integrated regressors and tests of the permanent income hypothesis abstract we use recent research on estimation and testing in the presence of unit roots to argue that hall s 1978 t and f tests of whether consumption is predicted by lagged income or by lags of consumption beyond the first are asymptotically valid a monte carlo experiment suggests that the asymptotic t and f distributions provide a good approximation to the actual finite sample distribution

market structure and fiscal policy effectiveness in a monopolistic competition macromodel with endogenous market structure the fiscal multiplier is shown to consist of two components the first depicts the response of output to a fiscal expansion through the conventional channels that disregard the role of market imperfections the second component captures the effects of firms market power as well as the policy induced change in market structure the latter effect which has not been taken into account in existing studies is shown to be quite significant in raising the fiscal multiplier even above unity and in improving consumers welfare when the labour market is competitive

sacrifice and stigma reducing free riding in cults communes and other collectives this paper presents an economic analysis of religious behavior that accounts for the continuing success of groups with strange requirements and seemingly inefficient prohibitions the analysis does not presuppose any special motives for religious activity rather religion is modeled as a club good that displays positive returns to participatory crowding the analysis demonstrates that efficient religions with perfectly rational members may benefit from stigma self sacrifice and bizarre behavioral restrictions the model also addresses sacrifice in nonreligious social clubs fraternities communes political parties work groups and families

an economic model of representative democracy this paper develops an approach to the study of democratic policy making where politicians are selected by the people from those citizens who present themselves as candidates for public office the approach has a number of attractive features first it is a conceptualization of a pure form of representative democracy in which government is by as well as of the people second the model is analytically tractable being able to handle multidimensional issue and policy spaces very naturally third it provides a vehicle for answering normative questions about the performance of representative democracy

high frequency analysis of foreign exchange interventions what do we learn abstract the high frequency analysis of foreign exchange dynamics is helpful in order to better identify the impact of central bank interventions evidence robustly shows that interventions do indeed move the exchange rate level in the desired direction interventions increase volatility in the short run as they are regarded as information but they can reduce volatility overall ways of transmission may reach beyond the signalling channel and also include the portfolio balance and a damping channel finally interventions are more successful if they obey certain conditions such as being coordinated among central banks and going with the market and fundamentals

central bank interventions and exchange rate band regimes abstract this paper presents an endogenous switching regression model for the exchange rate process where the switch is defined by the central bank criteria functions for intervening we study the signal effect of interventions on the exchange rate using norwegian daily data on official interventions we first find that interventions seemed to have been more effective in moving the exchange rate in the expected desired direction in the regime when the exchange rate was kept away from the edges of the band this type of intervention regime also reduces significantly the conditional volatility of the exchange rate thus when the exchange rate was near the weakest edge of the currency band its conditional variance was significantly larger than when it was moving around its central parity finally we show that in order to obtain consistent estimates intervention variables cannot enter as exogenous variables in the conditional mean or conditional variance of the exchange rate

by force of demand explaining cyclical fluctuations of international trade and government spending abstract this paper explores the role of demand shocks as an alternative to productivity shocks in driving both domestic and international business cycles within the international real business cycle irbc framework in addition to those well documented domestic business cycle fluctuations e g the volatility and cyclicality of output consumption investment labor hours and labor productivity and international business cycle properties e g the countercyclical net export and the comovement puzzle this paper focuses on two additional stylized facts in the industrialized countries the procyclical trade openness the gdp fraction of trade volume and the countercyclical government size the gdp fraction of government spending using a parsimonious dynamic stochastic general equilibrium model we show that the model s predictions under productivity shocks are not consistent with these facts instead a demand shock driven model replicates the above facts while matching other domestic and international business cycle properties an estimated version of the model confirms the quantitatively important impacts of demand shocks

can government spending increase private consumption the role of complementarity abstract it is empirically observed that private consumption responds positively to fiscal shocks we offer an explanation for this stylized fact based on the idea of complementarity between public and private consumption

daily effects of foreign exchange intervention evidence from official bank of canada data abstract this paper analyzes the effects of official daily bank of canada intervention in the cad usd exchange rate over the 1995 1998 period using an event study methodology and different criteria for effectiveness some evidence that intervention was systematically associated with both a change in the direction and a smoothing of the exchange rate is presented the results of the analysis however do not suggest that bank of canada intervention succeeded in reducing the volatility of the cad usd exchange rate furthermore the paper shows that the effects of intervention are weakened when adjusting for general currency co movements against the usd

