the inexorable and mysterious tradeoff between inflation and unemployment this paper discusses the short run tradeoff between inflation and unemployment although this tradeoff remains a necessary building block of business cycle theory economists have yet to provide a completely satisfactory explanation for it according to the consensus view among central bankers and monetary economists a contractionary monetary shock raises unemployment at least temporarily and leads to a delayed and gradual fall in inflation standard dynamic models of price adjustment however cannot explain this pattern of responses reconciling the consensus view about the effects of monetary policy with models of price adjustment remains an outstanding puzzle for business cycle theorists several years ago i gave myself a peculiar assignment i decided to try to summarise all of economics in ten simply stated principles the purpose of this task was to introduce students to the economic way of thinking in the first chapter of my textbook principles of economics i figured if god could boil all of moral philosophy down to ten commandments i should be able to do much the same with economic science most of the ten principles i chose were microeconomic and hard to argue with they involved the importance of tradeoffs marginal analysis the benefits of trade market efficiency market failure and so on i allocated the last three principles to macroeconomics the first of these was a country s standard of living depends on its ability to produce goods and services which i viewed as the foundation of all growth theory the second was prices rise when the government prints too much money which i took to be the essence of classical monetary theory the last of my ten principles is the subject of today s lecture society faces a short run tradeoff between inflation and unemployment perhaps not surprisingly this statement turned out to be controversial when my publisher sent out the manuscript for review a few readers objected

regulating consumer financial products evidence from credit cards we analyze the effectiveness of consumer financial regulation by considering the 2009 credit card accountability responsibility and disclosure card act we use a panel data set covering 160 million credit card accounts and a difference in differences research design that compares changes in outcomes over time for consumer credit cards which were subject to the regulations to changes for small business credit cards which the law did not cover we estimate that regulatory limits on credit card fees reduced overall borrowing costs by an annualized 1 6 of average daily balances with a decline of more than 5 3 for consumers with fico scores below 660 we find no evidence of an offsetting increase in interest charges or a reduction in the volume of credit taken together we estimate that the card act saved consumers 11 9 billion a year we also analyze a nudge that disclosed the interest savings from paying off balances in 36 months rather than making minimum payments we detect a small increase in the share of accounts making the 36 month payment value but no evidence of a change in overall payments jel codes d0 d14 g0 g02 g21 g28 l0 l13 l15

valuing managerial flexibility an application of real option theory to mining investments abstract the value of managerial flexibility is assessed using data on prices costs grades reserves ore extraction and metal output for a panel of canadian copper mines a real option model is estimated and solved for project and option values most empirical researchers i consider the initial investment decision but neglect flexible operation thereafter ii assume that price is stochastic but ignore cost and reserve uncertainty and iii model price as a nonstationary stochastic process the evolution of three state variables price cost and reserves is assessed here differences in assumptions compared to others are found to lead to large differences in estimated project and option values

does real u k gdp have a unit root evidence from a multi century perspective we employ linear and nonlinear unit root tests to examine the stationarity of five multi century historical u k series of real output compiled by the bank of england three series span 1270 to 201

the welfare impact of medicare hmos we estimate the welfare associated with the medicare hmo program now known as medicare choice m c we find that the creation of the m c program resulted in approximately 15 6 billion in consumer surplus and 52 billion in profits from 1993 to 2000 in 2000 dollars this program most likely generated significant net social welfare however we find that consumer surplus is geographically unevenly distributed prescription drug coverage accounts for approximately 45 of the estimated consumer surplus for 2000 consumer surplus increases in the number of plans in a county and most of the increase in welfare is due to increased premium competition

the supermajority core of the us senate and the failure to join the league of nations the failure of the united states to join the league of nations is often considered to be an outcome of isolationist influence the supermajority requirement of treaty ratification in the us senate also is blamed for allowing a minority of isolationists to block the will of the majority that supported the treaty to determine the cause of the failure i analyze the senate debate over the treaty using the concepts of the supermajority core and supermajority winset using all 157 votes on the treaty i estimate senatorial positions and the locations of both the status quo and the treaty on the same metric space from this analysis i find that isolationists were not influential enough to block the ratification instead president wilson s unwillingness to compromise is found to have played a critical role in the treaty s defeat the treaty s defeat thus was not an indication of the power of isolationism this study contributes to the growing body of literature that debunks claims about the dominance of isolationism in the interwar period at the same time the paper demonstrates how the core and winset concepts can be useful in answering substantive collective choice questions

