armington models and terms of trade effects some econometric evidence for north america elasticities of substitution among u s imports from mexico canada the rest of the world and competing domestic production are estimated for twenty two mining and manufacturing sectors based on quarterly data for 1980 88 these elasticities will provide a benchmark for computable general equilibrium models of north american trade liberalization the authors also find that estimated armington elasticities are low and therefore researchers may want to reconsider the device of using high values of armington elasticities in multicountry computable general equilibrium models to avoid large terms of trade losses associated with preferential trade liberalization

fdi and taxation a meta study despite the continuing political interest in the usefulness of tax competition and tax coordination as well as the wealth of theoretical analyses it still remains open whether or when tax competition is harmful moreover the influence of tax differentials on multinationals decisions is still insufficiently analyzed thus economists have increasingly resorted to empirical analysis in order to gain insights on the elasticity of fdi with respect to company taxation as a result the empirical literature on taxation and international capital flows has grown to a similar abundance during the last 25 years as the respective theoretical literature its heterogeneity leads to a rising need for concise reviews on the existing empirical evidence in this paper we extend former meta analyses on fdi and taxation in three ways first we add the most recent publications unconsidered in meta analyses up to date second we apply a different methodology by using a broad set of meta regression estimators and explicitly discuss which one is most suitable for application to our meta data third we address some important issues in research on fdi and taxation to the clarification of which meta analysis can make valuable contributions these issues are mainly the influence of variables which might moderate effects of tax differentials e g public spending the implications of using aggregate fdi data as opposed to firm level information on measured tax effects the implications of bilateral effective tax rates and the possible presence of publication bias in primary research

the less volatile u s economy a bayesian investigation of timing breadth and potential explanations using a bayesian model comparison strategy we search for a volatility reduction in u s real gross domestic product gdp growth within the postwar sample we find that aggregate real gdp growth has been less volatile since the early 1980s and that this volatility reduction is concentrated in the cyclical component of real gdp sales and production growth in many of the components of real gdp display similar reductions in volatility suggesting the aggregate volatility reduction does not have a narrow source we also document structural breaks in inflation dynamics that occurred over a similar time frame as the gdp volatility reduction

an empirical analysis of life cycle fertility and female labor supply this paper examines us household fertility and female labor supply over the life cycle using data from the panel study of income dynamics the authors investigate how maternal time inputs and market expenditures on offspring as well as the benefits they yield their parents vary with ages of offspring and influence female labor supply and contraceptive behavior the econometric framework combines a female labor supply model and a contraceptive choice index function it also accounts for the fact that conceptions are not perfectly controllable events using longitudinal data on married couples the authors estimate these equations and test alternative specifications of the technologies governing child care the findings suggest that while parents cannot perfectly control conceptions variations in child care costs do affect life cycle spacing of births furthermore the results demonstrate the gains of modeling the linkages between female labor supply and fertility behavior at the household level authors modified

behavioral heterogeneity in dynamic search situations theory and experimental evidence abstract this paper presents models for search behavior and provides experimental evidence that behavioral heterogeneity in search is linked to heterogeneity in individual preferences observed search behavior is more consistent with a new model that assumes dynamic updating of utility reference points than with models that are based on expected utility maximization specifically reference point updating and loss aversion play a role for more than a third of the population the findings are of practical relevance as well as of interest for researchers who incorporate behavioral heterogeneity into models of dynamic choice behavior in for example consumer economics labor economics finance and decision theory

wealth accumulation over the life cycle and precautionary savings this article constructs and simulates a life cycle model of wealth accumulation and estimates the parameters of the utility function the rate of time preference and the coefficient of risk aversion by matching the simulated median wealth profiles with those observed in the panel study of income dynamics and in the survey of consumer finances the estimates imply a low degree of patience and a high degree of risk aversion the results are used to study the importance of precautionary savings in explaining wealth accumulation they imply that wealth accumulation is driven mostly by precautionary motives at the beginning of the life cycle whereas savings for retirement purposes become significant only closer to retirement

sluggish price adjustments and the link between money and price the simple quantity theory of money asserts that because the velocity of money and fullemployment output are constants if the money supply doubles the price level must also double 15 this view of the quantity theory of money is also supported by the policy ineffectiveness proposition put forward by lucas 16 sargent and wallace 20 and barro 1 the policy ineffectiveness proposition asserts that real variables like output and unemployment respond only to unanticipated movements in the money supply but do not respond to anticipated money supply associated with the systematic feedback rules one of the premises essential to the validity of this proposition is the perfect flexibility of prices the corollary of the policy ineffectiveness proposition as expounded by gordon 12 in invalidating this propositin is that because output does not respond to anticipated money supply changes and remains at the natural level the price level responds contemporaneously and proportionately to the anticipated changes in the money supply this conclusion is also consistent with barro s hypothesis that perceived movements in the money stock imply equiproportionate contemporaneous movements in the price level 3 565 66 this one to one relationship between the anticipated money supply and the price level has also been shown theoretically by barro 1 and hercowitz 13 it is this conclusion that needs to be tested by accounting for the speed of adjustments of prices the purpose of this study is to explore theoretically and empirically the link between money supply and price levels by incorporating a gradual price adjustment mechanism more specifically this study examines a the one to one relationship between the log of current money stock and the log of the price level purported by barro 3 b effects of unanticipated money growth on the aggregate price and c importance of anticipated money growth in determining the price level given the current money stock and the current and lagged values of the unanticipated money growth the key element of the study is the realization that the economy is comprised of markets with differing degrees of price adjustments numerous cases of price stickiness can be identified in modern economies as enumerated in survey work by blinder 4 also for instance devadoss and choi 6 observe that the u s agricultural program s price fixing policies such as price

