of fiscal policy shocks we propose and apply a new approach for analyzing the effects of fiscal policy using vector autoregressions specifically we use sign restrictions to identify a government revenue shock as well as a government spending shock while controlling for a generic business cycle shock and a monetary policy shock we explicitly allow for the possibility of announcement effects i e that a current fiscal policy shock changes fiscal policy variables in the future but not at present we construct the impulse responses to three linear combinations of these fiscal shocks corresponding to the three scenarios of deficit spending deficit financed tax cuts and a balanced budget spending expansion we apply the method to us quarterly data from 1955 to 2000 we find that deficit financed tax cuts work best among these three scenarios to improve gdp with a maximal present value multiplier of five dollars of total additional gdp per each dollar of the total cut in government revenue 5 years after the shock copyright 2009 john wiley sons ltd

man cessions fiscal policy and the gender composition of employment recessions are man cessions as men are disproportionately exposed to cyclical employment fluctuations we provide evidence that fiscal expansions stimulate predominantly female employment implying a further destabilization of the gender composition of employment in recessions our findings can be understood as a consequence of differences in the industry occupation mix of employment by gender

monetary accommodation imperfect central bank transparency and optimal delegation optimal delegation restores the beneficial effects of non accommodating monetary policy when the central bank is allowed to be not fully transparent about its response to wages

fiscal policy in general equilibrium this paper studies four classic fiscal policy experiments within a quantitatively restricted neoclassical model the authors main findings are as follows 1 permanent changes in government purchases can lead to short run and long run output multipliers that exceed one 2 permanent changes in government purchases induce larger effects than temporary changes 3 the financing decision is quantitatively more important than the resource cost of changes in government purchases and 4 public investment has dramatic effects on private output and investment these findings stem from important dynamic interactions of capital and labor absent in earlier equilibrium analyses of fiscal policy copyright 1993 by american economic association

fiscal stimulus with spending reversals abstract the short run effects of fiscal policy depend not only on current tax and spending choices but also on expectations about future policy adjustment while general equilibrium models typically restrict medium term adjustment to taxation we highlight the importance of government spending dynamics first we provide time series evidence for the united states suggesting that an exogenous increase in government spending prompts a rise in public debt followed over time by a reduction in spending below trend second we show how expected spending reversals alter the short run impact of fiscal policy in a new keynesian model bringing it closer in line with the evidence

willingness to pay for environmental improvements in a large city evidence from the spike model and from a non parametric approach in this paper the contingent valuation method cvm is applied in order toestimate the social benefits of a set of environmental and urbanimprovements planned for the waterfront of the city of valencia spain asa consequence of the expansion and restructuring of its trading port asthe data show a high rate of zero responses we applied the spike model one of the most recent models in cvm literature since traditional models logit and probit are not suitable given the characteristics of our data the non parametric approach is also applied in order to test the validity ofthe spike model the results show certain similarities between the spikemodel and the non parametric approach

estimating benefits for effective enforcement of speed reduction from dichotomous choice cv we present an empirical estimation of the distribution of wtp foreffective speed restriction via implementation of local trafficcalming schemes random samples are drawn from the populations ofhouseholds henceforth hhs of three centres intersected by maintrunk roads with varying through traffic conditions we estimatethe underlying wtp distributions from discrete choice responsesto site specific referendum contingent valuation studiesaccounting for zero bidders we then test the hypothesis ofdifferent distributions across villages the statistical analysisconsists first of a parametric specification and then of atotally non parametric one stated welfare changes for effectivespeed reduction are found to be sizeable and the parameters ofthe random utility models are plausibly related to differences inobjective speed measures across centres the results appear toencourage the use of the referencum cv method in the estimationof local public goods in this case study the proposed publicproject would seem to pass the kaldor hicks potentialcompensation test

referendum models and economic values theoretical intuitive and practical bounds on willingness to pay innovations in the estimation of referendum type contingent valuation models have led to willingness to pay wtp measures inconsistent with consumer preferences and unbounded from above or below we propose a set of criteria which guarantee a bounded measure of wtp the criteria reject the traditional random utility model with unrestricted error terms in favor of the random wtp model with bounds on wtp once wtp is bounded by zero and income the form of the distribution is less consequential a new model for wtp is developed based on the beta distribution and is compared to previously estimated models

the macroeconomic effects of war finance in the united states world war ii and the korean war during world war ii government expenditures were financed primarily by issuing debt during the korean war expenditures were financed almost exclusively by higher taxes reflecting president truman s preference for balanced budgets this paper evaluates quantitatively the economic effects of the different policies used to finance these two wars counterfactual experiments are used to explore the implications of financing world war ii like the korean war and financing the korean war like world war ii the author finds that using a korean war policy during world war ii would have resulted in much lower output and welfare relative to the actual policy copyright 1997 by american economic association

statistical approaches to the fat tail problem for dichotomous choice contingent valuation if a cumulative density function esti mated from dichotomous choice data has an unre alistically fat right hand tail mean willingness to pay wtp will be overestimated truncating the range of integration results in a lower bound esti mate of the true mean wtp a normalization pro cedure proposed by boyle welsh and bishop 1988 unnecessarily depresses the estimate further a new statistical approach is presented that allows a best guess estimate of mean wtp because this estimate involves extrapolation beyond the range of the data it tends to be highly variable jel q21