production function regressions returns to scale and externalities a number of recent papers have used simple linear regressions in an attempt to identify market structure the extent of returns to scale and possible external effects in u s manufacturing industries the results obtained from these regressions have important implications for several branches of modern macroeconomics as a result the macro literature frequently cites specific numerical evidence from caballero and lyons 1992 and hall 1990 which suggests that there are quantitatively significant increasing returns to scale or external effects in u s manufacturing in contrast it is the argument of this paper that this evidence is not convincing the most robust evidence suggests that the typical u s manufacturing industry displays constant returns with no external effects on the other hand there is significant heterogeneity across industries

wealth distribution in life cycle economies abstract this paper compares the age wealth distribution produced in life cycle economies to the corresponding distribution in the us economy the idea is to calibrate the model economies to match features of the us earnings distribution and then examine the wealth distribution implications of the model economies the findings are that the calibrated model economies with earnings and lifetime uncertainty can replicate measures of both aggregate wealth and transfer wealth in the us furthermore the model economies produce the us wealth gini and a significant fraction of the wealth inequality within age groups however the model economies produce less than half the fraction of wealth held by the top 1 percent of us households

comparisons and combinations of long and long short strategies market neutral long short strategies get their returns from alphas and short rebates long strategies get their returns from alpha and the market differing return and risk sources complicate their comparison partly because of the strong market referenced focus of conventional performance analysis compelling theoretical advantages of active return per unit of active risk suggest that long short strategies are better able to deliver excess return than are conventional institutional long strategies long short strategies even with tiny positive alphas are seen to improve investors efficient frontiers when added to a traditional t bill long portfolio mix mostly because their risk sources are uncorrelated surprisingly the improvement occurs even if long short strategies are sharpe ratio inferior to long strategies these results provide theoretical support for including long short strategies in most investors mix of assets

the efficiency gains of long short investing long short strategies have generated controversy and institutional interest for more than 10 years we analyzed the efficiency gains of long short investing where we defined efficiency as the information ratio of the implemented strategy the optimal portfolio relative to the intrinsic information ratio of the alphas the efficiency advantage of long short investing arises from the loosening of the surprisingly important long only constraint long short and long only managers need to understand the impact of this significant constraint long short implementations offer the most improvement over long only implementations when the universe of assets is large asset volatility is low and the strategy has high active risk the long only constraint induces biases particularly toward small stocks limits the manager s ability to act on upside information by not allowing short positions that could finance long positions and reduces the efficiency of traditional high risk long only strategies relative t

saving puzzles and saving policies in the united states in the past two decades the widely reported personal saving rate in the united states has dropped from double digits to below zero first we attempt to account for the decline in the national income and product accounts nipa saving rate the macroeconomic literature suggests that 40 50 per cent of the drop since 1988 can be attributed to households spending stock market capital gains another 30 per cent is accounting transfers from personal saving into government and corporate saving because of the way pensions and capital gains taxes are treated in the nipa second while nipa saving measures are well suited to measuring the supply of new funds for investment and capital accumulation it is not clear that they should be the target of government saving policies finally we emphasize that the nipa saving rate is not useful in judging whether households are preparing for retirement or other contingencies many households have accumulated significant wealth primarily through retirement saving vehicles and capital gains even as the saving rate slid there remains a segment of the population who save little and whose behaviour appears untouched either by the stock market boom or the slide in personal saving we explore reasons and policy options for their puzzling low saving rate copyright 2001 oxford university press

measures of technology and the business cycle empirical evidence on the relationship between technology shocks and e g hours worked hinges crucially on the identification of the unobservable technological progress in this paper we study different measures of technology in order to find out i to what extent they capture the same underlying phenomenon and ii whether the implications for macroeconomic theory are robust across the approaches several versions of the productions function approach and structural var models are investigated our main finding is that the different technology measures are highly correlated however the exact formulation of the identifying restrictions seems to matter for the results while we replicate the standard finding of a strongly procyclical solow residual all other measures of technology are either acyclical or countercyclical

consumer response to the timing of income evidence from a change in tax withholding in 1992 the income tax withholding tables were adjusted so that withholding was reduced a typical worker received an extra 28 80 in take home pay per month in march through december 1992 to be offset by a lower tax refund in 1993 the change in withholding amounted to 0 5 percent of gdp president bush who proposed this change in his state of the union address intended that it provide a temporary stimulus to demand but the policy change involved only the timing of income so under the life cycle permanent income model it would be predicted to have a negligible effect on consumption and aggregate demand this paper reports consumers responses to the change in withholding the results are based on a survey taken shortly after it went into effect forty three percent of consumers report spending the extra take home pay substantially more than the zero percent predicted by the standard models but substantially less than the one hundred percent upon which the policy was predicated the decision to save the income is not explained by expected income growth therefore while behavior of many households is not fully consistent with the life cycle permanent income model liquidity constraints do not appear to account for this behavior this abstract was borrowed from another version of this item