identifying the effects of a lender of last resort on financial markets lessons from the founding of the fed abstract we use the founding of the federal reserve to identify the effects of a lender of last resort we examine stock return and interest rate volatility during september and october when markets were vulnerable because of financial stringency from the harvest stock volatility fell by 40 and interest rate volatility by more than 70 following the monetary regime change the drop is insignificant if major panic years are omitted from the analysis however because business cycle downturns occurred in the same year as financial crises our results suggest that the existence of the federal reserve reduced liquidity risk

competing macro hypotheses in the united states a kalman filtering approach the empirical validity of alternative views about the short run determinants of real output growth in the united states is investigated a nested framework is used to test the macro rational expectations mre hypothesis directly against two competing hypotheses the neo keynesian view that anticipated and unanticpated monetary policy both matter and friedman s 1977 proposition that increased inflation uncertainty reduces real output at least temporarily the unobservable explanatory variables are obtained from time varying parameter models of inflation and money growth which generate forecast errors and their conditional variances consistent with rational expectations under a continuously chaning policy regime the empirical results strongly support friedman s view the mre hypothesis must be rejected since both anticipated and unanticipated monetary changes matter the results prove robust across different model specifications and estimation techniques

import price elasticities reconsidering the evidence recent economic geography and trade empirical studies based on monopolistic competition suggest high levels of trade price elasticities between 3 and 1 1 however price elasticity estimations in trade equations using unit values as price proxies usually lead to lower values of around unity we show that those inconclusive results may be due to some misspecification in these equations as well as measurement errors in prices when suit able instrumental variables are used within a panel of industrialized countries we obtain high price elasticities the majority ranging from i to 13 the highest estimates correspond to industries producing homogeneous goods jel classification c2 c3 and f 1

price inertia money supply and price changes price stickiness is incorporated in the partial information localizedmarket framework of rational expectation models to show that the money stock has less than an equiproportionate effect on the aggregate price and that the unanticipated monetary policy component has differing impacts on prices at the market level the empirical analysis involves estimation of generated regressor models of money forecasting and price equations using the computationally intensive parametric bootstrap method developed most recently by smith and mcaleer the results are unfavourable to the hypothesis of a one to one relationship between current money stock and prices rather they lend distinct support to conclusions of a sluggish price adjustment model that money stock has less than equiproportionate effect on prices empirical results also show that the effects of unanticipated money growth on prices vary across markets

impact of trade liberalization on import demands in india a panel data analysis for commodity groups the objectives of this study are to examine the impact of liberalization on price elasticities of imports at a commodity level for broad commodity groups and at an aggregate level for the indian economy over the period 1993 1997 liberalization is implemented by reducing tariff and non tariff barriers and relaxing exchange controls the impact of tariffs and market based exchange rate is introduced in the import price of the commodity relative price import domestic elasticities for each commodity group using panel data of six countries over five years are estimated for the indian economy relative price elasticities for each of the years at an aggregate level using data for twenty commodity groups as observations are obtained and these show that the price elasticity tends to rise with the increase in liberalization when tariff rates are reduced

openness to trade in manufactures in the oecd abstract how open are the advanced economies to trade with each other in this paper openness is calculated relative to the predictions of the monopolistic competition trade model using data on manufacturing trade and production in the oecd in 1985 the paper finds that 1 japan imports much less than other large oecd countries while the european countries have larger import volumes than does the us 2 japan and the us engage in less intra industry trade than the rest of the oecd and 3 the eu countries are less open to imports from japan and the us than those countries are open to imports from the eu

armington elasticities in intermediate inputs trade a problem in using multilateral trade data in this paper we find that the estimates of armington elasticities the elasticity of substitution between groups of products identified by country of origin obtained from multilateral trade data can differ from those obtained from bilateral trade data in particular the former tends to be higher than the latter when trade consists largely of intermediate inputs given that the variety of intermediate inputs traded across borders is increasing rapidly and that the effect of this increase is not adequately captured in multilateral trade data the evidence shows that the employment of multilateral trade data to estimate armington elasticities needs caution jel classification f14 c51 elasticites d armington dans le commerce des intrants intermediaires un probleme dans l utilisation des donnees sur le commerce international multilateral ce texte montre que les estimations des elasticites d armington c est a dire les elasticites de substitution entre groupes de biens d origines differentes basees sur les donnees de commerce multilateral peuvent etre differentes de celles obtenues en utilisant des donnees de commerce bilateral en particulier les premieres sont en general superieures aux secondes lorsque les echanges concernent surtout des biens intermediaires comme la variete des biens intermediaires echanges augmente rapidement et que les effets de cette augmentation ne sont pas captures de facon adequate dans les donnees de commerce multilateral notre resultat suggere la prudence lors de l estimation des elasticites d armington a partir de donnees de commerce multilateral

