inflation tax rules and the accumulation of residential and nonresidential capital the present paper analyses the effect of the interaction between tax rules and inflation on the size and allocation of the capital stock with particular emphasis on the role of owner occupied housing the analysis is developed in the framework of an economy that is in equilibrium and in which a constant fraction of disposable income is saved in this model i show that with current u s tax laws an increase in the rate of inflation reduces the equilibrium amount of business capital employed in the economy and raises the amount of housing capital the analysis also shows that a higher rate of inflation lowers the real net of tax rate of return to the provider of business capital in a richer model than the current one i e in a model in which the rate of personal saving was an increasing function of the net rate of return a higher inflation rate would therefore lower the rate of saving the present analysis also shows that permitting firms to depreciate investments more rapidly for tax purposes increases the accumulations of business capital but that unless firms are permitted to expense all in vestment immediately an increase in in lat ion continues to depress the accumulation of business capital this abstract was borrowed from another version of this item

taxes housing and capital accumulation in a two sector growing economy abstract it is sometimes argued that the favorable tax treatment afforded to housing may lead to an oversupply of housing at the expense of capital this issue is examined in the context of a growing two sector economy in the basic model where the rate of time preference is constant and labor is instantaneously sectorally mobile the long run response of the capital stock to a tax on housing depends upon the relative capital intensities of the two sectors while the long run relative asset price of housing remains unchanged the robustness of these propositions to changes in the model are considered taxes on capital are also analyzed

liquidity constraints and housing prices theory and evidence from the va mortgage program abstract this paper employs a simple intertemporal model to show that presence of liquidity constraints can depress the price of a durable good below its net present rental value regardless of the overall supply elasticity the existence of price effects implies that the relaxation of liquidity constraints is not pareto improving and may in fact be regressive historical evidence which exploits the fact that a clearly identifiable group war veterans enjoyed the most favored access to mortgage credit after world war ii supports the model the results suggest that more recent mortgage market innovations have served primarily to increase prices rather than home ownership rates and that such innovations have the potential to exacerbate socioeconomic disparities in ownership rates

on the inverse of the covariance matrix in portfolio analysis the goal of this paper is the derivation and application of a direct characterization of the inverse of the covariance matrix central to portfolio analysis such a characterization in terms of a few primitive constructs provides the basis for new and illuminating expressions for key concepts as the optimal holding of a given risky asset and the slope of the risk return efficiency frontier faced by the individual investor the building blocks of the inverse turn out to be the regression coefficients and residual variance obtained by regressing the asset s excess return on the set of excess returns for all other risky assets copyright the american finance association 1998

industry classifications and return comovement a company s industry affiliation is commonly used to construct homogeneous stock groupings for portfolio risk management relative valuation and peer group comparisons a variety of industry classification systems have been adopted however creating disagreements as to companies industry assignments this analysis of the global industry classification system gics and fama french system indicates that common movement in returns and operating performance resulting from industry effects is stronger for stocks of large companies than for those of small companies also increasingly fine levels of disaggregation improve discrimination up to six digit gics codes after which the benefits tail off stock groupings based on industry exhibit stronger out of sample homogeneity than groups formed from statistical cluster analysis

the role of application assistance and information in college decisions results from the h r block fafsa experiment growing concerns about low awareness and take up rates for government support programs like college financial aid have spurred calls to simplify the application process and enhance visibility we present results from a randomized field experiment in which low income individuals receiving tax preparation help were also offered immediate assistance and a streamlined process to complete the free application for federal student aid fafsa for themselves or their children treated participants were also provided with aid estimates that were compared against tuition cost amounts for nearby colleges the combined assistance and information treatment substantially increased fafsa submissions and ultimately the likelihood of college attendance persistence and aid receipt in particular high school seniors whose parents received the treatment were 8 percentage points more likely to have completed two years of college going from 28 to 36 during the first three years following the experiment families who received aid information but no assistance with the fafsa did not experience improved outcomes the findings suggest many other opportunities for using personal assistance to increase participation in programs that require filling out forms to become eligible jel codes i2 h4 j24 copyright 2012 oxford university press