a note on portfolio selection with restrictions on leverage abstract this note focuses on a mean variance asset allocation framework having restrictions on leverage namely where investors are constrained either to hold funds in a risk free asset i e to lend or to hold debt i e to borrow it is shown that the optimal portfolio in a constrained leverage situation will not have the same composition as the optimal portfolio in an unconstrained situation we give formal justification for the intuitive notion that the more debt an investor is constrained to hold the more the investor should tilt the remaining investments towards a portfolio of less risky assets conversely the greater the proportion an investor is constrained to hold in a risk free asset the more the investor should tilt remaining investment towards a portfolio of more risky assets

the uk consumption boom of the late 1980s aggregate implications of microeconomic evidence two competing explanations of the uk consumer boom in the late 1980s are the financial liberalisation imperfect housing market hypothesis of muellbauer and murphy and the expectations hypothesis of king we use 15 years of family expenditure surveys and cohort analysis to investigate to what extent these two hypotheses agree with observed changes in consumption patterns we find that the housing markets explanation accounts for much of the increase by older cohorts but cannot be reconciled with the marked rise in expenditure levels of younger households a simple simulation exercise shows instead that the expectations hypothesis can generate increases of expenditure by young consumers of the magnitude observed in our data

the response of expenditures to anticipated income changes panel data estimates standard models of intertemporal allocation predict that the time path of expenditures should be independent of the time path of income recently two papers parker 1999 and souleles 1999 have suggested that u s households have a high marginal propensity to spend within year anticipated income changes we use an expenditure survey panel from spain to re examine this issue we exploit two important features of the spanish data first we have quarterly panel data that follows households for more than four quarters second we use the fact that workers are exogenously sorted into one of two payment schemes some receive the same amount each month of the year and others receive an extra payment in june and december the extra payment is large and predictable we examine the detailed pattern of expenditures over the year to see whether they differ between the two groups we fail to find even weak differences we complement this with a conventional euler equation analysis of excess sensitivity our predicting equation for quarterly earnings growth is much better than usual and is likely to give a powerful test of the hypothesis that predictable changes in income do not lead to changes in expenditure patterns the results of this analysis confirm the graphical analysis we find no evidence of excess sensitivity we conclude that households in normal times do smooth consumption over the year we suggest a reconciliation of our results with those of parker and souleles

uncertain medical expenses and precautionary saving near the end of the life cycle this paper introduces a dynamic structural model of household consumption decisions in which elderly families consider the effects of uncertain future medical expenses when deciding current levels of consumption the model with uncertain medical expenses implies a potentially important role for precautionary saving incentives to explain slow rates of dissaving among elderly americans during retirement rather than just simulating the stochastic dynamic model preference parameters are estimated using panel data on health wealth and expenditures for retired families the health uncertainty model predicts consumption levels closer to observed expenditures than a life cycle model with uncertain longevity however elderly families typically dissave their financial assets more slowly than even the baseline health uncertainty model predicts is optimal

price and investment dynamics theory and plant level data we construct a model of a firm competing for market share in a customer market and making investments in physical capital the firm is financially constrained and there are implementation lags in investment our model predicts that product prices should depend on costs and competitors prices but respond weakly to demand shocks also prices should be strongly related to investment we estimate price and investment equations on panel data for swedish manufacturing plants and find results that are qualitatively in line with these predictions though the relation between investment and prices is stronger than predicted by our model

the dynamic effects of aggregate demand and supply disturbances we interpret fluctuations in gnp and unemployment as due to two types of disturbances disturbances that have a permanent effect on output and disturbances that do not we interpret the first as supply disturbances the second as demand disturbances demand disturbances have a hump shaped mirror image effect on output and unemployment the effect of supply disturbances on output increases steadily over time peaking after two years and reaching a plateau after five years

returns to education and wage equations the paper shows why considering a number of education dependent covariates in a wage equation decreases the coefficient of education in that equation this result is illustrated empirically with a meta analysis for portugal the education coefficient decreases when covariates are used that can be considered post education decisions on the other hand it is independent of sample size tenure and whether hourly or monthly wages are used these results support the use of a simple specification of the mincer equation for the study of the total returns to education