sect subsidy and sacrifice an economist s view of ultra orthodox jews israeli ultra orthodox men study full time in yeshiva until age 40 on average why do fathers with families in poverty choose yeshiva over work draft deferments subsidize yeshiva attendance yet attendance typically continues long after exemption fertility rates are high tfr 7 6 and rising a social interaction approach explains these anomalies yeshiva attendance signals commitment to the community which provides mutual insurance to members prohibitions strengthen communities by effectively taxing real wages inducing high fertility historically the incursion of markets into traditional communities produces ultra orthodoxy subsidies induce dramatic reductions in labor supply and unparalleled increases in fertility illustrating extreme responses social groups may have to interventions

output effects of government purchases the theoretical analysis focuses on the distinction between temporary and permanent movements in government purchases under plausible conditions the temporary case involves an output response that is positive less than one to one with the change in government purchases and larger than that generated by an equal sized but permanent shift in purchase the equilibrium real rate of return rise in the temporary case but changes little in the permanent one defense purchases are divided empirically into permanent and temporary components by considering the role of temporary wars no temporary shifts in nondefense purchases were isolated empirical results verify an expansionary output effect for temporary purchases that exceeds that of permanent purchases the results for some other expectational hypotheses are found to be generally supportive of the theory

how do exchange rates co move a study on the currencies of five inflation targeting countries abstract this paper does three things first it explores the type of asymmetry in exchange rate correlation for five inflation targeting countries we show their currencies co move more closely with the currencies of some influential foreign countries during joint appreciations than joint depreciations against a world currency second it establishes empirically the linkage between interest rate differentials and exchange rate correlation we find evidence that both widening and narrowing interest rate differentials will reduce the correlation third it proposes a new version of the asymmetric dynamic conditional correlation model the model proves to be capable of providing great insight into the two issues investigated

why does private consumption rise after a government spending shock recent empirical evidence suggests that private consumption is crowded in by government spending this outcome violates existing macroeconomic theory according to which the negative wealth effect brought about by a rise in public expenditure should decrease consumption

evidence on the substitutability between government purchases and consumer spending within specific spending categories abstract this paper examines the response of consumer spending to government purchases within four spending categories education health housing and transportation estimation suggests they are either complements or independent and confidence intervals exclude large estimates of substitutability found in the literature

a friction model of daily bundesbank and federal reserve intervention abstract this paper takes a novel approach to derive a central bank intervention reaction function a garch model for exchange rates is amended to allow interventions to have an effect on both the mean and the variance of exchange rate returns an intervention reaction function is obtained by combining the model with a loss function for the central bank estimation results for the implied friction model reproduce the familiar leaning against the wind policy by the bundesbank and the federal reserve furthermore the central banks appear to have reacted to increases in the conditional variance of daily dm returns