dynamic expected shortfall a spectral decomposition of tail risk across time horizons abstract the tail risk of financial institutions is traditionally measured by expected shortfall es that does not characterize risk changes over investment horizons using wavelet analysis we propose a new method to capture the dynamics of es across time horizons the new method decomposes the stock return of financial institutions into different frequency e g short mid and long run components and then models the dynamics of these components separately to produce an aggregated es forecast we provide numerical and empirical examples to illustrate the new method we also study the relevance of each frequency component to out of sample es forecasts over different predictive horizons our empirical results confirm that the different frequency components of stock returns exhibit different persistence explicitly considering this distinction when modeling es significantly improves the out of sample forecasting performance in addition excluding the long run e g yearly return component can largely reduce short run e g weekly or monthly es forecasts without impacting the regulatory quality of the risk assessment

residential construction using the urban growth model to estimate housing supply abstract this article presents an empirical model of housing supply derived from urban growth theory this approach describes new housing construction as a function of changes in house prices and costs rather than as a function of the levels of those variables which previous studies have used empirical tests support this specification over the leading alternative models our estimates show that a 10 rise in real prices leads to an 0 8 increase in the housing stock which is accomplished by a temporary 60 increase in the annual number of starts spread over four quarters

occupations fields of study and returns to education this paper considers several possible channels behind the well documented effect of education on earnings the first channel is that education makes workers more productive on a given task as in a conventional human capital framework the second channel is based on the idea that education helps workers get assigned to higher paying occupations where output is more sensitive to skill a third and final channel is that workers are more productive and earn more when they are matched to a job related to their field of study using data from the 2005 national graduate survey and the 2006 canadian census i find that channels two and three account for close to half of the conventionally measured return to education the results indicate that the return to education varies greatly depending on occupation field of study and the match between these two factors

from the battlefield to the schoolyard the short term impact of the post 9 11 gi bill the post 9 11 gi bill brought about an enormous expansion in veteran education benefits roughly doubling the average maximum benefit level and generating large variation in the magnitude of benefit expansion across states using this context i explore how enrollment of older nontraditional students responds to educational subsidies the transition from a conditional cash transfer to a more in kind benefit affects the relative prices of different types of education pushing veterans to invest in more expensive plausibly higher quality schooling using a difference in differences strategy combined with state level variation in the degree of benefit expansion i find that the higher level of benefits increased college enrollment of separated veterans by between 15 and 20 percent while also shifting the composition of enrollment toward four year schools

demand for education and labor market outcomes lessons from the abolition of compulsory conscription in france before 1997 education was a way for young french men to avoid military service in the army after the abolition of compulsory conscription in 1997 this incentive to stay on in education disappeared we show that the decrease in the benefit of pursuing education for men was followed by a fall in their educational achievement relative to women and by a decrease in their relative entry wages these results suggest that high school dropout rates could be reduced by policies increasing the immediate benefits of pursuing education and that it would yield a substantial improvement in early labor market outcomes

the return to schooling in structural dynamic models a survey this papers contains a survey of the recent literature devoted to the returns to schooling within a dynamic structural framework i present a historical perspective on the evolution of the literature from early static models set in a selectivity framework willis and rosen 1979 to the recent literature stimulated by keane and wolpin 1997 and which uses stochastic dynamic programming techniques after reviewing the literature thoroughly i compare the structural approach with the iv experimental approach i present their commonalities and i also discuss their fundamental di8erences to get an order of magnitude most structural estimates reported for the us range between 4 and 7 per year on the other hand iv estimates between 10 and 15 per year are often reported the discrepancy prevails even when comparable if not identical data sets are used the discussion is focussed on understanding this divergence the distinction between static and dynamic model specifications is a recurrent theme in the analysis i argue that the distinction between the iv approach and the structural approach may be coined in terms of a trade o8 between behavioral and statistical assumptions for this reason and unless one has very specific knowledge of the true data generating process it is neither possible nor sensible to claim which approach to estimation is more flexible more precisely i show that structural and iv approaches differ mainly at the level of i the compatibility of the underlying models with truly dynamic behavior ii the role of heterogeneity in ability and tastes iii the consideration of post schooling opportunities and iv the specification and interpretation of the mincer wage equation

housing bubbles and busts the role of supply elasticity existing studies of the relationship between housing price dynamics and housing supply which have relied upon questionable proxies for supply elasticity have yielded highly mixed results in this paper we provide new evidence on this relationship based on actual estimates of the price elasticity of supply for local markets in florida intermarket differences in housing supply elasticity are found to explain much of the variation in housing price movements and new construction during the most recent boom bust cycle additionally we find that variance in the elasticity of housing supply can be attributed to differences in land availability and the local fiscal and regulatory environment jel r14