how do behavioral assumptions affect structural inference evidence from a laboratory experiment we use a laboratory experiment to investigate the effect that assuming rational expectations has on structural inference on a dynamic discrete choice decision problem our experimental design induces preferences up to each subject s subjective rates of time preference leaving unrestricted only this parameter and the decision rule that the subject uses in solving the problem we analyze the data under the assumption that all subjects use the rational expectations decision rule and also under weaker behavioral assumptions that allow for heterogeneity in the way people form decisions we find no evidence that assuming rational expectations distorts inferences about the cross sectional distribution of discount rates

european emission trading scheme and competitiveness a case study on the iron and steel industry abstract we quantify the impact of the european emission trading scheme ets on the two dimensions of competitiveness production and profitability for the iron and steel industry among those covered by the scheme this sector is one of the most exposed since it is both highly co 2 intensive and relatively open to international trade we also examine the robustness of these results to various assumptions marginal abatement cost curve trade and demand elasticities as well as pass through rates and updating of allocation rules of which the latter two are scarcely debated we conclude that for this sector competitiveness losses are small we prove this conclusion to be robust hence arguments against tightening the environmental stringency of the ets in phase ii are not justified on grounds of competitiveness loss our systematic sensitivity analysis allows us to identify the important assumptions for each output variable it turns out that pass through rates and updating rules are significant despite being often implicit and least debated in existing analyses

a cointegration analysis of seafood import demand in caribbean countries cointegration analysis and error correction model are used to estimate seafood import demand for selected caribbean countries the results show that seafood import is price elastic exchange rate has a negative effect while gross domestic product gdp and tourism have positive effects on seafood imports import and domestic production do not have a short run causal relationship the increase in caribbean seafood imports is primarily due to decreasing import price and increasing domestic demand the decline of domestic fisheries production has other causes than import competition however imports and domestic production have a negative long run equilibrium relationship tariff and production expansion policies both help producers but tariff may reduce total economic surplus while supply expansion can increase total economic surplus

policy impacts under rational expectations abstract this paper re examines for the u s the validity of the macro rational expectations mre hypothesis in contrast to most previous studies in this area the paper a considers the potential real effects of both monetary and fiscal policies b allows for possible endogeneity of these policies and c uses a joint non linear estimation methodology to distangle the hypothesis of rationality from that of neutrality the empirical results reject the joint mre hypothesis for both policies the results also indicate that policy non neutrality is the culprit behind such rejection this evidence offers further empirical support for macro rational expectations models where monetary and fiscal policies can due to some rigidities play a key role in stabilizing the real economy

interest rate targeting abstract the paper develops a model in which the monetary authority successfully targets the nominal interest rate while also holding down the forecast variance of the price level the latter objective pins down the extent of monetary accommodation to shifts in the demand for money and other shocks and thereby makes determinate the levels of money and prices at each date empirical evidence for the united states suggests that the model s predictions accord reasonably well with observed behavior for nominal interest rates growth rates of the monetary base and rates of inflation

rules of thumb versus dynamic programming this paper studies decision making with rules of thumb in the context of dynamic decision problems and compares it to dynamic programming a rule is a fixed mapping from a subset of states into actions rules are compared by averaging over past experiences this can lead to favoring rules which are only applicable in good states correcting this good state bias requires solving the dynamic program we provide a generalframework and characterize the asymptotic properties we apply it to provide a candidate explanation for the sensitivity of consumption to transitory income jel eoo c63 c61 e21

the optimum quantity of money rule in the theory of public finance this paper examines optimal tax policy in a monetary economy in which money serves as an intermediate good that helps facilitate the conversion of scarce resources into tinal consumption goods by enabling consumers to economize on the costs of transacting it is shown that in such an environment even though distorting taxes must be levied for revenue purposes the optimal tax structure calls for abstaining from inflationary finance and adopting the optimum quantity of money rule

are optimal search rules reasonable and vice versa and does it matter anyway abstract the economics of search has made rapid progress in recent years and its results have contributed siginificantly to economic knowledge recent work has been particularly marked for the steadily increasing realism of the assumptions describing the environment surrounding the searcher however concomitant with this improvement has been a steady growth in the technical complexity of the problem supposedly solved by the searcher indeed many of the recent models are so complicated that their solutions are beyond the capacity of even modern day computers after elaborating on this impracticability of optimal search rules the paper goes on to consider two more realistic and practical alternatives the adoption of either suboptimal or reasonable rules paradoxically reasonable rules may in some circumstances be better than optimal rules the paper contains a preliminary discussion of what might be meant by reasonable behaviour and shows that a minimal set of criteria for reasonableness leads to the major qualitative conclusions at a market level of optimal search theory

anticipated monetary policy and real output evidence from latin american countries this paper is an empirical investigation of the effects of anticipated and unanticipated monetary policies on real output for 13 ldcs in latin and central america the well know mishkin econometric procedure is applied to the annual imf date for the decomposition of actual money growth into anticipated and unanticipated components and the evidence of significant relation between anticipated money supply and real output for each country is reported the results derived in this paper thus provide additional empirical support for the validity of the non classical rational expectations macro models of fisher and phelps and taylor

rules of thumb for social learning this paper studies agents who consider the experiences of their neighbors in deciding which of two technologies to use we analyze two learning environments one in which the same technology is optimal for all players and another in which each technology is better for some of them in both environments players use exogenously specified rules of thumb that ignore historical data but may incorporate a tendency to use the more popular technology in some cases these naive rules can lead to fairly efficient decisions in the long run but adjustment can be slow when a superior technology is first introduced