liquidity constraints and the substitutability between private and government consumption the role of military and non military spending i introduction using data for a number of economies we investigate i the relationship between private consumption and two types of government spending military and non military and ii the severity of liquidity constraints because of their importance for macroeconomic modeling in theory and practice 1 both issues have been the subjects of considerable theoretical and empirical investigation on the issue of liquidity constraints the most influential research has relied on hall s 1978 euler equation approach to the permanent income hypothesis in an attempt to reconcile hall s and flavin s 1981 methodologies hayashi 1982 modified hall s martingale result to allow for the possibility that a subset of consumers are liquidity constrained and showed that liquidity constraints can result in consumption s excess sensitivity to current income campbell and mankiw 1989 1990 1991 and jappelli and pagano 1989 have applied hayashi s methodology using data from the u s and several other oecd countries on the substitutability issue aschauer 1985 has modified hall s euler equation to allow for substitutability between government spending and private consumption and found that the two are substitutes for the u s karras 1994 however using a similar approach and data for 30 countries concludes that private and government consumption are better described as complementary or unrelated liquidity constraints and substitutability have been combined in studies by graham and himarios 1991 cushing 1992 and graham 1993 using u s data and by evans and karras 1996 for a number of countries a crucial limitation of most of these studies is the use of aggregate government consumption data which counterintuitively imposes a common substitutability parameter on all components of government spending 2 using recently available time series data for a large number of countries the present paper relaxes this restriction by decomposing government consumption into military and non military components enabling us to separately identify their relationship to private consumption the allocation of government consumption between military and non military functions has varied greatly across countries the appendix reports the average size of military and non military government shares in gdp as well as the military non military ratio by country over the 1970 1989 period average military expenditure as a fraction of gdp for example has ranged in our sample from 0 11 in mexico to 12 30 in jordan similarly the fraction of government consumption absorbed by military expenditure has ranged from 1 09 in mauritius to 66 82 in poland this sizable variability is promising in terms of cross sectional identification power but it also suggests that the estimated parameters must not be assumed to be common across countries the estimated model is derived in section ii which combines liquidity constraints and substitutability by nesting the approaches of hayashi 1982 and aschauer 1985 in the same section we discuss data sources and the estimation strategy which permits the estimated parameters to vary by country in a way that helps determine how they are influenced by country specific factors section iii estimates the model for a panel of the 66 countries for which annual data on all series are available for the 1970 1989 period the paper s main conclusions are given in section iv ii methodology and data we assume that consumers in economy i at time t derive utility from effective consumption c sup which we define as 1 mathematical expression omitted where c is private consumption g sup m and g sup nm are the military and non military components of government consumption the parameters theta sup m and theta sup nm measure the degree of substitutability between c and g sup m and c and g sup nm respectively

global behaviour of a system with imperfect private public substitutability abstract empirical findings reveal that the relationship between private and public consumption generically differs from country to country it is substitutable for some while it is complementary for others the present paper incorporates this regularity into a simple growth model with public goods which affect utility and production the model casts off the standard assumption of socially constant returns to scale and as a result it generates many interesting dynamic features which do not arise with constant returns when the system displays increasing returns the dynamic path may diverge from an interior equilibrium in expanding oscillations suggesting that self fulfilling expectations could play an essential role with decreasing returns the interior equilibrium becomes a saddle point interestingly it turns out that the substitutability versus complementarity distinction does make a difference in affecting the stationary state and its transitional dynamics

evidence of public spending crowding out from a panel of oecd countries the empirical relationship between government spending and private investment is examined using a panel of 14 oecd countries the evidence suggests the existence of a significant crowding in effect of private investment by public investment through the positive impact of infrastructure on private investment productivity moreover government consumption appears to crowd out private investment the implications of these results are of foremost importance when it comes to fiscal consolidation deficit reductions engineered through cuts in public investment could severely impinge on private capital accumulation and growth prospects

personal liberties religiosity and effort abstract in this paper we study the role of religiosity in influencing the choice of labor effort many religions promote restrictions on personal liberties such as divorce abortion gender parity or gay marriage often regulated by law we assume that the higher the degree of religiosity of an individual the less he enjoys such personal liberties and the less he likes to be in a society which allows them while seculars enjoy such liberties by standard consumer theory the differential valuation induced by religiosity influences individual decisions on other dimensions as well notably labour supply we show empirically that this nexus holds and that the size of the effect is large specifically we construct an index of personal liberties and find solid evidence in support of the joint effect of religiosity and liberties on labor effort our empirical results indicate that religiosity interacted with the legal level of liberties has a significant and strong negative effect on labor supply and that increases in the cap on liberties have a negative effect on the labor supply of the religious individuals and positive for the secular

does religion distract the poor income and issue voting around the world this article asks whether religion undermines the negative relationship between income and left voting that is assumed in standard political economy models of democracy analysis of cross country survey data reveals that this correlation disappears among religious individuals in countries that use proportional representation this is the case in large part because there is a moral values dimension that has a correlation with income that is equal in magnitude but has the opposite sign as the economic dimension and the votes of the religious are better explained by their positions on moral than economic issues especially in countries with multiparty systems the authors conclude by discussing implications for theories of redistribution