on the sensitivity of mean variance efficient portfolios to changes in asset means some analytical and computational results tbis paper investigates the sensitivity of meanvariance mv efficientportfolios to changes in the means of individual assets when only a budget constraint is imposed on the investment problem the analytical results indicate that an mv efficient portfolio s weights mean and variance can be extremely sensitive to cbanges in asset means when nonnegativity constraints are also imposed on the problem the computational results confirm that a positively weigbted mv efficient portfolio s weigbts are extremely sensitive to cbanges in asset means but the portfolio s returns are not a surprisingly small increase in the mean of just one asset drives balf the securities from the portfolio yet the portfolio s expected return and standard deviation are virtually uncbanged this paper supersedes should investors hold well diversified portfolios financial support from the natural science and engineering research council of canada is gratefully acknowledged we also acknowledge the most capable assistance of ruth cornale simon ng jean marc potier and frederick shen the paper was presented at simon fraser university and the western finance association meetings in san diego we thank the participants especially stephen brown john herzog john heaney ray koopman and bruce lehmann and the editors jon ingersoll and chester spatt for

large dynamic covariance matrices second moments of asset returns are important for risk management and portfolio selection the problem of estimating second moments can be approached from two angles time series and the cross section in time series the key is to account for conditional heteroscedasticity a favored model is dynamic conditional correlation dcc derived from the arch garch family started by engle 1982 in the cross section the key is to correct in sample biases of sample covariance matrix eigenvalues a favored model is nonlinear shrinkage derived from random matrix theory rmt the present article marries these two strands of literature to deliver improved estimation of large dynamic covariance matrices supplementary material for this article is available online

arrested development theory and evidence of supply side speculation in the housing market this paper incorporates speculation into the standard supply and demand framework used to analyze housing booms and busts speculation reverses the common intuition that elastic housing supply attenuates housing booms housing market frictions make land a more attractive speculative investment than housing as a result undeveloped land both facilitates construction and intensies

drawing inferences about housing supply elasticity from house price responses to income shocks abstract the purpose of this paper is to provide information about the price elasticity of the supply of housing i examine the relationship between the average price of single family housing and the amount of personal income a two equation vector error correction system is estimated using a panel data set consisting of 76 msas from 1980 to 1998 the results suggest an elastic long run supply function but a relatively slow pace of adjustment to long run equilibrium hence a major demand shock can be expected to impact housing prices for several years following the shock differences in the responsiveness among subgroups of msas are examined and found to be generally minor

hansen and sargent s recursive models of dynamic linear economies a review essay lars peter hansen and thomas j sargent s book recursive models of dynamic linear economies exposits extends and applies methods for solution and analysis of dynamic stochastic linear quadratic models the book which can be used as a monograph or in a graduate course integrates theory econometrics and computation this essay provides a summary and offers some mild complaints about material not included in what is already a remarkably comprehensive book

tax subsidies to owner occupied housing an asset market approach inflation reduces the effective cost of homeownership and raises the tax subsidy to owner occupation this paper presents an asset market model of the housing market and estimates how changes in the expected inflation rate affect the real price of houses and the equilibrium size of the housing capital stock simulation results suggest that the accelerating inflation of the 1970s which substantially reduced homeowners user costs could have accounted for as much as a 30 percent increase in real house prices persistent high inflation rates could lead ultimately to a sizable increase in the stock of owner occupied housing

large scale minimum variance portfolio allocation using double regularization abstract estimation of time varying covariances is a crucial input in minimum variance mv portfolio allocations rolling window based sample estimates are widely used for this purpose but they usually suffer from two major issues when applied to a moderately large number of assets the curse of dimensionality and temporal instability here we propose a double regularized estimator for a high dimensional covariance matrix in which we impose both a temporal and cross sectional sparsity regularization on the sample based estimates to simultaneously mitigate these two issues we investigate the performance of our proposed covariance estimator for mv portfolio construction using monte carlo experiments and empirical examples we find that the resulting mv portfolio strikes a good balance between risk and turnover reduction and produces more accurate equivalent returns after transaction costs are taken into account when compared to four other mv strategies