on the heterogeneity of sectoral growth and structural dynamics evidence from austrian manufacturing industries this article studies the factors driving structural dynamics across austrian manufacturing industries using a structural vector autoregressive model svar framework we identify sectoral labour productivity and demand shocks that are orthogonal to aggregate shocks we analyse the sectoral impulse response patterns and find that the effect of industry labour productivity shocks on industry output growth is quite heterogeneous we devise a taxonomy that allows us to classify industries according to the effect productivity and demand shocks have on output growth we also show that productivity shocks are quite heterogeneous not just across industries but also over time whereas shocks to sectoral demand growth are more systematic we test the taxonomy in a panel regression and are able to confirm our sector specific findings industry demand shocks and aggregate productivity and demand shocks lead always to an increase in industry output and industry employment

productivity shocks and real exchange rates abstract previous studies have concluded that productivity shocks have negligible effects on real exchange rate fluctuations this paper shows that when long run equilibrium relationships between real exchange rate levels and fundamental variables are taken into account relative productivity shocks account for most of the long run movements in the real exchange rates this can be interpreted as empirical support for the balassa 1964 journal of political economy 72 584 596 and samuelson 1964 review of economics and statistics 46 145 154 model where differences in relative productivity is the main source of long run deviations for purchasing power parity

labor market dynamics and the business cycle structural evidence for the united states we use a 12 dimensional var to examine the aggregate effects of two structural technology shocks and two policy shocks for each shock we examine the dynamic effects on the labor market the importance of the shock for labor market volatility and the comovement between labor market variables and other key aggregate variables in response to the shock we document that labor market indicators display hump shaped responses to the identified shocks technology shocks and monetary policy shocks are important for labor market volatility but the ranking of their importance is sensitive to the var specification the conditional correlations at business cycle frequencies are similar in response to the four shocks apart from the correlations between hours worked labor productivity and real wages to account for the unconditional correlations between these variables a mixture of shocks is required

the reaction of household consumption to predictable changes in social security taxes the key implication of rational expectations and the basic life cycle permanent income hypothesis that predictable changes in income have no effect on the growth rate of consumption expenditures is examined this implication is important for understanding the effectiveness and optimal timing of fiscal policy the causes and propagation of business cycles and the effects of income fluctuations on the growth rate of the economy using household level consumption data from the consumer expenditure survey whether expenditures on nondurable goods increase contemporaneously with predictable changes in social security tax withholding is tested it is found that households do change their consumption expenditures in response to the predictable fluctuations in income induced by the social security tax system

stochastic trends and economic fluctuations are business cycles mainly the result of permanent shocks to productivity this paper uses a long run restriction implied by a large class of real business cycle models identifying permanent productivity shocks as shocks to the common stochastic trend in output consumption and investment to provide new evidence on this question econometric tests indicate that this common stochastic trend cointegration implication is consistent with postwar u s data however in systems with nominal variables the estimates of this common stochastic trend indicate that permanent productivity shocks typically explain less than half of the business cycle variability in output consumption and investment copyright 1991 by american economic association

saving and liquidity constraints this paper is concerned with the theory of saving when consumers are not permitted to borrow and with the ability of such a theory to account for some of the stylized facts of saving behavior the models presented in the paper seem to account for important aspects of reality that are not explained by traditional life cycle models copyright 1991 by the econometric society

psychology and savings policies many observers of the current economic scene are concerned about the low rate of personal saving in the united states one well known researcher laurence kotlikoff 1992 calls the situation a crisis he proposes that each american worker receive an annual statement from the social security administration with projected benefits upon retirement arguing that if each of us got this statement our attention would be caught and perhaps our psychology of saving which is in such urgent need of redress would really change p 107 i agree with the thrust of kotlikoff s recommendations and join him in applauding steps that will alter the general public s psychology of saving however as economists we need to recognize that the economic theory of saving is similarly in urgent need of redress if we are to understand why people are saving so little and are to make helpful recommendations as to how to get people to save more we have to incorporate more of the psychology of saving into our economic theories kotlikoff s policy proposal while a sensible one highlights the growing gap between theory and policy prescription in this domain if households are acting in accordance with the life cycle theory of saving then undersaving is impossible so why do they need to have their psychology redressed and how does this psychology fit into the model this example reflects an increasing frustration in the economics community about personal saving many observers have come to the conclusion that the low saving rate represents an important problem on two fronts macroeconomists worry that the low saving rate will produce too little investment and microeconomists worry that individuals particularly the baby boomers are not putting enough away to finance a satisfactory lifestyle in retirement these are serious concerns however the frustration comes from the realization that even if there was agreement that the saving rate needs to go up economic theory offers little help in constructing a solution in the standard life cycle framework the only policy variable is the after tax rate of return to saving yet it is well known that the theory does not specify the sign of the relationship between the saving rate and the interest rate raising the interest rate increases the returns to saving but decreases the amount of saving necessary to yield any given future consumption level furthermore empirical estimates offer little help most studies are unable to reject the hypothesis that the elasticity of personal saving with respect to the interest rate is zero clearly this is frustrating the theory only gives us one lever to use and we don t know whether to push or pull with this background i wish to supply what should be considered good news the theory is misspecified life cycle models of saving fail to describe actual household saving in three important ways this failure of the theory is good news because by incorporating some basic psychology we can enrich the theory and generate specific policy recommendations in this paper i will begin by characterizing the problems with the theory and then go on to discussing the implications of modifying the theory