how do hospitals respond to price changes this paper examines hospital responses to changes in diagnosis specific prices by exploiting a 1988 policy reform that generated large price changes for 43 percent of medicare admissions i find hospitals responded primarily by upcoding patients to diagnosis codes with the largest price increases this response was particularly strong among for profit hospitals i find little evidence hospitals increased the volume of admissions differentially for diagnoses subject to the largest price increases despite the financial incentive to do so neither did they increase intensity or quality of care in these diagnoses suggesting hospitals do not compete for patients at the diagnosis level

the nonstationarity of aggregate output some additional international evidence in this paper the stationarity of aggregate output is examined using the scaled variogram for a sample of twelve countries it is argued that if the true data generating process of output is stationary around a deterministic trend with a change in mean and or growth rate the results of previous studies are biased once the authors allow for a one time exogenous shock the conclusions are indeed less clear cut and for some countries even reversed copyright 1994 by ohio state university press

covering dominance and institution free properties of social change this paper shows that different institutional structures for aggregation of preferences under majority rule may generate social choices that are quite similar so that the actual social choice may be rather insensitive to the choice of institutional rules specifically in a multidimensional setting where all voters have strictly quasi concave preferences it is shown that the uncovered set contains the outcomes that would arise from equilibrium behavior under three different institutional settings the three institutional settings are two candidate competition in a large electorate cooperative behavior in small committees and sophisticated voting behavior in a legislative environment where the agenda is determined endogenously because of its apparent institution free properties the uncovered set may provide a useful generalization of the core when a core does not exist a general existence theorem for the uncovered set is proven and for the downsian case bounds for the uncovered set are computed these bounds show that the uncovered set is centered around a generalized median set whose size is a measure of the degree of symmetry of the voter ideal points

the term structure of interest rates over the business cycle abstract whether real gnp is assumed to be trend stationary or difference stationary which implies that shocks have transitory or permanent effects is critically important in explaining the behavior of the forward risk premium the term risk premium and changes in the yield curve over the business cycle while this is the main result there are two additional results of interest first although movements in the nominal yield spread are useful in predicting future economic activity these movements are not enough to separate real from nominal shocks the source of the shock can be determined if movements in the spread and shifts in the nominal yield curve are used jointly second the yield differential which is defined as the difference between the yields on inflation indexed bonds and nominal bonds is generally a biased predictor of expected inflation and may signal the wrong information about changes in expected inflation

the big problem of forecasting small change the united states mint recently reviewed approaches to forecasting the demand for new coin this paper reports on methods used to determine fundamental attributes of the data and uses these to help better determine appropriate model specification in order to better plan coin production in particular the debate regarding trend versus difference stationarity in macroeconomic trending data is considered the interest in the present paper is limited to applying a well known unit root test procedure to an untested macrodata set changes in us coin demand to see whether the test is useful in guiding the specification to improved forecast performance it is found that the forecast results are somewhat sensitive to the way in which the data are seasonally adjusted and lessons learned from this case study indicate that unit root tests are useful in guiding model specification

a measure of the u s output gap abstract an autoregressive distributed lag regression of the unemployment rate on output growth is structurally stable over the 1890 1986 period inverting this equation yields a measure of the output gap which is not subject to the spurious detrending problem

measuring persistence in the presence of trend breaks the case of us gnp abstract measures of output persistence vary between the studies of campbell and mankiw 1987 and cochrane 1988 mainly because of the use of per capita versus real gnp data and annual versus quarterly observations i show that the existence of trend breaks in both the gnp and the population series can explain the different findings for per capital and real gnp data

a note on the effect of cost changes on prices in a recent article in this journal sumner 1981 took an ingenious approach to estimating the level of monopoly power in the cigarette industry he noted that differences in marginal costs exist in the industry due to varying levels of state taxes the sales prices established will satisfy the equation p i liq l mr mc where p price and q the elasticity of demand for the product in question if elasticity is a constant observing the change in marginal cost and the change in price enables one to infer the elasticity of demand perceived by the firm elasticity could then be used as a proxy for the firm s market power this technique turns out to be of very limited applicability however because it is extremely sensitive to the functional form assumed for the demand curve consider the general problem of a firm facing constant marginal costs of c in maximizing profits the firm solves