external validity in a stochastic world evidence from low income countries we examine empirically the generalizability of internally valid micro estimates of causal effects in a fixed population over time when that population is subject to aggregate shocks using panel data we show that the returns to investments in agriculture in india and ghana small and medium non farm enterprises in sri lanka and schooling in indonesia fluctuate significantly across time periods we show how the returns to these investments interact with specific measurable and economically relevant aggregate shocks focusing on rainfall and price fluctuations we also obtain lower bound estimates of confidence intervals of the returns based on estimates of the parameters of the distributions of rainfall shocks in our two agricultural samples we find that even these lower bound confidence intervals are substantially wider than those based solely on sampling error that are commonly provided in studies most of which are based on single year samples we also find that cross sectional variation in rainfall cannot be confidently used to replicate within population rainfall variability based on our findings we discuss methods for incorporating information on external shocks into evaluations of the returns to policy

time to build and the real options channel of residential investment abstract a standard real options model predicts that time to build investment could be delayed by uncertainty over future revenue we quantify the first order importance of this mechanism in the 2002 2011 housing boom bust cycle by developing and estimating a model of sequential irreversible investment with stochastic bottlenecks we find that the main driver of construction delays during the boom is construction bottlenecks however further delay in construction during the bust is caused by an increase in uncertainty which grew by 21 6 between 2002 and 2009 the model can account for more than one third of the decline in residential investment between 2002 and 2009

signaling versus contingent contracts with costly turnover abstract typical models of educational signaling assume firms are uncertain of worker ability however there are both theoretical and empirical problems with such models in contrast as in salop and salop quarterly journal of economics 90 1976 619 a model is considered in this paper in which individuals differ in the likelihood of quitting and firms are unaware of an individual s quit propensity education signals one s commitment to remain in a particular sector or occupation alternatively firms may offer back loaded wages contingent contracts that may avoid signaling the analysis suggests too little signaling may occur because contingent contracts may not be socially preferable to signaling and because individuals may prefer not to signal when signaling is efficient and contingent contracts are not chosen by firms

leverage and house price dynamics in u s cities we use city level data to analyze the relationship between homeowner borrowing patterns and house price dynamics our principal finding is that in cities where a greater fraction of homeowners are highly leveraged i e have high loan to value ratios house prices react more sensitively to city specific shocks such as changes in percapita income this finding is consistent with recent theories that emphasize the role of borrowing in shaping the behavior of asset prices

new supply and price dynamics in the singapore housing market in this paper var models are employed to trace the price response of existing houses to the quantity of new units launched by homebuilders in singapore between 1996 and 2009 contrary to the competition hypothesis prediction of a negative reaction it is found that marginal supply granger cause existing house prices in a positive manner the effect is robust to the inclusion of exogenous demand factors as well as price interaction in the primary new houses and secondary existing houses market segments the contagion effect is consistent with the hypothesis that developers due to their ability to predict the market are price leaders in the housing market it is also found that homebuilders exhibit herding behaviour in mimicking each other s timing on when to market their new residential projects

returns to education a further international update and implications this paper updates evidence on the returns to investment in education by adding estimates for new countries and refining existing estimates to bring the total number of country cases to over 60 the new cross country evidence confirms and reinforces earlier patterns namely that returns are highest for primary education the general curricula the education of women and countries with the lowest per capita income the findings have important implications for directing future investment in education which for efficiency and equity purposes should concentrate on these priority areas

durable goods and the forward looking theory of consumption estimates implied by the dynamic effects of money abstract in this paper we analyze the effects of money on the market for durable goods using quarterly us data we estimate the dynamic responses of the price and quantity of durable goods and housing to money supply shocks assuming only that money is neutral in the long run we then match these responses to those predicted by an equilibrium model of the markets for durable goods the model relies on the standard theory of intertemporal consumer choice and the trade off between durable and non durable goods we find that money has important dynamic effects on the markets for durable goods and that the theory provides a reasonable framework for interpreting these responses for plausible parameter values

incentive compatibility in signaling games with a continuum of types on donne deux resultats utiles pour demontrer l existence et pour caracteriser des equilibres de separation dans des jeux de signalement

the engineering labor market this paper develops a dynamic supply and demand model of occupational choice and applies it to the engineering profession the model is largely successful in understanding data in the u s engineering labor market the engineering market responds strongly to economic forces the demand for engineers responds to the price of engineering services and demand shifters more important supply and enrollment decisions are remarkably sensitive to career prospects in engineering also a rational model in which students use some forward looking elements to forecast future demand for engineers fits the data reasonably well these findings suggest that subsidies to build technical talent ahead of demand are misplaced unless public policy makers have better information on future market conditions than the market participants do

