experience tenure and wage growth of young black and white men this paper studies the source of differences in wage growth between young black and white workers focusing on terminal high school graduates from the national longitudinal survey of youth we estimate the returns to on the job tenure and general labor market experience using ordinary least squares altonji and shakotko and topel estimators results from all three estimators indicate that returns to general experience for black workers trail those for white workers but that black workers earn equal if not higher returns to tenure than do white workers

inflation and welfare in a monetary economy it is in everyone s private interest to try to get someone else to hold non interest bearing cash and reserves but someone has to hold it all so these efforts must simply cancel out all of us spend several hours per year in this effort and employ thousands of talented and highly trained people to help us these person hours are simply thrown away wasted on a task that should not have to be performed at all

risk taking global diversification and growth this paper develops a continuous time stochastic model in which international risk sharing can yield substantial welfare gains through its effect on expected consumption growth the mechanism linking global diversification to growth is an attendant world portfolio shift from safe low yield capital to riskier high yield capital the presence of these two types of capital captures the idea that growth depends on the availability of an ever increasing array of specialized hence inherently risky production inputs calibration exercises using consumption and stock market data imply that most countries reap large steady state welfare gains from global financial integration copyright 1994 by american economic association

tests for parameter instability in regressions with i 1 processes this article derives the large sample distributions of lagrange multiplier lm tests for parameter instability against several alternatives of interest in the context of cointegrated regression models the fully modified estimator of phillips and hansen is extended to cover general models with stochastic and deterministic trends the test statistics considered include the supf test of quandt as well as the lm tests of nyblom and of nabeya and tanaka it is found that the asymptotic distributions depend on the nature of the regressor processes that is if the regressors are stochastic or deterministic trends the distributions are noticeably different from the distributions when the data are weakly dependent it is also found that the lack of cointegration is a special case of the alternative hypothesis considered an unstable intercept so the tests proposed here may also be viewed as a test of the null of cointegration against the alternative of no cointegration the tests are applied to three data se

panel attrition from the panel study of income dynamics household income marital status and mortality this analysis is concerned with the determinants of panel attrition from the panel study of income dynamics and with its consequences for estimation of dynamic behavioral models which exploit the panel or longitudinal information household income dynamics marriage formation and dissolution and adult mortality risk we develop and estimate joint models of attrition and one or more of these substantive processes and allow for correlation across the equations through random effects although we find evidence of significant selectivity in attrition behavior the biases that are introduced by ignoring selective attrition are very mild

will the sovereign debt market survive economic theory and evidence from a variety of debt markets shed light on current reform proposals concerning emerging market debt debt markets including the u s municipal bond market generally function best when the rights of creditors are protected most effectively since current imf reform proposals significantly emasculate creditor rights they are likely to have an adverse effect on the flow of new funds to sovereign borrowers this abstract was borrowed from another version of this item

the determinants of earnings a behavioral approach we survey the determinants of earnings and propose a framework for understanding labor market success we suggest that the advantages of the children of successful parents go considerably beyond the benefits of superior education the inheritance of wealth or the genetic inheritance of cognitive ability we suggest that noncognitive personality variables such as attitudes towards risk ability to adapt to new economic conditions hard work and the rate of time preference affect both earning and the transmission of economic status across generations

early career work experience and gender wage differentials we estimate a wage model that includes an array of variables measuring the fraction of time worked during each year of the career this array fully characterizes past employment experience regardless of how sporadic it has been our model yields substantially higher estimated returns to experience and lower returns to tenure than do models that measure experience cumulatively and use the standard quadratic functional form we find that the data reject the standard model but fail to reject our model furthermore we find that 12 of the male female wage gap is due to differences in the timing of work experience

a long run perspective on saving historical estimates of long run gross savings rates are provided for 11 countries which represent about 48 per cent of world product in real terms and close to half of world savings even though savings rates declined over the past decade in nine of the 11 countries present rates are usually well above their prewar levels factors which influence savings rates are also examined

the impact of psychological and human capital on wages historically economists have taken the position that psychological capital is either unobservable or immeasurable thus heretofore little evidence has been available on the contribution of psychological capital to wages using data drawn from two different waves of the national longitudinal survey of youth we offer evidence that psychological capital has both a direct effect via self esteem and an indirect effect through locus of control on an individual s real wage we find a person s wage is more sensitive to changes in self esteem than to comparable alterations in human capital both relative wages and human capital contribute to self esteem