can imperfect competition explain the difference between primal and dual productivity measures estimates for u s manufacturing it is well known that under the assumptions of constant returns to scale perfect competition and the absence of factor hoarding primal and dual productivity measures should be highly correlated the apparent lack of correlation is usually attributed to fixed factors of production in this paper i propose an alternative explanation by relaxing the assumption of perfect competition by controlling for the presence of a markup component i demonstrate that both productivity measures are in fact highly correlated for u s manufacturing the analysis also provides an alternative method of estimating a markup of prices over marginal cost that avoids certain difficulties inherent in some existing methods of estimation

on non uniqueness in rational expectations models an attempt at perspective abstract many macroeconomic models involving rational expectations give rise to an infinity of solution paths even when the models are linear in all variables some writers have suggested that this non uniqueness constitutes a serious weakness for the rational expectations hypothesis one purpose of the present paper is to argue that the non uniqueness in question is not properly attributable to the rationality hypothesis but instead is a general feature of dynamic models involving expectations it is also argued that there typically exists in a very wide class of linear rational expectations models a single solution that excludes bubble or bootstrap effects one that occur only because they are arbitrarily expected to occur a systematic procedure for obtaining solutions free from such effects is introduced and discussed in addition this procedure is used to interpret and reconsider several prominent examples with solution multiplicities including ones developed by fischer black and john b taylor

effects of fiscal policies on us agriculture according to the macro rational expectation mre hypothesis only unanticipated macroeconomic policy has impacts on real economic variables and anticipated policy changes have no real impacts this study analysis the effects of the anticipated and unanticipated components of fiscal policy on the us farm real gnp by testing the neutrality and rationality propositions of the mre hypothesis the test results show that both the rationality and neutrality propositions are rejected the empirical findings indicate that the anticipated fiscal policy does have significant effects on farm output examination of a specific sector sheds light on the nature of the market and helps ascertain the resons for the non neutrality

credibility of a new monetary regime the currency board in bulgaria abstract low credibility reflected in persistent expectations of high inflation is the usual suspect in costly disinflation efforts a currency board is a monetary regime that attempts to establish credibility by reducing uncertainty regarding the inflation preferences of the policymaker and the environment in which the policymaker operates this paper uses unique survey data from bulgaria and finds that expected inflation is indeed lowered by the prospect of a currency board but to a different degree for different agents priors of the type of the policymaker and familiarity with the operation of the currency board contribute to explaining the differences

the adjustment of expectations to a change in regime a study of the founding of the federal reserve the founding of the federal reserve system in 1914 led to a substantial change in the behavior of nominal interest rates the authors examine the timing of this change and the speed with which it was effected they then use data on the term structure of interest rates to determine how expectations responded their results indicate that the change in policy regime was rapid and that individuals quickly understood the new environment they were facing copyright 1987 by american economic association

returns to schooling implicit discount rates and black white wage differentials a simple econometric model of investment in schooling is developed and estimated the measure of individual discount rates implicit in their educational investment decisions suggests no difference between individuals from different socioeconomic backgrounds differences in individual speeds of educational attainment which do vary with background explain most of the variation in levels of attainment that is attributable to family background

costs and benefits of controlling quarantine diseases a bio economic modeling approach this article describes a bio economic model to quantify the costs and benefits of controlling plant quarantine diseases the model integrates the epidemiology and economic consequences of a quarantine disease it allows for ex ante evaluation of control scenarios for their cost effectiveness taking into account potential export losses resulting from presence of the disease the model is applied to brown rot of potato in the dutch potato production chain simulation results show that under the current 2006 control policy the average yearly costs of brown rot are 7 7 million euros reducing monitoring frequency increases the costs to 12 5 million euros 60 of which are export losses it is also shown that due to potential long term effects of a strategy conclusions on cost effectiveness of a strategy depend on the length of the period over which that strategy is observed these applications illustrate the potential of the bio economic model to facilitate the development of cost effective and soundly based control policies

u s and u k interest rates 1890 1934 new evidence on structural breaks this paper presents econometric evidence on whether the founding of the federal reserve in 1914 caused a structural change from level stationarity to difference stationarity in u s and u k short term nominal interest rates we develop new econometric tests that allow for parameter transitions to test for a break of this kind and undertake a grid search analysis of dates and speeds for the change we find that u s nominal interest rates most likely evolved rapidly to difference stationarity in june 1917 for the united kingdom we fail to reject the null that u k interest rate series follow a difference stationary process over the entire period 1890 1934 our analysis differs from previous research on this topic in that we take care to explore statistical uncertainty around parameter estimates and incorporate higher order dynamics into our econometric analysis

interest rate seasonals and the federal reserve it is widely believed that one of the federal reserve s first important monetary policy achievements was the deseasonalization of interest rates the federal reserve supposedly accomplished this by introducing appropriate seasonal movements into the supplies of currency and high powered money this view implicitly assumes that there was no interaction between american and foreign financial markets two findings are reported that challenge this conventional view first interest rate seasonals disappeared in the united states and other countries at approximately the same time second interest rate seasonal ended approximately 3 years before the seasonal movements of currency and high powered money changed