work welfare and single mothers economic survival strategies past efforts to conceptualize the effects of welfare on work have failed to consider the full range of incentives and disincentives that low skill single mothers perceive and act upon when making the choice between welfare and work they also have neglected the fundamental economic reality of these mothers lives neither welfare nor low wage work gives single mothers enough income to meet their families expenses in depth interviews with 379 low income single mothers in four u s cities show that welfare recipients and low wage workers employ a set of survival strategies to make ends meet the range of strategies available to mothers is shaped by the social structural characteristics of the cities in which they live and by the quality of their private social safety nets the authors argue that because some survival strategies are more compatible with work than others the strategies a mother employs may affect her ability to move from welfare to work most welfare recipients want to leave welfare for work however most also believe that unless they can lower the costs associated with work or increase their earning power through investments in further education they will be unable to meet their expenses by working

union contracts and the life cycle permanent income hypothesis this paper isolates households in the psid whose heads can be matched to particular long term union contracts with high confidence the author uses use published information on these contracts to construct a household specific measure of expected wage growth he finds that predictable wage movements are significantly correlated with consumption changes contrary to neoclassical consumption theory the author finds that consumption responds more strongly to predictable income declines than to predictable income increases this asymmetry is inconsistent with liquidity constraints and myopia but is qualitatively consistent with models in which preferences exhibit loss aversion copyright 1995 by american economic association

is consumption growth consistent with intertemporal optimization evidence from the consumer expenditure survey in this paper we show that some of the predictions of models of consumer intertemporal optimization are in line with the patterns of nondurable expenditure observed in u s household level data we propose a flexible specification of preferences that allows multiple commodities and yields empirically tractable equations we estimate preference parameters using the only u s micro data set with complete consumption information we show that previous rejections can be explained by the simplifying assumptions made in previous studies we also show that results obtained using good consumption or aggregate data can be misleading

are consumers forward looking evidence from fiscal experiments how changes in current and future income affect consumer spending is a perennial question in macroeconomics and public finance theoretical constructs such as the permanent income hypothesis are of limited assistance in resolving this issue because they neglect borrowing constraints and other market imperfections that can significantly affect the marginal propensity to spend out of current income recent empirical work has also proven inconclusive since whether consumption responds to income fluctuations by more or less than the permanent income hypothesis predicts turns critically upon whether disposable income follows a random walk or is stationary around a longrun trend see john campbell and angus deaton 1987 this controversy is unlikely to be resolved conclusively because it is notoriously difficult to distinguish a stationary but highly persistent time series from one that is nonstationary these difficulties suggest the importance of searching for natural experiments income shocks with predictable and well understood effects on future income to test models of consumer behavior changes in federal tax and transfer policy during the last two decades provide several episodes of this type analyzing the effects of these tax changes is also central to understanding the role of fiscal policy in affecting national saving this paper examines two aspects of consumer response to tax changes section i argues that consumption responds to temporary income tax shocks by more than the permanent income hypothesis would suggest results from the 1975 tax rebate in particular suggest that a 1 increase in transitory income raises spending by about 20 cents section ii examines consumption responses to tax announcements although the results are not conclusive they suggest that some consumers do not adjust consumption in anticipation of tax changes the final section sketches some implications for analyzing fiscal policy

a near rational model of the business cycle with wage and price inertia this paper presents a model in which insignificantly suboptimal behavior causes aggregate demand shocks to have significant real effects the individual loss to agents with inertial price wage behavior is second order in terms of the parameter describing the shock while the effect on real economic variables is first order thus significant changes in business activity can be generated by anticipated money supply changes provided that some agents are willing to engage in nonmaximizing behavior which results in small losses

humps and bumps in lifetime consumption in this article we argue that the life cycle model that allows demographics to affect household preferences and relaxes the assumption of certainty equivalence can generate hump shaped consumption profiles over age that are very similar to those observed in household level data sources and in particular match the differences in shape across different education groups liquidity constraints or myopia are not required to explain the empirical features of observed life cycle patterns