portfolio optimization in the presence of dependent financial returns with long memory a copula based approach abstract in this paper we seek to examine the effect of the presence of long memory on the dependence structure between financial returns and on portfolio optimization first we focus on the dependence structure using copulas to select the best copula in addition to the goodness of fit tests we employ a graphical method based on visual comparison of the fitted copula density and the smoothed copula density estimated by wavelets moreover we check the stability of the copula parameter the empirical results show that the long memory affects the dependence structure second we analyze the impact of this dependence structure on the optimal portfolio we propose a new approach based on minimizing the conditional value at risk and assuming that the dependence structure is modeled by the copula parameter the empirical results show that our approach outperforms the traditional minimizing variance approach where the dependence structure is represented by the linear correlation coefficient

why do central banks intervene abstract intervention by central banks in terms of buying and selling foreign currency has been a major activity in recent years this paper investigates the motivations for such policy and the evidence for its effectiveness we use high quality daily data on the dollar amounts of intervention by the central banks of the us and germany we also use information on agreed g7 target levels for the dm and yen nominal exchange rates daily nominal dollar exchange rate returns are well described as a martingale garch process and we find little evidence that the different types of intervention have had much effect on the conditional mean of exchange rate returns there is some evidence that intervention is associated with slight increases in the volatility of exchange rate returns while little evidence is found for the effectiveness of intervention the motivations are more clear in particular from the application of probit analysis we find that the probability of intervention is determined by the magnitude of the deviation of the nominal exchange rate from the agreed target level and to a lesser extent by the current volatility of exchange rates

belief in a just world and redistributive politics international surveys reveal wide differences between the views held in different countries concerning the causes of wealth or poverty and the extent to which people are responsible for their own fate at the same time social ethnographies and experiments by psychologists demonstrate individuals recurrent struggle with cognitive dissonance as they seek to maintain and pass on to their children a view of the world where effort ultimately pays off and everyone gets their just deserts this paper offers a model that helps explain i why most people feel such a need to believe in a just world ii why this need and therefore the prevalence of the belief varies considerably across countries iii the implications of this phenomenon for international differences in political ideology levels of redistribution labor supply aggregate income and popular perceptions of the poor the model shows in particular how complementarities arise endogenously between individuals desired beliefs or ideological choices resulting in two equilibria a first american equilibrium is characterized by a high prevalence of just world beliefs among the population and relatively laissez faire policies the other european equilibrium is characterized by more pessimism about the role of effort in economic outcomes and a more extensive welfare state more generally the paper develops a theory of collective beliefs and motivated cognitions including those concerning money consumption and happiness as well as religion

why the poor do not expropriate the rich an old argument in new garb we consider a political economy with two partisan parties each party represents a given constituency of voters if one party labour represents poor voters and the other christian democrats rich voters if a redistributive tax policy is the only issue and if there are no incentive considerations then in equilibrium the party representing the poor will propose a tax rate of unity if however there are two issues tax policy and religion for instance then this is not generally the case the analysis shows that if a simple condition on the distribution of voter preferences holds then as the salience of the non economic issue increases the tax rate proposed by labour in equilibrium will fall possibly even to zero even though a majority of the population may have an ideal tax rate of unity 1998 elsevier science s a all rights reserved

conditional covariances and direct central bank interventions in the foreign exchange markets abstract in this paper we investigate the effects of central bank interventions cbis on the ex post correlation and covariance of exchange rates using a multivariate garch model with time varying conditional covariances we estimate the effects of cbis on both the variances and covariance between the yen and the deutsche mark the euro in terms of the us dollar our results suggest that coordinated cbis not only tend to increase the volatility of exchange rates but also explain a significant amount of the covariance between the major currencies we show that this result can be useful for short run currency portfolio management

market consumption and hidden consumption a test for substitutability in this paper an empirical analysis is performed on the relationship between private consumption and underground economy for the italian case it is found that private market consumption and underground or hidden consumption may be defined as complementary goods an increase in underground consumption tends to increase family market consumption and increase its marginal utility an implication of this result is that the nonmarket sector does not offer hedging opportunities to the consumer worker as stressed by busato and chiarini s 2004 artificial economy moreover wealth effects associated with a change in underground consumption are negative a statistical model confirms this structural interpretation