the bond price support program as a change in policy regimes evidence from the term structure of interest rates recently mankiw miron and weil 1987 argued that a change in policy regimes generally affects the public s expectations of future interest rates to illustrate this influence they compare the operation of the gold standard with the post gold standard regime in the united states they find that nominal short term interest rates were mean reverting before 1914 but became nonstationary after the creation of the federal reserve system we extend mankiw miron and weil s analysis by noting that the period from 1914 to the present cannot be characterized as one uninterrupted episode of policy discretion the united states temporarily abandoned discretion for a rule in the 1940s the fed and treasury agreed in april 1942 that the fed would adjust federal reserve credit in a manner that would produce relatively low market rates on longterm securities in particular the fed committed itself to support twenty year government bond prices at a level consistent with a 2 5 percent interest rate ceiling we investigate the possibility that the bond price support program of the 1940s conditioned the behavior of short term interest rates in a predictable way according to the expectation theory of the term structure a binding long term interest rate ceiling implies that an increase in the current short rate must cause the sum of the innovation and the change in future expected rates to be zero otherwise the long rate rises above the ceiling and the public perceives a violation of the bond rate commitment placing a binding ceiling on long term interest rates tends to make short term interest rates mean reverting

the federal reserve amendments of 1917 the beginning of a seasonal note issue policy the federal reserve adopted a policy of smoothing the seasonal behavior of interest rates after the amendments of 1917 these amendments reduced the collateral requirements for notes issued and thereby increased note issue capability notes in circulation more than doubled from june to december 1917 these amendments were passed to assist with war related financing as their timing coincided with the entry of the united states into world war i the smoothing of interest rates seasonals between 1914 and 1917 was not due to the founding of the federal reserve system but rather to trade related gold flows copyright 1991 by ohio state university press

structural federal deficits and interest rates some causality and co integration tests the relationship between federal budget deficits and interest rates has been the focus of extensive research recently cebula 4 examined this relationship empirically and concluded that the federal budget deficit does in fact exercise a positive and significant impact upon the nominal moody s aaa rated corporate bond rate 4 208 such a finding is at odds with the great majority of recent empirical studies in this area if valid this finding assigns to large deficits significant adverse effects on both private investment crowding out and on trade balance via an overvalued dollar given these profound public policy implications cebula s finding warrants further examination

the trade creating effects of business and social networks evidence from france using theory grounded estimations of trade flow equations this paper investigates the role that business and social networks play in shaping trade between french regions the bilateral intensity of networks is quantified using the financial structure and location of french firms and bilateral stocks of migrants compared to a situation without networks migrants are shown to double bilateral trade flows while networks of firms multiply trade flows by as much as four in some specifications finally taking network effects into account divides the estimation of the impact of transport costs and of the effect of administrative borders by around three

trade in the triad how easy is the access to large markets in this paper we measure market access between the united states the eu and japan the triad using the effect of national borders on trade patterns we investigate overall and industry level trends of bilateral trade openness and provide explanations for those using proxies for bilateral observed protection tariffs and ntbs home bias of consumers product differentiation and levels of fdi the explanations related to actual protection home bias and substitutability of goods put together explain a large part of the border effect between blocs of the triad although they do not explain the whole of the border effect puzzle jel classification f12 f15 commerce dans la triade jusqu a quel point l acces aux grands marches est il facile cet article mesure le niveau d integration commerciale entre les pays de l ue le japon et les etats unis la triade en utilisant l effet des frontieres nationales sur le commerce international nous etudions le niveau et l evolution du degre d ouverture bilateral ainsi que les differentes explications possibles des effets frontiere estimes qui sont testees a l aide de variables capturant la protection tarifs et bnts le biais domestique des consommateurs le degre de differenciation des produits et les niveaux d ide bilateraux les explications liees a la protection au biais domestique et a la substituabilite entre produits considerees ensemble expliquent une bonne partie de l effet frontiere entre pays de la triade meme si elles n expliquent pas la totalite de l enigme

can supply and demand parameters be recovered from data generated by market institutions the relative accuracy of estimators in recovering supply and demand parameters can depend on the market institutions that generate the data the parameters of known supply and demand functions are estimated with data from laboratory market experiments with human buyers and sellers single equation estimators dominate simultaneous equations estimators in recovering supply and demand parameters from posted offer market data the inaccuracy of simultaneous equations estimators with posted offer data can be explained by the implications for error distributions of the inherent properties of this market institution simultaneous equations estimators perform better with closing price data from double auction markets

the relation between price and marginal cost in u s industry an examination of data on output and labor input reveals that some u s industries have marginal cost well below price the conclusion rests on the finding that cyclical variations in labor input are small compared with variations in output in booms firms produce substantially more output and sell it for a price that exceeds the costs of the added inputs the paper documents the disparity between price and marginal cost where marginal cost is estimated from annual variations in cost it considers a variety of explanations of the findings that are consistent with competition but none is found to be completely plausible

federal deficits and money growth in the united states a vector autoregressive analysis abstract a multivariate var modelling technique is employed in this paper to test for causality between federal deficits and money growth in the united states four alternative causality hypotheses including the common accommodation view are examined in addition to the two policy variables four other related macro variables are included in the empirical analysis namely short term interest rates prices real output and exchange rates the var results consistently reject the accommodation hypothesis and indicate that monetary and fiscal policy actions are set independently in the united states other causality inferences are also obtained and their implications are discussed