on the validity of econometric techniques with weak instruments inference on returns to education using compulsory school attendance laws we evaluate angrist and krueger 1991 and bound jaeger and baker 1995 by constructing reliable confidence regions around the 2sls and liml estimators for returns to schooling regardless of the quality of the instruments the results indicate that the returns to schooling were between 8 and 25 percent in 1970 and between 4 and 14 percent in 1980 although the estimates are less accurate than previously thought most specifications by angrist and krueger 1991 are informative for returns to schooling in particular concern about the reliability of the model with 178 instruments is unfounded despite the low first stage f statistic finally we briefly discuss bias adjustment of estimators and pretesting procedures as solutions to the weak instrument problem

growth and saving among individuals and households the lifecycle theory of saving and consumption predicts that changes in an economy s rate of economic growth will affect its aggregate saving rate by changing the lifetime resources of younger people relative to older people however studies that track the saving behavior of cohorts of household heads over time as they age have yielded estimates of age saving profiles that are too flat for growth to have much effect on the aggregate saving rate one problem with the cohort approach is that multigenerational households are common in many counties and the age saving profiles of households may be quite different from the age saving profiles of individuals that make up households in this paper we propose a method for estimating individual age saving profiles using household data this method is applied to data from taiwan and thailand we find that the individual method yields results that are more favorable to the lifecycle model these results imply that changes in the rate of economic growth may in som

do consumers respond to future income shocks evidence from social security reform in taiwan abstract a prediction of the basic permanent income hypothesis life cycle model is that an unexpected increase in future income produces an immediate increase in current consumption this paper tests that prediction using data from taiwan the 1985 labor standards law granted all employees in covered industries a windfall retirement severance benefit my results indicate that consumption did not increase immediately for those who were granted the windfall relative to those who received no windfall moreover consumption for those receiving a greater windfall did not increase relative to those who were granted less

does compulsory school attendance affect schooling and earnings we establish that season of birth is related to educational attainment because of school start age policy and compulsory school attendance laws individuals born in the beginning of the year start school at an older age and can therefore drop out after completing less schooling than individuals born near the end of the year roughly 25 percent of potential dropouts remain in school because of compulsory schooling laws we estimate the impact of compulsory schooling on earnings by using quarter of birth as an instrument for education the instrumental variables estimate of the return to education is close to the ordinary least squares estimate suggesting that there is little bias in conventional estimates every developed country in the world has a compulsory schooling requirement yet little is known about the effect these laws have on educational attainment and earnings 1 this paper exploits an unusual natural experiment to estimate the impact of compulsory schooling laws in the united states the experiment stems from the fact that children born in different months of the year start school at different ages while compulsory schooling laws generally require students to remain in school until their sixteenth or seventeenth birthday in effect the interaction of school entry requirements and compulsory schooling laws compel students born

the consequences of the us doj s antitrust activities a macroeconomic perspective do the antitrust law enforcement activities of the us department of justice act as exogenous technology shocks or as markup shocks limiting market power and promoting economic growth we analyze annual time series data from 1947 to 2003 on three measures of federal antitrust intervention the ratio of the antitrust division s budgetary expenditures to gdp as well as the numbers of civil and criminal antitrust cases instituted we find that changes in the levels of these policy variables act like negative technology shocks and that the negative effects are transitory antitrust policy generates no subsequent offsetting increases in productivity

optimal consumption policy under uncertain income this paper considers the consumption behavior of a risk averse consumer with a preference for immediate consumption who faces an uncertain income stream and plans for a finite or infinite number of periods the consumer may borrow up to a limit or save where both saving and borrowing are subject to the same positive rate of interest we derive the optimal consumption policies for both finite and infinite planning horizons investigate their characteristics and analyze their economic and behavioral implications

assessing school efficiency in portugal using fdh and bootstrapping this study explores a new data set that contains information both on inputs and outputs for a sample of portuguese secondary schools an fdh reference technology is used to determine radial technical efficiency scores and slacks although it is known that there is no reason to assume convexity in the study of education efficiency frontiers this is the first study ever to use fdh at the school level effectively relaxing the convexity assumption a two stage approach is used whereby the significant environmental variables that explain fdh efficiency scores and slacks are identified for the purpose of statistical inference the first application of the bootstrapping algorithms suggested by simar and wilson 2003 is conducted the study concludes that the unemployment rate access to health care services adult education and living infrastructures are determinants of school efficiency the differences between the coast and the interior of portugal seem to be more relevant as far as school efficiency is

how does future income affect current consumption this paper tests a straightforward implication of the basic life cycle model of consumption that current consumption depends on expected lifetime income the paper projects future income for a panel of households and finds that consumption is closely related to projected current income but unrelated to predictable changes in income however future income uncertainty has an important effect consumers facing greater income uncertainty consume less the results are consistent with buffer stock models of consumption like those of deaton 1991 or carroll 1992a 1992b where precautionary motives greatly reduce the willingness of prudent consumers to consume out of uncertain future income