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

church state separation and redistribution we analyze how religion affects voting and redistribution our model directs attention away from the particular faith belief or risk attitudes of religious individuals and emphasizes instead how organized religion opens the door to standard group based distributive politics we argue that organized religion makes it possible for the rich and the religious poor to form electoral coalitions in favor of low taxes and limited redistribution such electoral coalitions form out of simple material self interest and they occur at the expense of the secular poor however the material reward to the religious poor from supporting such electoral coalitions depends on the institutional context as state support for religion increases poor religious voters have greater incentives to vote with poor secular voters in favor of parties that support high taxes the analysis therefore highlights the possibilities of understanding how religion affects politics without asserting that religious individuals differ systematically from secular ones in their values or preferences

fiscal policy and national saving this paper uses structural vector autoregressions along with structural measures of fiscal policy to measure the dynamic impact of fiscal policy shocks on the output gap and national saving positive shocks to government purchases and negative shocks to real net taxes are found to increase the output gap positive shocks to the government s structural surplus increases national saving although the effects are small positive shocks to government purchases are found to substantially reduce national saving negative shocks to real net tax revenues as a share of potential gdp have a small negative impact on national saving

how effective is fiscal policy in raising national saving while fiscal adjustment is commonly viewed as the cornerstone of macroeconomic stabilization the effectiveness of alternative fiscal instruments in raising national saving is still poorly understood this paper enters the debate by estimating a private consumption function that allows for two types of agents finite horizons and liquidity constraints and nests three different consumption hypotheses using a large panel data set that includes both industrial and developing countries we reject full ricardian equivalence we also find substantial differences between industrial and developing countries regarding both the extent of ricardian offsetting and the degree to which the government budget constraint is internalized

government spending and private consumption some international evidence this paper investigates the relationship between private consumption and publicly provided goods and services for a number of countries the empirical results show that in the aggregate private and government consumption are best described as complementary in the sense that an increase in one raises the marginal utility of the other the strength of this relationship is shown to be negatively affected by the government size these findings are robust across all specifications tried copyright 1994 by ohio state university press

central bank intervention and foreign exchange rates new evidence from figarch estimations abstract in this paper we investigate the effects of official interventions on the short run evolution and volatility of exchange rates to this aim we rely on a new measure of volatility implied by the figarch model that outperforms the traditionally used garch one it is found that central bank interventions exert an incorrectly signed effect on the levels of exchange rates and tend to increase their volatility in the short run in general our results also show that the traditional garch estimations tend to underestimate the effects in terms of volatility

cross regime evidence of macroeconomic rationality rational expectations macromodels predict that the short run effects of monetary shocks on real output x should be negatively related across policy regimes to the variability of such shocks this paper presents cross regime tests of this and related propositions based on a sample of 47 countries the within regime estimates reveal a consistent pattern of positive short run real output effects with neutrality of money holding in the long run the cross regime tests show that x is negatively related to the variance of monetary shocks positively related to the variance of real output shocks negatively related to the variance of velocity shocks and unrelated to either the mean or variance of anticipated money growth

sensitivity of consumption to income and to government purchases some specification and estimation issues the paper derives a nonlinear error correction model ecm for consumption and shows that existing models that are based on quadratic utility combine permanent income and current income consumption and nest or could nest the hypothesis of substitutability between private consumption and government purchases are special cases of the ecm the importance of some econometric issues that have not received proper attention in the literature is demonstrated by estimating the models using us aggregate quarterly data 1953 1 1992 4 the evidence suggests that the ecm produces more reliable estimates than do the existing restrictive models

is the ricardian equivalence proposition an aerie fairy theory for europe using a theoretical model based on dynamic optimizing agents we test empirically the ricardian equivalence proposition rep for the eu 15 countries the theoretical setting allows us to obtain estimates of the structural parameters of the model and to test directly the hypothesis implied by the rep using recently developed end of sample cointegration breakdown tests we find evidence of a change in the fiscal behaviour of individuals during the last decade after the introduction of a fiscal rule namely the maastricht criteria for most countries in the sample the results concerning the direction of change are mixed

ricardian equivalence empirical evidence from developing economies abstract the strong underlying assumptions of the barro ricardo equivalence proposition rep raise doubts on its validity especially for developing countries this paper attempts to analyze the validity of the rep and the sources of deviation from rep for a large sample of developing countries although the results are of a mixed nature they suggest that the presence of liquidity constrained individuals may be the source of deviation from the rep the analysis also indicates that public spending is a poor substitute for private consumption and hence implies that temporary increases in public spending may have some expansionary effect on aggregate demand