environmental regulations in gravity equations evidence from europe one implication of the pollution haven hypothesis is that countries export more by applying more lenient environmental regulations most studies that apply gravity type equations do not find robust support for environmental regulations to affect bilateral exports in this paper we show that one can obtain robust negative effects of stringency as long as gravity equations are well specified with respect to theory our results based on the european data are both very consistent with us studies on environmental regulations and another line of very recent studies that infer non biased price or substitution elasticities from trade equations we show that more stringent environmental regulations when depicting a pure cost effect are reducing exports the coefficient is even larger in the case where exporting countries are central and eastern european countries comparing to the eu15 further we show that there is no significant difference in the impact of regulations on trade in case of dirty and clean sectors finally when using gmm estimation our environmental stringency coefficient gets significantly reinforced

regime changes and interest rate risk this paper employs the bai and perron 1998 2003 structural break methodology to investigate important structural shifts in us interest rates using data from 1890 01 to 1933 12 i find evidence for two large structural shifts in my monthly sample the second shift is found to start in september 1917 this supports the view of several studies which argue that us entry into world war 1 and subsequent wartime policies rather than the founding of the federal reserve in 1914 caused a major change in the behavior of nominal interest rates

anticipated federal budget deficits monetary policy and the rate of interest in recent years a number of studies have attempted to investigate the impact of federal budget deficits on the rate of interest studies by evans 6 7 makin 13 hoelscher 9 10 barth iden and russek 2 3 dwyer 5 cebula 4 among others have analyzed this issue but have provided conflicting evidence on the impact of federal budget deficits on the rate of interest this is due in part to differences in methodology definition of budget deficit variables sample period and estimation techniques hoelscher 10 barth iden and russek 2 3 feldstein and eckstein 8 find that budget deficits affect interest rates but evans 6 7 makin 13 and hoelscher 9 conclude that budget deficits have no significant effect on interest rates the contributions of this paper are first to directly introduce within the framework of rational expectations models federal budget deficit and monetary variables this technique of analyzing the impact of deficits on interest rates may shed new light on this important issue which has not appeared in the literature second the deficit measure employed in this study is designed in a manner that it avoids being contaminated by changes in expenditures and tax receipts due to the automatic stabilizing aspects of fiscal policy third it is explicitly recognized that monetary and fiscal policies jointly interact in determining interest rates finally the policy process determining the interest rate is tested for stability over time this is important in light of evans s 6 work who finds various episodes in the u s history when budget deficits increased for a few years but had no appreciable impact on interest rates the intention in this paper is to investigate the reaction of economic agents who find that budget deficits may persist for a longer time in the future

rules of thumb in life cycle saving decisions we analyse life cycle saving decisions when households use simple heuristics or rules of thumb rather than solve the underlying intertemporal optimisation problem we simulate life cycle saving decisions using three simple rules and compute utility losses relative to the solution of the optimisation problem our simulations suggest that utility losses induced by following simple decision rules are relatively low moreover the two main saving motives reflected by the canonical life cycle model long run consumption smoothing and short run insurance against income shocks can be addressed quite well by saving rules that do not require computationally demanding tasks such as backwards induction

the federal reserve and panic prevention the roles of financial regulation and lender of last resort this paper surveys the role of the federal reserve within the financial regulatory system with particular attention to the interaction of the fed s role as both a supervisor and a lender of last resort the institutional design of the federal reserve system was aimed at preventing banking panics primarily due to the permanent presence of the discount window this new system was successful at preventing a panic in the early 1920s after which the fed began to discourage the use of the discount window and intentionally create stigma for window borrowing policies that contributed to the panics of the great depression the legislation of the new deal era centralized fed power in the board of governors and over the next 75 years the fed expanded its role as a supervisor of the largest banks nevertheless prior to the recent crisis the fed had large gaps in its authority as a supervisor and as lender of last resort with the latter role weakened further by stigma the fed was unable to prevent the recent crisis during which its lender of last resort function expanded significantly as the fed begins its second century there are still great challenges to fulfilling its original intention of panic prevention

explaining armington what determines substitutability between home and foreign goods for decades trade economists have modeled imperfect substitution between home and foreign goods in consumption often called the armington assumption with little analysis of what explains the wide variation in these substitution elasticities across sectors using a varying coefficients model the authors estimate armington elasticities between u s domestic and foreign goods across over one hundred industrial sectors from 1980 to 1988 and examine the role of product industry political and home bias factors as determinants they find strong support that the presence of foreign owned affiliates affects armington elasticities in important ways and some support that entry barriers and union presence have an effect

the start of interest rate smoothing in the us is it a monetary or fiscal story this article revisits the key issue raised by researchers who have empirically investigated the behaviour of short term us interest rates during the period 1890 1933 the seminal article of mankiw miron and weil 1987 argues that changes in the behaviour of nominal interest rates is best explained as a monetary regime shift that occurred with the founding of the federal reserve in 1914 this explanation is rejected by newbold lehybourne sollis and wohar 2001 who show that fiscal and regulatory changes driven by the needs of world war1 financing best explain the changing behaviour of interest rates that they identify as beginning in mid 1917 we find using three different statistical procedures that a structural break in the second moment of interest rates occurred in early 1915 this supports the monetary regime shift argument of mmw by illustrating that the interest rate smoothing policies of the fed can be observed as a variance break in short term interest rates

the founding of the fed and the behavior of interest rates what can be learned from small samples abstract we take issue with angelini s 1994 claim that the founding of the federal reserve was not responsible for a change in the stochastic process followed by short term interest rates we argue that angelini s failure to reject the null hypothesis of no regime change around the date of the founding of the fed is due to the low power of his test