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

the assessment consumer expenditure this article aims to illuminate two sets of consumption puzzles the first concerns the behavior of aggregate saving rates in the 1980s and early 1990s collapse and rebound in scandinavia and the u k and apparently a more secular decline in the u s the second set of puzzles concerns various apparent contradictions of the rational expectations permanent income hypothesis e g in time series the excess sensitivity of consumption changes to anticipated income changes and in cross sections the tendency of consumption and income age profiles to follow each other more than standard life cycle theory implies the article discusses in relatively non technical terms the implications both for euler equations and solved out consumption functions of introducing uncertainty credit constraint consumption leisure interactions habits and durability alternative to rational expectations the illiquidity of some assets and financial deregulation it also compares the merits of euler and solved out models of aggregate consumption

beyond balanced growth balanced growth models are commonly used in macroeconomics because they are consistent with the well known kaldor facts regarding economic growth these models however are inconsistent with one of the most striking regularities of the growth process the massive reallocation of labour from agriculture into manufacturing and services this paper presents a simple model consistent with both the kaldor facts and the dynamics of sectoral labour reallocation

social security benefits consumption expenditure and the life cycle hypothesis this paper examines the impact of changes in social security benefits on aggregate consumption expenditure under the null hypothesis there should be no contemporaneous effect at the monthly frequency because increases in benefits have always been announced at least 6 weeks prior to payment the paper develops overwhelming evidence contrary to the null that benefits have affected aggregate spending the results have strong implications for several important issues including ricardian equivalence government policy irrelevance and the excess sensitivity of consumption to changes in income

savings of the elderly and desired bequests cross section data often show that the wealth of the elderly increases with age even at advanced ages these and other results suggest that the life cycle hypothesis of consumption should be augmented to include a bequest motive for saving in this paper the author proposes a model of bequests and a test for a bequ est motive using panel data he finds that over a ten year period the elderly in the data set dissaved in contradiction to most cross section results the test offers no support for a bequest motive copyright 1987 by american economic association

the effects of male and female labor supply on commodity demands we examine the effects of male and female labor supply on household demands and present a simple and robust test for the separability of commodity demands from labor supply using data on individual households from six years of the uk fes we estimate a demand system for seven goods which includes hours and participation dummies as conditioning variables allowance is made for the possible endogeneity of these conditioning labor supply variables we find that separability is rejected furthermore we present evidence that ignoring the effects of labor supply leads to bias in the parameter estimates

within groups wage inequality and schooling further evidence for portugal this article provides further evidence on the positive impact of schooling on within groups wage dispersion in portugal using data on male workers from the 2001 wave of the european community household panel the issue of schooling endogeneity is taken into account by using the latest available instrumental variable technique for quantile regression i e the control function estimator due to lee 2007 the findings are compared with earlier results based on different techniques i e the instrumental variable estimator due to arias et al 2001 and the standard exogeneity based estimator due to koenker and bassett 1978

changes in sectoral composition associated with economic growth in this paper the author uses dynamic general equilibrium methods to examine the interrelationship between sectoral composition and growth she shows that growth is affected by sectoral composition and vice versa the model is basically a solow model of sustained growth with multiple consumption goods and nonhomothetic preferences each consumption good is produced using different factor intensities the rate of exogenous technological change is different in each sector nonhomotheticity of preferences drives the result that sectoral composition affects growth rates copyright 1997 by economics department of the university of pennsylvania and the osaka university institute of social and economic research association

sources of output change in china 1987 1997 application of a structural decomposition analysis since the beginning of the economic reforms implemented in the industrial sectors of china the economy has grown and changed rapidly the high gdp growth rates recorded since 1985 have stimulated unprecedented changes in the economic structure of this developing economy the major causes of the changes are the increase in consumption and investment production technological change and trade the objective was to analyse this type of structural change and to explore the sources of economic growth during the period 1987 1997 by using the method of structural decomposition analysis sda the chosen sda method based on the comparison between two input output tables allowed us to decompose each sector s and industry s output growth it enabled the relative impact of final demand and technological change of each industry on overall growthto be measured

the life cycle model of consumption and saving a central implication of life cycle models is that agents smooth consumption we review the empirical evidence on smoothing at frequencies from within the year up to across a lifetime we find that life cycle models particular those which incorporate realistic features of markets and goods have more empirical successes than failures we also show that some apparent deviations from theoretical predictions imply very small welfare losses for agents finally we emphasize that the coherence of life cycle models imposes an important discipline when incorporating new features into models