uncovering evidence of conditional party government reassessing majority party influence in congress and state legislatures temporary american legislatures our use of a new analytic technique a grid search program for characterizing the uncovered set enables us to begin with a better model of legislative proceedings that abandons the simple one dimensional spatial models in favor of the more realistic two dimensional version our conclusions are based on the analysis of real world data rather than on arguments about the relative merits of different theoretic assumptions our analysis confirms that when legislators preferences are polarized outcomes will generally be closer to the majority party s wishes even if the majority party leadership does nothing to influence the legislative process this conclusion notwithstanding our analysis also shows that at the margin of the majority party s natural advantage agenda setting by the majority party remains a viable and efficacious strategy in the debate over party organizations in the american congress one side e g aldrich and rohde 1998 2001 argues that the majority party can influence the outcome of legislative proceedings through agenda control or the ability to determine which proposals are considered the other side e g krehbiel 1999 2000 argues that agenda control conveys no power and that the majority party s apparent influence

trends random walks and tests of the permanent income hypothesis abstract recent studies find that consumption is excessively sensitive to income these studies assume that income is stationary around a deterministic trend the data however do not reject the hypothesis that disposable personal income is a random walk with drift if income is indeed a random walk then the standard testing procedure is greatly biased toward finding excess sensitivity moreover if income follows either a more general non stationary process or a borderline stationary process this procedure is also seriously biased

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

international evidence on persistence in output in the presence of an episodic change this paper uses some newly developed methods and techniques to examine the dynamic properties of international output in the presence of a structural break we provide statistical evidence to show that the unit root test results can in some cases be sensitive to whether a one time structural break in the data is modelled exogenously or endogenously however in most cases the unit root test results remain robust to specification of the structural break exogenously or endogenously moreover we find that the null hypothesis of a unit root in output can be rejected in favour of a flexible trend alternative for a number of countries such as canada denmark france and the united states

testing explanations of strategic voting in legislatures a reexamination of the compromise of 1790 a difficult yet prevalent problem in legislative politics is how to assess explanations when observable actions may not represent true and unobserved legislator preferences we present a method for analyzing the validity of theoretical historical accounts that unifies theory history and measurement we argue that approaches to testing accounts of legislative behavior which are theoretically and historically agnostic are not always best and present an approach which 1 forms an explicit explanation of behavior here a simple dynamic voting game that yields estimable parameter constraints and 2 tests these constraints using a customized empirical model that is as consistent as possible with the explanation we demonstrate the method using legislative voting data from the first congress 1789 1791 using the idea of sophisticated equivalents from voting theory we subject the traditional account of the compromise of 1790 to a statistical test and find that there is reason to doubt the claim that legislators of the time believed the specified log roll was taking place the results suggest that the capital location and assumption issues were resolved independently

estimating welfare in insurance markets using variation in prices we provide a graphical illustration of how standard consumer and producer theory can be used to quantify the welfare loss associated with inefficient pricing in insurance markets with selection we then show how this welfare loss can be estimated empirically using identifying variation in the price of insurance such variation together with quantity data allows us to estimate the demand for insurance the same variation together with cost data allows us to estimate how insurers costs vary as market participants endogenously respond to price the slope of this estimated cost curve provides a direct test for both the existence and the nature of selection and the combination of demand and cost curves can be used to estimate welfare we illustrate our approach by applying it to data on employerprovided health insurance from one specific company we detect adverse selection but estimate that the quantitative welfare implications associated with inefficient pricing in our particular application are small in both absolute and relative terms

international evidence on shock persistence structural change nonlinearities and subsample robustness testing for unit roots and the related issue of measuring shock persistence has attracted considerable theoretical and applied econometric interest the issue of the size of the random walk component raised by cochrane journal of political economy 96 893 920 1988 has been extended in the work of other authors leung economics letters 40 435 44 1992 in particular considers the effects of structural breaks on measures of persistence in this paper we consider new results for the effects of structural change nonlinearities and subsample robustness on spectral based measures of persistence illustrating the potential problems via an updated and extended version of the cogley journal of political economy 98 501 18 1990 data set we find that significant structural breaks exist in the majority of the series investigated furthermore measured persistence differs markedly across distinct periods with the assumption of common growth rates over very long periods leading on occasions to potentially

inertial inflation indexation and price stickiness evidence from brazil abstract this paper evaluates the inertial inflation hypothesis for brazil the hypothesis posits that indexation created a feedback mechanism such that one time supply shocks were fully transmitted into permanent changes in inflation a theoretical model is used to show that this outcome is based on the assumption of perfect price flexibility however with price stickiness indexation does not produce inertial inflation the degree of inertia is then compared for two periods one without indexation 1945 1963 and one with indexation 1969 1985 finally vector autoregressive representations are estimated for the latter period allowing for price stickiness the empirical results do not support the hypothesis