education human capital and growth a personal perspective this article reviews the literature on the relationship of economic growth to the education levels of the labor force the emphasis is on yoram ben porath s contribution to some of the issues in this field the endogeneity of schooling the role of the public sector as an absorber of educated labor and the importance of personal human capital created by investments in reputation and personal relationships the f connection

investment tax incentives prices and the supply of capital goods using data on the prices of capital goods this paper shows that much of the benefit of investment tax incentives does not go to investing firms but rather to capital suppliers through higher prices the reduction in the cost of capital from a 10 percent investment tax credit increases equipment prices 3 5 7 0 percent this lasts several years and is largest for assets with large order backlogs low import competition or with a large fraction of buyers able to use investment subsidies capital goods workers wages rise too instrumental variables estimates of the short run supply elasticity are around 1 and can explain the traditionally small estimates of investment demand elasticities in absolute value the demand elasticity implied here exceeds 1

investment adjustment costs an empirical assessment we evaluate empirical evidence for costs that penalize changes in investment using us industry data in aggregate models such investment adjustment costs have been introduced to help account for a variety of business cycle and asset market phenomena so far no attempt has been made to estimate these costs directly at a disaggregated level we consider an industry model with investment adjustment costs and estimate its parameters using generalized methods of moments the ndings indicate small costs associated with changing the ow of investment at the industry level the weighted average of the industry elasticities with respect to the shadow price of capital which depends inversely on the adjustment cost parameter is more than seven times larger than the largest estimate based on aggregate data we examine potential sources which may account for the large industry aggregate dierence overall our results suggest

financial openness financial frictions and optimal monetary policy increasing financial integration challenges the optimality of inward looking strategies for optimal monetary policy those issues are analyzed in an open economy where foreign net lending and the current account are determined by a collateral constraint durables represent collateral the current account features persistent imbalances but can deliver a long run stationary equilibrium the comparison between floating and managed exchange rate regimes shows that the impossible trinity is reversed higher financial integration increases the persistence and volatility of the current account and calls for exchange rate stabilization in this context the ramsey plan too prescribes stabilization of the exchange rate alongside with domestic inflation

urban growth controls transitional dynamics of development fees and growth boundaries abstract this paper investigates how development fees and urban growth boundaries affect urban development when the short run construction supply function is upward sloped i e convex development costs whereas the policies are equivalent in the traditional static model dynamic analysis reveals important differences out of the steady state in particular the development fee that is efficient in the steady state is also dynamically efficient in contrast the long run efficient urban growth boundary generates inefficiently fast development out of the steady state the results are robust with or without location rents and perfect or myopic foresight assumptions

uncertainty and the dynamics of r d uncertainty varies strongly over time rising by 50 to 100 in recessions and by up to 200 after major economic and political shocks this paper shows that higher uncertainty reduces the responsiveness of r d to changes in business conditions a caution effect making it more persistent over time thus uncertainty will play a critical role in shaping the dynamics of r d through the business cycle and its response to technology policy i also show that if firms are increasing their level of r d then the effect of uncertainty will be negative while if firms are reducing r d then the effect of uncertainty will be positive

marital status and earnings of young men a model with endogenous selection it is a matter of course in applied labor economics to presume that marital status is a predetermined contributor to earnings among young males we find no evidence to support that proposition we estimate a model of earnings determination that permits endogenous selection of marital status our estimates are based on a sample of young employed males from the michigan panel survey of income dynamics they indicate that marital status viewed in this manner does not significantly shift the mean earnings profile our sensitivity tests indicate that this conclusion is robust with respect to a variety of alternative specifications excerpt

optimal timing of college subsidies enrollment graduation and the skill premium abstract the large increase in the skill premium has led many policy makers to propose increasing college subsidies as a strategy to increase college enrollment and reduce inequality existing analyses typically assume that there is no distinction between enrollment and graduation but in fact more than 50 of college enrollees do not graduate this highlights the need to explicitly model the decision to drop out in assessing the effect of subsidies i build a general equilibrium model of education choice that features an explicit dropout decision calibrate it to match key features of the us economy and use it to evaluate the impact of college subsidies on the supply of college educated labor i show that moving to a system in which subsidies are back loaded i e higher for juniors and seniors than for freshmen and sophomores will increase the supply of college educated labor even holding total subsides constant in fact this effect is larger than what would be accomplished by a uniform 50 increase in subsidies