the market microstructure of central bank intervention abstract how quickly do central bank intervention operations impact the foreign exchange market and do intra daily market conditions influence the effectiveness of central bank interventions this paper uses high frequency intra daily data to examine the relationship between the efficacy of intervention operations and the state of the market at the moment that the operation is made public the results indicate that some traders typically know that the fed is intervening at least 1 h prior to the public release of the information in newswire reports also the evidence suggests that the timing of intervention operations matters interventions that occur during heavy trading volume that are closely timed to scheduled macro announcements and that are coordinated with another central bank are the most likely to have large effects

central bank intervention and exchange rate volatility abstract this paper explores the effects of foreign exchange intervention by central banks on the behavior of exchange rates the g 3 central banks have undertaken an unprecedented number of both coordinated and unilateral intervention operations in the last 10 years existing empirical evidence on the effectiveness of intervention is mixed studies using data from the 1970s suggest that intervention operations that do not affect the monetary base have at most a short lived influence on exchange rates but more recent studies indicate that the intervention operations that followed the plaza agreement influenced both the level and variance of exchange rates this paper examines the effects of us german and japanese monetary and intervention policies on dollar mark and dollar yen exchange rate volatility over the 1977 1994 period the results indicate that intervention operations generally increase exchange rate volatility this is particularly true of secret interventions which are those undertaken by central banks without notification of the public overt interventions in the mid 1980s appear to have reduced exchange rate volatility but in other periods and for the 1977 1994 period as a whole central bank intervention is associated with greater exchange rate volatility

effects of government spending on private investment this paper investigates the effects of military and non military public expenditures on gross private investment using cointegration and error correction analysis the latter type of public spending is disagreggated into expenditures of infrastructure consumption and other general government expenditures the empirical evidence from four emerging european countries namely greece ireland portugal and spain suggests that in some cases public capital spending stimulates investment while in others it depresses it also the results tentatively indicate that defence spending exerts no influence on private investment thus adding to the ongoing controversy of the economic effects of military spending

fiscal policy in good times and bad in the 1980s several countries with large government debt or deficit implemented substantial and in some cases drastic deficit cuts contrary to widespread expectations in many cases private consumption boomed rather than contracted this paper shows that in times of fiscal stress shocks to government revenues and especially expenditure have very different effects on private consumption than in normal times

growth and public debt what are the relevant trade offs the interplay between growth and public debt is addressed considering a barro type 1 endogenous growth model where public spending is financed through taxes on income and public debt debt is assumed to be a fixed proportion of gdp which is used as a policy parameter by the government we first show that when debt is a large enough proportion of gdp two distinct bgps may co exist one being indeterminate therefore local and global indeterminacy may arise and self fulfilling expectations appear as a crucial ingredient to understand the impact of debt on growth and on macroeconomic fluctuations we then exhibit two types of important trade off associated with self fulfilling expectations first we show that the lowest bgp is always decreasing with respect to the ratio of debt gdp while the highest one is increasing as a result depending on the bgp selected by agents expectations the relationship between debt and growth is not always negative second we show that the highest bgp which provides the highest welfare is always locally indeterminate while the lowest is always locally determinate therefore depending on the expectations of agents when debt is increasing large fluctuations associated to self fulfilling believes may occur and be associated at the same time with welfare losses if there is a coordination on the low steady state finally a simple calibration exercise allows to provide an understanding of the recent experiences of many oecd countries

are consumers ricardian evidence for the united states this paper derives three empirical implications of a well specified model of consumer behavior a model that nests both ricardian equivalence and an alternative non ricardian theory ricardian equivalence is then tested against this alternative the tests reveal that ricardian equivalence cannot be rejected

the effects of public spending externalities abstract we conduct a positive analysis on the effects of externalities produced by government spending to this effect we estimate using u s data an rbc model with two salient features first we allow government consumption to directly affect the marginal utility of consumption second we allow public capital to shift the productivity of private factors we provide an identification analysis that supports the strategy adopted for estimating the parameters governing these two channels on one hand private and government consumption are robustly estimated to be substitute goods because of substitutability labor supply reacts little to a government consumption shock so the estimated output multiplier is much lower than in models with separabilities on the other hand our results point towards public investment being unproductive