does money illusion matter in intertemporal decision making abstract to examine the degree to which price fluctuations affect how individuals approach an intertemporal decision making problem we conduct a laboratory experiment in which subjects spend their savings to purchase only one commodity over 20 periods in the control treatment the commodity price is constant across all periods in the small large price fluctuation treatment the price rate of change is always 1 20 regardless of the treatment the commodity price and subjects savings change at the same rate over time therefore the optimal amount of consumption is the same in all three treatments our main findings are twofold first the magnitude of misconsumption i e the deviation from optimal consumption is significantly high with the large price fluctuation treatment being the highest followed by the small price fluctuation treatment and then the control treatment second regardless of the presence of price fluctuations subjects exhibit underconsumption oversaving behavior and price fluctuations strengthen this tendency

multilateral agricultural trade liberalisation the contrasting fortunes of developing countries in the doha round an applied general equilibrium model is used to assess the impact of multilateral trade liberalisation in agriculture with particular emphasis on developing countries we use original data and the model includes some specific features such as a dual labour market applied tariffs including those under preferential regimes and regional agreements are taken into account at the detailed product level together with the corresponding bound tariffs on which countries negotiate the various types of farm support are detailed and several groups of developing countries are distinguished simulations give a contrasted picture of the benefits developing countries would draw from the doha development round the results suggest that previous studies have neglected preferential agreements and the binding overhang in tariffs as well as domestic support and have treated developing countries with a high level of aggregation and been excessively optimistic about the actual benefits of multilateral trade liberalisation regions like sub saharan africa are more likely to suffer from the erosion of existing preferences the main gainers of the doha round are likely to be developed countries and cairns group members

testing for structural breaks trade off between power and spurious effects abstract i argue that in order to test for the effect of the foundation of the federal reserve on the behavior of short term interest rates extending the sample size on either side of the interval 1908 1918 will generate spurious results mankiw miron and weil 1987 1994 do not address data problems pointed out by other authors nor do they take into account some historical events and institutional changes in the new york money market that had an impact on the behavior of short term interest rates given these reasons for restricting the sample size i argue that their monte carlo evidence is largely irrelevant to the issue and that lack of power confirms my claim that no regime change can be detected astride the foundation of the fed

more on the behavior of interest rates and the founding of the fed abstract the paper addresses the issue of the impact of the foundation of the federal reserve system in 1914 on the behavior of short term interest rates empirical evidence is presented showing that no change of regime can be detected in the process governing short term rates in the years straddling the foundation of the fed since the behavior of this process did change in the decade 1910 1920 the paper discusses some historical events and institutional changes in the new york money market that had an impact on the behavior of short term interest rates between 1908 and 1920

demand elasticities in international trade are they really low the authors analyze the u s demand for bangladeshi imports for products restricted under the multifiber arrangement because bangladesh is only a small supplier of these products and latin american and asian countries can supply close substitutes the authors expected a high elasticity of demand for bangladeshi imports and they found consistently high estimates based on statistically significant coefficients their finding accords with trade theorists prejudice that small countries can essentially behave as price takers but conflicts with the empirical literature view that demand elasticities are low rarely exceeding 3 and generally between 1 and 2 the authors analysis differs from the existing literature in three ways they derive a set of estimation equations from an explicit utility maximization model and use the estimated parameters of the utility function to obtain the marshallian own price and cross price elasticities as well as the income elasticity of demand they take explicit account of u s imports from competitors of bangladesh relying directly on competitors prices and they use highly disaggregated data that make the unit value of exports a better proxy for price than using aggregated export data commonly used in this literature the authors outline their theoretical model for deriving their estimated equations in section 1 preliminarily determine who bangladesh s competitors are in section 2 and estimate the demand equation derived in section 1 and derive the price and income elasticities facing bangladesh in section 3

an analysis of inflation and interest rates new panel unit root results in the presence of structural breaks abstract this paper investigates the order of integration of inflation and interest rates in a panel of 19 countries the results show that once multiple endogenous breaks are allowed for and appropriate critical values are used the series appear to be i 0

tax misperceptions and the effect of informational tax nudges on retirement savings despite subjects being informed about tax rules before making saving decisions we find using laboratory experiments that deferred taxation results in after tax pensions that are approximately 25

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

a note on the expectations hypothesis at the founding of the fed abstract one of the most influential tests of the expectations hypothesis is mankiw and miron q j econ 101 1986 211 who found that the spread between the long term and short term rates provided predictive power for the short term rate before the fed s founding but not after they suggested that the failure of the expectations hypothesis after the fed s founding was due to the fed s practice of smoothing short term interest rates we show that their finding that the expectations hypothesis fares better prior to the fed s founding is due to the fact that the test they employ tends to generate results that are more favorable to the expectations hypothesis during periods when there is extreme volatility in the short term rate