the persistence of taiwan s output fluctuations an empirical study using innovation regime switching model in this article we examine the persistence nature of taiwan s aggregate output fluctuations by using the innovation regime switching irs model in which the effect of an innovation may be permanent or transitory depending on an unobservable state variable that follows a first order markov chain by applying the irs model to taiwan s real gdp data we find that during the 1961 to 2000 period 61 39 of the real output shocks are likely to have permanent transitory effects moreover the innovations in the officially identified expansion contraction are more likely to have a permanent transitory effect these results are similar to those found in many studies of us real output fluctuations e g beaudry and koop 1993 kim and nelson 1999 and kuan et al 2005 however we also find that taiwan s output dynamics have changed drastically ever since year 2000 in particular the shocks to real gdp have become more likely to have only transitory effect even during the period of post 2001 iv ex

persistence of shocks on seasonal processes the paper addresses the issue of measuring the persistence of shocks on seasonally integrated processes observed at quarterly intervals we show that the amplitude of the limiting cycle described by the cumulated impulse response function provides a parametric measure of persistence and that cochrane s normalized variance ratio can correspondingly be extended as a non parametric counterpart for illustrative purposes the latter is applied to the italian gdp and to the output of the agricultural sector copyright 1996 by john wiley sons ltd

the core and the stability of group choice in spatial voting games the core of a voting game is the set of undominated outcomes that is those that once in place cannot be overturned for spatial voting games a core is structurally stable if it remains in existence even if there are small perturbations in the location of voter ideal points while for simple majority rule a core will exist in games with more than one dimension only under extremely restrictive symmetry conditions we show that for certain supramajorities a core must exist we also provide conditions under which it is possible to construct a structurally stable core if there are only a few dimensions our results demonstrate the stability properties of such frequently used rules as two thirds and three fourths we further explore the implications of our results for the nature of political stability by looking at outcomes in experimental spatial voting games and at belgian cabinet formation in the late 1970s

do larger health insurance subsidies benefit patients or producers evidence from medicare advantage a central question in the debate over privatized medicare is whether increased government payments to private medicare advantage ma plans generate lower premiums for consumers or higher profits for producers using difference in differences variation brought about by a sharp legislative change we find that ma insurers pass through 45 percent of increased payments in lower premiums and an additional 9 percent in more generous benefits we show that advantageous selection into ma cannot explain this incomplete pass through instead our evidence suggests that market power is important with premium pass through rates of 13 percent in the least competitive markets and 74 percent in the most competitive

the effect of medicaid premiums on enrollment a regression discontinuity approach abstract this paper estimates the effect that premiums in medicaid have on the length of enrollment of program beneficiaries whether and how low income families will participate in the exchanges and in states medicaid programs depends crucially on the structure and amounts of the premiums they will face i take advantage of discontinuities in the structure of wisconsin s medicaid program to identify the effects of premiums on enrollment for low income families i use a 3 year administrative panel of enrollment data to estimate these effects i find an increase in the premium from 0 to 10 dollars per month results in 1 4 fewer months enrolled and reduces the probability of remaining enrolled for a full year by 12 percentage points but other discrete changes in premium amounts do not affect enrollment or have a much smaller effect i find no evidence of program enrollees intentionally decreasing labor supply in order to avoid the premiums

persistence in foreign exchange rates abstract this study examines the long run behavior of seven daily nominal exchange rates using univariate and multivariate persistence measures our results indicate that for some currencies the long run behavior deviates from that of a pure random walk in certain periods the multivariate estimates reflect the effect of both the ems exchange rate mechanism and increased post louvre accord coordinated intervention a large portion of the effect of a shock in one currency on another currency s long run value can be attributed to contemporaneous effects on the other currencies

further investigation of the uncertain trend in us gdp the presence of deterministic or stochastic trend in us gdp has been a continuing debate in the literature of macroeconomics ben david and papell 1995 found evidence in favour of trend stationarity using the secular sample of maddison 1991 more recently murray and nelson 2000 correctly criticized this finding arguing that the maddision data are plagued with additive outliers ao which bias inference towards stationarity hence they propose to set the secular sample aside and conduct inference using a more homogeneous but shorter time span post wwii sample in this article we re visit the maddison data by employing a test that is robust against ao s our results suggest the us gdp can be modelled as trend stationary process