capital account liberalization what do cross country studies tell us capital account liberalization it is fair to say remains one of the most controversial and least understood policies of our day one reason is that different theoretical perspectives have very different implications for the desirability of liberalizing capital flows another is that empirical analysis has failed to yield conclusive results the answer another influential strand of thought contends is that this efficient markets paradigm is fundamentally misleading when applied to capital flows limits on capital movements are a distortion it is an implication of the theory of the second best that removing one distortion need not be welfare enhancing when other distortions are present

a century of current account dynamics abstract recent globalization trends have refocused attention on the historical evolution of international capital mobility over the long run the issue is examined here using time series analysis of current account dynamics for fifteen countries since circa 1850 the inter war period emerges as an era of low capital mobility and only recently can we observe a tentative return to the degree of capital mobility witnessed during the late nineteenth century the analysis of saving and investment dynamics also helps make sense of the frequently observed high correlation of saving and investment rates in historical data

on the welfare cost of inflation and the recent behavior of money demand post 1980 u s data trace out a stable long run money demand relationship of cagan s semi log form between the m1 income ratio and the nominal interest rate with an interest semi elasticity of 1 79 integrating under this money demand curve yields estimates of the welfare cost of modest departures from friedman s zero nominal interest rate rule for the optimum quantity of money that are quite small the results suggest that the federal reserve s current policy which generates low but still positive rates of inflation provides an adequate approximation in welfare terms to the alternative of moving all the way to the friedman rule jel e31 e41 e52

extensive margins and the demand for money at low interest rates we argue that the relevant monetary decision for the majority of u s households is not the fraction of assets to be held in interest bearing form but whether to hold any such assets at all we call this the decision to adopt the financial technology we show that the key variable governing the adoption decision is the product of the interest rate times the total amount of assets this implies that the interest elasticity of household money demand at low interest rates can be estimated from the variation in asset holdings in a cross section of households rather than historical interest rate variations we do so with the 1989 survey of consumer finances we find that a the elasticity of money demand is very small when the interest rate is small b the probability that a household holds any amount of interest bearing assets is positively related to the level of financial assets and c the cost of adopting financial technologies is negatively related to participation in a pension program at intere

shoe leather costs reconsidered lucas has recently suggested that the shoe leather costs of inflation may amount to as much as 1 of gnp in the united states when moving to the friedman optimum we assess his thesis using empirical evidence for the united kingdom over the period 1870 1994 we find support for lucas proposition that interest rates should be specified in logs as a description of money demand dynamics but not as a steady state characterisation although lucas estimates can be corroborated a semilog interest rate specification implies smaller though still tangible welfare gain estimates for example 0 22 of gnp in perpetuity when moving from 6 to 2 nominal interest rates

capital market liberalization economic growth and instability summary this paper reviews briefly the arguments for capital market liberalization and identifies their theoretical and empirical weaknesses this provides the foundations for the argument for intervention in short term capital flows the paper concludes with a brief discussion of the various ways in which such interventions may be implemented 2000 elsevier science ltd all rights reserved

sweep programs the fall of m1 and rebirth of the medium of exchange this paper investigates the effect of sweep programs on m1 using dynamic simulations of money demand over 1994 2000 the postsample period constitutes when sweep programs have been in effect all models generate predictions systematically above reported m1 using data on newly initiated programs test findings indicate that sweeps account for the overprediction within the conventional money demand model with a long term interest rate we construct a medium of exchange measure m1s equal to m1 plus estimated holdings of sweep balances m1s velocity compares favorably with that of broader aggregates evidence indicates cointegration within m1s money demand

locus of control and job turnover in this paper i investigate how a workeri s locus of control the perception of control over daily events affects job to job and job to nonemployment turnover i find that an increase in internality the degree to which respondents believe that the outcomes of their life events are determined by their own actions versus external factors increases job to job transitions in addition the data reveal that the annual wage growth rate and the wage gains from job to job transitions increase with internality the influence of locus of control on job to nonemployment turnover however is insignificant once the workeri s level of attained education is controlled for

sectoral money demand and the great disinflation in the united states estimates of the welfare costs of inflation based on bailey 1956 are typically computed using aggregate money demand models yet the behavior of money demand may vary across sectors thus the impact on welfare of inflation regime shifts may differ between households and firms we specifically investigate the sectoral welfare implications of the shift from the great inflation to the present regime of low and stable inflation for this purpose we estimate different functional specifications of money demand for u s households and nonfinancial firms using flow of fund data covering four decades we find that the benefits were significant for both sectors