social welfare orderings a life cycle perspective life cycle theories emphasize the fact that consumption is allocated intertemporally on the basis of a long term concept of resources that differs from household income because life cycle income is unobserved the distribution of this variable cannot be recovered it is shown that within a suitably defined class a predictor of life cycle income based on household income and expenditure entails a distribution dominated in a social welfare sense by the distribution of life cycle incomes a predictor constructed from socio demographic variables induces a distribution that welfare dominates the distribution of life cycle incomes

on the optimality of long short strategies we consider the optimality of portfolios not subject to short selling constraints and derive conditions that a universe of securities must satisfy for an optimal active portfolio to be dollar neutr

productivity shocks and real business cycles abstract productivity shocks play a central role in real business cycles as an exogenous impulse to macroeconomic activity however measured solow prescott residuals do not behave as an exogenous impulse rather econometric evidence provided in this paper indicates that 1 money interest rates and government spending granger cause these impulses and 2 a substantial component of the variance of these impulses between one quarter and one half is attributable to variations in aggregate demand these results are robust to a number of econometric issues including measurement errors specification of the production function and certain forms of omitted real variables

measuring core inflation in this paper we argue that measured rpi inflation is conceptually mismatched with core inflation the difference is more than just measurement error we propose a technique for measuring core inflation based on an explicit long run economic hypothesis core inflation is defined as that component of measured inflation that has no medium to long run impact on real output a notion that is consistent with the vertical long run phillips curve interpretation of the co movement in inflation and output we construct a measure of core inflation by placing dynamic restrictions on a vector autoregression var system

production function residuals var technology shocks and hours worked evidence from industry data using disaggregate u s industry data we analyze three different production function residuals and the technology shocks obtained from the gali gali j 1999 technology employment and the business cycle do technology shocks explain aggregate fluctuations american economic review 89 249 271 structural var model the different methods produce technology shocks that are highly correlated and negatively related to hours worked

20 myths about long short popular conceptions of long short investing are distorted by a number of myths many of which appear to result from viewing long short from a conventional investment perspective long short portfolios differ fundamentally from long only portfolios in construction in the measurement of their risk and return and in their implementation costs furthermore long short portfolios allow greater flexibility in security selection asset allocation and overall plan structure

the response of household consumption to income tax refunds a central implication of the life cycle or permanent income theory is that consumption should not respond to predictable fluctuations in income tests of this implication have yielded mixed results especially on micro data angus deaton 1992 martin browning and annamaria lusardi 1996 in large part this might be due to the difficulties of isolating the predictable component of income at the micro level most tests proceed by instrumenting for income but since the available instruments are typically poor such tests might be prejudiced against finding significant excess sensitivity of consumption to income john shea 1995 also it is not clear how closely the resulting econometric predictions of income coincide with agents actual expectations of income to avoid these difficulties this paper examines the response of household consumption to a particular type of income that is both predictable and transitory income tax refunds since a refund depends on events in the previous calendar year it is predictable income as regards consumption in the year of its receipt consequently under the life cycle theory consumption should not increase on receipt of a refund 2 in addition to testing the canonical model of consumption this paper provides estimates interpretable as the marginal propensity to consume mpc out of refunds since federal tax refunds now amount to over 80 billion per year averaging well over 1 000 per refund these estimates are of interest in themselves more generally they bear on the impact of even preannounced and temporary changes in fiscal policy the paper begins by surveying related studies in section i section ii describes the data the consumer expenditure survey cex which of the leading u s micro data sets has the most comprehensive coverage of expenditure the empirical specification is set out in section hi section iv reports the results and section v concludes

intertemporal choice and consumption mobility the theory of intertemporal consumption choice makes sharp predictions about the evolution of the entire distribution of household consumption not just about its conditional mean in the paper we study the empirical transition matrix of consumption using a panel drawn from the bank of italy survey of household income and wealth we estimate the parameters that minimize the distance between the empirical and the theoretical transition matrix of the consumption distribution the transition matrix generated by our estimates matches remarkably well the empirical matrix both in the aggregate and in samples stratified by education our estimates strongly reject the consumption insurance model and suggest that households smooth income shocks to a lesser extent than implied by the permanent income hypothesis jel d52 d91 i30

the new keynesian phillips curve and staggered price and wage determination in a model with firm specific labor we develop a dsge model with rm speci c labor where rm level wage bargaining and price setting are subject to calvo type staggering this is in general an intractable problem due to complicated intertemporal dependencies between price and wage decisions however the problem is signi cantly simpli ed if we in line with empirical evidence assume that prices can be changed whenever wages are we show that the price and wage setting relationships are substantially altered by the introduction of rm speci c labor speci cally the in ation response is substantially dampened whereas the wage in ation response is increased as compared to models with freely mobile labor these distinctive features of the model with rm speci c labor is supported by empirical evidence from a structural var