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

import competition from developed and developing countries separate demand equations for imports from less developed countries ldcs and imports from developed countries dcs were estimated for each of eleven representative product groups imports were found to compete quite readily with domestically produced goods with plausible own price and cross price elasticities whereas the quantity of each type of import was found to be quite responsive to changes in the price of us home goods each appears to be less sensitive to the price of the alternative import an explanation that is consistent with this observation and that finds support from detailed industry information is that dcs and ldcs supply goods that are at different stages in the product or technology cycle whereas us producers compete in all submarkets this suggests that trade creation rather than trade diversion provides the predominant inroad for ldcs into the us market 25 references 3 tables

trade creation and trade diversion in the canada united states free trade agreement in this paper the changes in trade patterns introduced by the canada united states free trade agreement are examined variation in the extent of tariff liberalization under the agreement is used to identify the impact of tariff liberalization on the growth of trade both with member countries and non member countries data at the commodity level are used and the results indicate that the canada united states free trade agreement had substantial trade creation effects with little evidence of trade diversion jel classification f13 f14

financial panics the seasonality of the nominal interest rate and the founding of the fed after the founding of the fed in 1914 the frequency of financial panics and the size of the seasonal movements in nominal interest ratesboth declined substantially this paper establishes that the fed by carrying out the seasonal open market policy that eliminated the seasonal in nominal interest rates caused the decrease in the frequency of panics since seasonal movements are anticipated and financial panics are probably real events the results show that an anticipated monetary policy had real effects on the economy copyright 1986 by american economic association

agricultural trade restrictiveness in the european union and the united states the article provides a summary measure of the uruguay round tariff reduction commitments in the european union and the united states using the mercantilistic trade restrictiveness index mtri as the tariff aggregator we compute the index for agricultural commodity aggregates assuming a specific constant elasticity of substitution functional form for import demand the levels of the mtri under the actual commitments of the uruguay round are computed and compared with two hypothetical cases a deeper cut in higher tariffs and a uniform reduction of each tariff both leading to the same average reduction as in the uruguay round this makes it possible to infer how reducing tariff dispersion will help improve market access in future trade agreements and provides some guidelines for aggregating detailed tariffs in trade models

fiscal deficits and long term interest rates further evidence from annual data much debate has recently centered on the popular view that large u s budget deficits financed by the sale of bonds cause high interest rates if valid this view implies that deficits crowd out efficient private investment and adversely affect economic growth however bailey 2 and barro 3 have challenged this conventional view on theoretical grounds based on the ricardian equivalence proposition bailey and barro contend that rational economic agents interpret government deficits as postponed tax liabilities and thus will have no effects on private wealth or interest rates such theoretical ambiguity in regards to the impact of budget deficits has also been matched by an equally conflicting empirical evidence for example barth iden and russek 4 deleeuw and holloway 8 hutchison and pyle 20 makin 24 makin and tanzi 25 and zahid 35 have found a positive and significant effect of deficits on interest rates on the other hand evans 11 12 13 hoelscher 17 motley 28 and plosser 29 30 have all failed to find any systematic support for a significant positive impact of deficits on interest rates it should be observed that the above empirical studies have employed either monthly or quarterly data however some researchers e g hoelscher 18 have recently charged that monthly or quarterly data bias the results in favor of finding no significant linkage between deficits and interest rates they reasoned that portfolio adjustment lags are too long for monthly or even quarterly observations to reflect the actual correlation between deficits and interest rates to eliminate this problem of periodicity annual data was instead advocated 2 using annual data hoelscher 18 concluded that deficits have caused positive and significant changes in long term interest rates in the united states

the personal discount rate evidence from military downsizing programs the military drawdown program of the early 1990s provides an opportunity to obtain estimates of personal discount rates based on large numbers of people making real choices involving large sums the program offered over 65 000 separatees the choice between an annuity and a lump sum payment despite break even discount rates exceeding 17 percent most of the separatees selected the lump sum saving taxpayers 1 7 billion in separation costs estimates of discount rates range from 0 to over 30 percent and vary with education age race sex number of dependents ability test score and the size of payment

invited commentary dynamic structural consumer models and current marketing issues structural models integrate behavioral and psychological decision theory into economics models and are more aligned with the true underlying economic primitives of the consumers this allows researchers to investigate more behavior driven and process oriented customer decision processes such as learning of product attributes formation of a consideration sets stockpiling and flexible consumption that cannot be easily handled by traditional marketing models chintagunta et al 2006 gives an excellent review on the development and applications of structural models in marketing for modeling both consumer demand and firm competition recent interests in consumer research have diversified from frequently purchased packaged goods to services high tech internet and information industries consumers are observed to be more sophisticated long term oriented risk averse and rational when making purchase and consumption decisions in these product categories structural models are better choices to capture the nature of the sophisticated decision process under the new marketing environment and engineering given the thorough review of chintagunta et al 2006 i will focus only on the dynamic structural demand models that have the components of information processing rational expectation and or endogenous decisions to trade off current and future utilities and i discuss some current marketing issues that can be most appropriately addressed by these models

anticipated money inflation uncertainity and real economic activity this paper critically examines a number of maintained hypotheses that are necessarily being tested along with the basic notion derived from the rational expectations re formulation of lucas 1972 19 73 that only unanticipated money matters the trend stationary representation of secular real output of lucas and others is replaced by a difference stationary representation found by nelson and plosser 1980 to be consistent with u s historical data the impact of inflation uncertainty on real activity is considered attention is paid to possible mis measurement of agents ex ante anticipated money growth it is found that three alternative measures of anticipated money growth produce a stable impact on growth of output and employment contemporaneous and lagged values of unanticipated money growth have no significant additional explanatory power in the presence of any one of the three measures of anticipated money growth beyond this it is impossible to reject the hypothesis that the initial positive real impact of anticipated money is not temporary inflation uncertainty is found to act as a significant depressant of real economic activity in the presence of all tested combinations of anticipated and unanticipated money growth this abstract was borrowed from another version of this item