nonlinear business cycle dynamics cross country evidence on the persistence of aggregate shocks i introduction economists have long been interested in the dynamics of business cycles particularly regarding the symmetry of expansions and contractions more recently the specification of stochastic trends in economic growth has generated concerns about the relative persistence of positive and negative shocks to the economy several papers have looked at the persistence of business cycles including nelson and plosser 1982 campbell and mankiw 1987 cochrane 1988 diebold and rudebusch 1989 balke and fomby 1990 zelhorst and de haan 1994 and bradley and jansen 1995 while results vary especially on the issue of a unit root in output the overarching result is that output fluctuations are highly persistent one question not asked by the above authors is whether business cycle dynamics are asymmetric this issue has been investigated by neftci 1984 falk 1986 delong and summers 1986 hamilton 1989 diebold and rudebusch 1990 and terasvirta and anderson 1991 these authors take a variety of approaches but they reach a general conclusion that there is some evidence of asymmetric business cycle dynamics however most of these studies ask if contractions are shorter and steeper than expansions except hamilton 1989 they do not ask if there is a difference in persistence due to the asymmetries in a recent paper beaudry and koop 1993 propose a set of methods for simultaneously examining these two questions specifically beaudry and koop bk recommend the augmentation of the standard arma representation of real output growth through the inclusion of a nonlinear term that captures the relative state of the economy this augmentation provides for nonlinear dynamics and the possibility of asymmetric dynamic responses to positive and negative shocks in addition calculation of the implied impulse responses permits detection of the relative persistence implied by the combination of asymmetric cycle dynamics and stochastic trend based upon their analysis of u s data bk conclude that the response of the economy to positive and negative shocks is indeed asymmetric and the imposition of symmetry on impulse responses has likely led to misleading measures of persistence bk p 162 as a result bk conclude we find that the effects of negative shocks to be mainly temporary and the effects of positive shocks to be very persistent bk p 162 if bk s results are correct they have strong implications for the way macro economists view economic fluctuations and will in their words contribute to a reappraisal of some macroeconomic theories that is bk s results suggest that macroeconomic models must be revised to provide for temporary effects of negative shocks but permanent effects of positive shocks because of the potential importance of bk s results we examine the robustness of those results by modifying and extending bk s proposed methods of testing not only do we extend the analysis to the other six g7 countries besides the united states but also we redefine in a sensible way the nature of the nonlinear dynamics overall our results from other economies provide only mixed support for the asymmetry of cyclical dynamics and the lack of persistence of negative shocks ii the model to be estimated in the bk framework the estimated model includes an asymmetric response term the asymmetry is generated by a variable that measures the strength of a recession the variable is calculated as the distance between current real gdp and the previous peak level of real gdp that is bk define a measure they call current depth of the recession cdr where 1 cdr sub t max y sub t j sub j greater than or equal to 0 y sub t with this definition in place bk recommend augmenting an autoregressive model of real gdp growth as 2 phi l delta y sub t delta omega l 1 cdr sub

unit roots in the presence of abrupt governmental interventions with an application to brazilian data this paper considers econometric issues related to time series data that have been subject to abrupt governmental interventions the motivating example for this study is the brazilian monthly inflation rate 1974 1 1993 6 which we use throughout for illustration this series has been heavily influenced by the effect of so called shock plans implemented by various governments starting in the mid 1980s the plans act as inliers in the sense that the series is temporarily brought down to low levels before returning to its previous trend path we analyse the effects on standard unit root tests and measures of persistence caused by the presence of these inliers we show a substantial bias in favour of concluding that the series is stationary and that shocks have temporary effects we then construct appropriately corrected statistics which take into account the presence of the plans these show unlike the standard tests that the stochastic behaviour of the inflation rate was indeed unstable over this period simulation results are presented to support the adequacy of our corrected statistics copyright 1999 john wiley sons ltd

sources of geographic variation in health care evidence from patient migration we study the drivers of geographic variation in us health care utilization using an empirical strategy that exploits migration of medicare patients to separate the role of demand and supply factors our approach allows us to account for demand differences driven by both observable and unobservable patient characteristics within our sample of over 65 medicare beneficiaries we find that 40 50 percent of geographic variation in utilization is attributable to demand side factors including health and preferences with the remainder due to place specific supply factors jel h51 i1 i11