on the role of technology shocks as a source of business cycles some new evidence i provide some new evidence that reinforces the conclusion in gal o 1999 that exogenous variations in technology play a very limited role if any as sources of the business cycle first i provide evidence that supports the identie cation of technology shocks proposed in that paper second i show that similar e ndings obtain when the same approach is implemented for the euro area using a newly available data set jel e32 e24

uncertain lifetime consumption and dissaving in retirement this paper asks whether the continued accumulation or mild dissaving observed among the retired can be explained by uncertain lifetime in the absence of annuities after an initial period influenced by borrowing constraints under constant relative risk aversion uncertain lifetime depresses consumption by a proportion increasing with age if the elasticity of intertemporal substitution in consumption is small illustrative computations based on actual income and survival data show that plausible elasticities are sufficiently small to give this effect the reduction in consumption is large enough to explain much of the lack of decumulation by the elderly

the sensitivity of tests of the intertemporal allocation of consumption to near rational alternatives suppose a consumer sets consumption equal to income each period rather than following the optimal permanent income decision rule how much utility does he lose this paper finds that the answer is typically less than 10 cents 1 per quarter in environments specified by popular tests on aggregate data it includes calculations of the costs of excess sensitivity and excess smoothness to income and interest rate changes and the costs of ignoring information it concludes that the theory does not make predictions for aggregate tests that are robust to small costs such as information or transactions copyright 1989 by american economic association

a note on market neutral portfolio selection abstract long short equity strategies allow investors to benefit potentially from both undervalued and overvalued securities the present study develops a normative portfolio model under the practical conditions that a market neutral strategy entails the offsetting long and short equity holdings are established jointly and without any constraints by the underlying market index while accurately capturing institutional procedures for short selling the model contains the analytical and economic properties as required for a ranking approach to filter out any undesirable securities under consideration in view of its practical features the analysis should be of interest to practitioners for assisting their long short investment decisions

unemployment insurance benefit levels and consumption changes abstract we use a canadian survey of the unemployed to examine how household expenditures after a job loss respond to the level of income replacement provided by ui we isolate a liquidity constraint or transitory income effect from the permanent income shock of job loss and from the costs of working we find significant effects of varying the replacement ratio among the third of the sample who did not have assets at the job loss we conclude that the consumption smoothing benefit of ui is concentrated wholly on a sub group of the unemployed

multinational companies technology spillovers and plant survival how does the presence of multinational companies affect plant survival in the host country we postulate that multinational companies can impact positively on plant survival through technology spillovers we examine the nature of the effect of multinationals using a cox proportional hazard model which we estimate using plant level data for irish manufacturing industries our results show that the presence of multinationals has a life enhancing effect only on indigenous plants in high tech industries suggesting the presence of technology spillovers in contrast multinationals compete with each other in low tech sectors in the host country

technology shocks and the labor input response evidence from firm level data we study the relationship between technology shocks and labor input on swedish firm level data using a production function approach to identify technology shocks taking standard steps yields a contractionary contemporaneous labor input response in tine with previous studies this finding may however be driven by measurement errors in the labor input variable relying on a unique feature of our data set which contains two independently measured firm specific labor input measures we can evaluate the potential bias we do not find that this bias conceals any true positive contemporaneous effect the results thus point away from standard flexible price models and toward models emphasizing firm level rigidities

the causes of spanish unemployment a structural var approach abstract in this paper we review the main causes of spanish unemployment and weight them by estimating a simple macroeconomic model using the structural var methodology by using this methodology we associate different causes of unemployment with shocks of different nature which have long lasting effects due to full hysteresis we claim that such an extreme assumption on state dependency is reasonable at least as a local approximation for the period and the economy at hand our results suggest that the combination of a plausible mixture of different types of shock and extreme persistence in their propagation mechanisms can satisfactorily explain the dismal performance of the spanish labour market during the last two decades

is there a retirement savings puzzle in this paper we ask whether households are saving enough for their retirement we use data on income expenditure and expenditure components to analyse patterns of behaviour at and around the time of retirement for successive date of birth cohorts we compare periods of unemployment to periods of retirement and separate expenditures into categories reflecting work related expenditures basic necessities and other goods we find that income typically falls by more at unemployment than retirement but the reverse is true for expenditure we observe falls in expenditure at retirement for all expenditure categories using a stochastic life cycle model including mortality rates we assess the anticipated impact of retirement on consumption against that of unemployment the inter relationship between goods and leisure explains a large part of the persistent fall in expenditure at retirement we argue that the only way in which the life cycle hypothesis could be reconciled with the remaining unanticipated dip in consumption would be with the systematic arrival of unexpected adverse information at the time of retirement