how does capital control spur economic growth this paper provides a conceptual and empirical framework for evaluating the effect of capital controls on long term economic growth in a small open economy which relies on successful investment projects to provide capital goods taking out short term loans has two contradictory impacts i it reduces the interest costs of financing investment projects and ii it also leads to larger asset losses in the scenario of short term debt run in this work we hypothesise that private financing decisions made by domestic investors are distorted towards excessive risk taking leading to ineffective capital formation thus capital control policies particularly regulations on short term loans can be socially beneficial as they alter the debt composition promote capital formation and achieve a higher output level using a panel data set covering 77 countries from 1995 to 2009 we employ a system generalised method of moments gmm estimator to sequentially test three hypotheses and find strong empirical evidence that supports our theory

international financial integration and economic growth abstract this paper uses new data and new econometric techniques to investigate the impact of international financial integration on economic growth and also to assess whether this relationship depends on the level of economic development financial development legal system development government corruption and macroeconomic policies using a wide array of measures of international financial integration for 57 countries and an assortment of statistical methodologies we are unable to reject the null hypothesis that international financial integration does not accelerate economic growth even when controlling for particular economic financial institutional and policy characteristics

financial integration investment and economic growth evidence from two eras of financial globalization abstract does international financial integration boost economic growth the empirical literature has not yet established a robust link between openness to the international capital market and economic growth in this paper we turn to the economic history of the first era of financial globalization 1880 1914 for new insights using identical empirical models and techniques as contemporary studies we find a significant growth effect in the historical period a key difference between now and then is that opening up to the international market led to net capital movements and higher investment in the historical period but it no longer does so today

u s narrow money for the twenty first century i introduction though money retains its fundamental role in a market economy money measures have been noticeably de emphasized within the conduct of u s monetary policy the federal open market committee fomc stopped reporting annual growth objectives for monetary aggregates although it states that money supply still has value for gauging economic conditions board of governors 2000 however a growing body of research calls for returning monetary aggregates to a more prominent role within monetary policy meltzer 1998 asserts that the view of persistent money growth as being the source of inflation is again widely accepted perhaps more firmly held by some central bank governors now than at any time in the twentieth century nelson 2002 provides evidence that base money has a significant effect on output relative to potential in the united states and united kingdom even after controlling for the short term real interest rate nelson 2003 argues that money growth governs the mean and dynamics of inflation in present day new keynesian models leeper and roush 2003 find evidence of an essential role for m2 within the transmission of monetary policy even after controlling for the nominal interest rate 1 this article focuses on the role of sweep programs in properly measuring narrow money in a sweep program banks move a portion of funds from customer demand deposits dds or other checkable deposits ocds into instruments with zero statutory reserve requirements we examine the effects of two types of sweep programs in the united states retail sweep programs and commercial demand deposit sweep programs narrow transactions based money historically has played a key role in the conduct of monetary policy as hafer and wheelock 2001 explain m1 served as the measure of money within the st louis model although monetarists had long been divided over whether a narrow or broad aggregate was the preferable target for monetary policy the fomc appeared to focus on m1 during the 1970s and early 1980s publishing their target ranges for money growth in terms of m1 hafer and wheelock 2001 though state that deviations in m1 velocity from its upward trend beginning in the early 1980s caused instability within the st louis model hoffman and rasche 1991 and hoffman et al 1995 place dummy variables in their vector error correction mechanisms to capture observed shifts in m1 velocity what attention remains on the money supply seems to be focused on broad rather than narrow aggregates but the broad aggregates have not escaped difficulties duca 2000 and hafer and wheelock 2001 document a deviation of m2 velocity from its long run trend in the early 1990s sometimes characterized as the missing m2 episode duca and vanhoose 2004 state that one response was to replace m2 with mzm consistent with the view that heightened substitution between small time deposits and mutual funds other than money market mutual funds mmmfs largely accounted for the instability in m2 velocity but as they go on to discuss m2 and mzm velocity encountered problems in the early 2000s plunging in ways not in line with opportunity cost variables duca and van hoose 2004 state that broader aggregates may have become more vulnerable to portfolio substitution involving stock and mutual funds other than mmmf narrow money has also been used extensively in examining money demand a sizable body of research has emerged that empirically investigates the demand for m1 especially using cointegration techniques hoffman and rasche 1991 hoffman et al 1995 dutkowsky and atesoglu 2001 and ball 2001 provide evidence of a stable long run money demand equation using m1 ball 2002 generates further support with m1 and establishes a correspondence between the partial adjustment formulation and the vector error correction model yet research and policy making using narrow money is currently being hampered by the lack of an accurate measure of transactions based money