a memory based model of bounded rationality in order to investigate the impact of limited memory on human behavior i develop a model of memory grounded in psychological and biological research i assume that people take their memories as accurate and use them to make inferences the resulting model predicts both over and underreaction but provides enough structure to predict when each effect dominates i then use this framework to study the consumption decision the results match empirical work on consumption predictability as well as differences in the marginal propensity to consume from different income streams most importantly because it ties the extent of bias to a measurable aspect of the stochastic process being forecasted the model makes testable empirical predictions

official central bank interventions and exchange rate volatility evidence from a regime switching analysis in this paper we investigate the effect of central bank interventions on the weekly returns and volatility of the dem usd and yen usd exchange rate returns in contrast with previous analyses we allow for regime dependent specifications and investigate whether official interventions can explain the observed volatility regime switches it is found that depending on the prevailing volatility level coordinated central bank interventions can lead to either a stabilizing or a destabilizing effect our results lead us to challenge the usual view that such interventions always imply increases in volatility c 2002 elsevier b v all rights reserved

are forign exchange intervention and monetary policy related and does it really matter the relationship between foreign exchange intervention and monetary policy underlies the question of whether sterilized interventions can affect the exchange rate in this article the author examines this relationship using data on u s foreign exchange interventions from 1985 to 1990 recently made publicly available she examines whether interventions could be viewed as signaling changes in future monetary policy variables the author also considers whether changes in monetary policy may induce interventions in an effort by central bankers to lean against the wind of exchange rate movements interestingly she finds evidence both that interventions help predict monetary policy variables and that monetary variables help predict interventions copyright 1995 by university of chicago press

order flow and exchange rate comovement abstract this paper extends the literature on the linkage between order flows and exchange rates from the univariate to the multivariate framework we examine how order flow differentials drive exchange rate comovements using data on five major exchange rates and at three different intraday frequencies we also control for bid ask spreads and the possible effects of order flow on returns and return volatility and employ alternative order flow measures our results show that the effect of order flow on exchange rate comovements is significantly negative during the tranquil period but can become positive during the turbulet period this negative effect lessens as the intraday frequency lowers generally over the entire sample period exchange rate correlations are stronger during joint appreciations than joint depreciations

intratemporal substitution between private and government consumption the case of japan abstract in this paper we use japanese quarterly data to examine the relationship between private and government consumption we apply a two step estimation procedure and find additional evidence that the two types of consumption may be complements or unrelated

government spending entry and the consumption crowding in puzzle this article documents empirically that net firm entry robustly rises after a u s government spending expansion we use this new finding to test the empirical validity of various model features that have been proposed to generate consumption crowding in after positive expenditure shocks endogenous entry models typically fail to generate the observed joint increase in consumption and entry model features that dampen the wealth effect such as rule of thumb households or complementarity between labor and consumption in preferences tend to reduce entry we show that utility or productivity enhancing public spending can reconcile the model with our documented fact and performs well empirically

a model of political competition with citizen candidates the authors develop a model of electoral competition in which citizens choose whether or not to run as candidates a winner implements her favorite policy the equilibrium number of candidates depends negatively on the cost of running and positively on the benefits of winning for some parameter values all equilibria under plurality rule have exactly two candidates whose positions are distinct two candidate elections are more likely under plurality rule than under a runoff system the candidates positions are less differentiated under a runoff system there exist equilibria under both systems in which some candidates have no chance of winning

liberte egalite religiosite abstract we study the effect of religiosity on the political choices over redistribution and the legal restrictions on personal liberties we assume that the more religious an individual is i the less he enjoys the use of liberties prohibited by his religion and ii the higher the negative externality experienced when others practice those liberties we show that legal restrictions on liberties has an impact on income inequality we find that when the religious cleavage in society is large high intolerance due to negative externalities leads to a political outcome consisting of repression of liberties and relatively low taxes

public goods merit goods and the relation between private and government consumption in this paper we investigate the relation between public and private consumption by constructing a general government spending data set by function for 12 european countries in particular we split government consumption into two categories the 1rst category public goods includes defence public order and justice the second category merit goods includes health education and other services that could have been provided privately equations from a relatively general permanent income model are estimated by gmm the estimates are fairly robust in showing that public goods substitute while merit goods complement private consumption however the relation between merit goods and private goods turns out to be stronger than that between public goods and private goods thus in the aggregate government and private consumption are complements c