sovereign risk credibility and the gold standard 1870 1913 versus 1925 31 author s obstfeld maurice taylor alan m abstract what determines sovereign risk we study the london bond market from the 1870s to the 1930s our findings support conventional wisdom concerning the low credibility of the interwar gold standard before 1914 gold standard adherence effectively signalled credibility and shaved up to 30 basis points from country borrowing spreads in the 1920s however simply resuming prewar gold parities was insufficient to secure benefits countries that devalued before resumption were treated more favorably and markets scrutinized other signals public debt and british empire membership were important determinants of spreads after world war one but not before

incentive enhancing preferences personality behavior and earnings suppose there is a principal agent relationship between employer and employee in which effort is not contractible but is elicited through employer incentive mechanisms we term preferences that allow the employer to elicit effort at lower cost incentive enhancing we analyze how such preferences affect earnings nd then provide evidence that one of the relevant behavioral traits efficacy as well as other psychological aspects of individuals are significant influences on earnings we conclude that measures of cognitive performance are not sufficient indicators of the effectiveness of schools in promoting student labor market success incentive enhancing preferences are irreducibly heterogeneous incentive enhancing preferences help explain the persistence of poverty over generations within families and unlike cognitive skills incentive enhancing traits need not be welfare increasing for their bearers

the welfare cost of inflation in general equilibrium abstract this paper presents a general equilibrium monetary model in which inflation distorts a variety of marginal decisions although individually none of the distortions is very large they combine to yield substantial welfare cost estimates a sustained 4 percent inflation like that experienced in the us since 1983 costs the economy the equivalent of 0 41 percent of output per year when currency is identified as the relevant definition of money and over 1 percent of output per year when m1 is defined as money the results illustrate how the traditional partial equilibrium approach can seriously underestimate the true cost of inflation

the impact of capital market integration on educational choice and the consequences for economic growth this paper examines the impact of capital market integration on higher education and the link to economic growth the analysis takes into account that participation in higher education is non compulsory and depends on individual choice due to capital skill complementarity integration increases reduces the incentives to participate in higher education in capital importing exporting economies all other things equal from a national policy point of view public education expenditure should increase after integration of similar economies in order to attract mobile capital using foreign direct investment as a measure of capital flows we present empirical evidence which largely confirms our main hypothesis an increase in net capital inflows in response to capital market integration raises participation in higher education in addition we show that the adjustment in educational attainment is an empirically relevant channel through which capital inflows foster economic growth

sectoral money demand a co integration approach the major emphasis in previous money demand studies has been at the aggregate level with little systematic attention paid to sectoral differences in money holding behavior this paper attempts to address the latter issue by focusing on more homogeneous subgroups to gauge money holding patterns we apply cointegration theory to identify long run money demand functions for the household and business sectors of the u s economy in general our results which are based on the 1960 1990 u s monetary experience suggest substantial sectoral divergences in long run relationships in particular the household sector reveals more stable relationships the business sector indicates strong interest elasticities which are found to be negligible for the household case these findings are invariant to alternative money definitions and for different sample periods copyright 1994 by mit press

internal external attitudes sense of efficacy and labor market experience a reply to duncan and morgan the paper studies direct evidence on reservation wages reported in great britain in 1982 to assess 1 whether such asking prices are high and 2 whether variations in these reservation wages are related to differences in measures of the subjective

why doesn t capital flow from rich to poor countries an empirical investigation we examine the empirical role of difierent explanations for the lack of ows of capital from rich to poor countries the lucas paradox the theoretical explanations include difierences in fundamentals across countries and capital market imperfections we show that during 1970i2000 low institutional quality is the leading explanation for example improving peru s institutional quality to australia s level implies a quadrupling of foreign investment recent studies emphasize the role of institutions for achieving higher levels of income but remain silent on the speciflc mechanisms our results indicate that foreign investment might be a channel through which institutions afiect long run development