real estate regulations in accra some macroeconomic consequences ghana has been one of the most rapidly growing economies in sub saharan africa this growth has been aided by ghana s improving policy environment in light of this the paper addresses the question of why given its higher level of per capita income and relatively strong growth the housing conditions of the poor in accra are considerably worse than those in a number of other african cities with lower incomes there are not many data available to answer this question so the method is indirect and takes two approaches first a variant of the monocentric city model is used to calculate accra s housing supply elasticity relative to those of other similarly sized african cities the model suggests that housing supply responsiveness is considerably lower in accra a result consistent with the observed higher housing costs secondly a number of traditional housing demand and reduced form equations are estimated for accra and the other cities this allows the formation of a quantitative judgment about accra

taxing residential housing capital this paper discusses the main aspects of the taxation of housing drawing on general principles of optimal taxation it focuses on the role of the property tax in achieving neutrality between rental and owner occupied housing assuming that landlords are taxed according to a neutral profits tax it follows that the property tax should be based on the rate of interest the paper discusses how the tax rate could be adjusted to account for the lack of effective taxation of capital gains the double taxation of dividends and the differences in the cost of labour between rental and owner occupied housing in most oecd countries the combined effect of the different housing taxes amounts to a tax subsidy to owner occupied housing it is demonstrated how this subsidy has been reduced in sweden as in many other countries in the past decade as a result of tax reforms and a lower rate of inflation the subsidy has effects on consumption patterns saving capital accumulation the distribution of welfare across gener

the long run educational cost of world war ii an important component of the long run cost of a war is the loss of human capital suffered by school age children who receive less education austrian and german individuals who were 10 years old during the conflict or were more directly involved through their parents received less education than comparable individuals from nonwar countries such as switzerland and sweden we also show that these individuals experienced a sizable earnings loss some 40 years after the war which can be attributed to the educational loss caused by the conflict the implied consequences in terms of gross domestic product loss are calculated

housing investment in the united states a supply determined model of housing investment is estimated from quarterly data over the 1963 83 period the model is built on dynamic marginal cost pricing considerations and allows short and long run supply elasticities to differ these are estimated as 1 0 and 3 0 respectively but most of the long run response occurs within 1 year rapid adjustment speed and the sizable long run elasticity of supply are important factors in understanding the volatility of housing investment the data also suggest some anomalies in the expected present value theory of asset pricing for housing capital

schooling as human capital or a signal a new way is proposed to distinguish between the human capital and the signaling theories of the value of education if education is a signal then the essence of the signal should be distilled in the position of an individual in the distribution of education for his cohort estimating earnings equations that include both absolute years and relative percentile measures of education provides a test of the two competing theories analyzing two separate panel data sources under a range of alternative specifications we find that the years measure of schooling has a consistently significant positive effect on earnings but that the rank measure rarely does this evidence supports the conclusion that human capital rather than signaling is the predominant explanation of schooling s value

dynamic effects of permanent and temporary tax policies in a q model of investment abstract this paper incorporates the tax policy analysis of hall and jorgenson into a dynamic optimizing model with adjustment costs to develop a q model of investment this framework is particularly useful for analyzing the dynamic effects on investment of permanent and temporary changes in tax policy it is shown that contrary to the conventional intertemporal substitution argument a temporary investment tax credit need not be nore expansionary than a permanent investment tax credit the role of depreciation allowances in determining the dynamic response of investment to temporary changes in the tax rate is also investigated

college education and the midcentury gi bills the midcentury gi bills were the largest direct scholarship program for higher education in american history i use a comparison group created by the sharp cutoff date of the korean war gi bill to evaluate the effects of the korean war gi bill on postsecondary educational attainment and access to college by the disadvantaged i then bound the likely effects of the world war ii gi bill based on elasticities estimated for the korean war gi bill and new estimates using older veterans as a comparison group for younger ones i find that the combination of the korean war and wwii gi bills probably increased total postsecondary attainment among all men born between 1921 and 1933 by about 15 to 20 percent with smaller effects for surrounding cohorts the impacts of both programs on college attainment were apparently concentrated among veterans from families in the upper half of the distribution of socioeconomic status

forecasting house prices for the four census regions and the aggregate us economy in a data rich environment this article considers the ability of large scale involving 145 fundamental variables time series models estimated by dynamic factor analysis and bayesian shrinkage to forecast real house price growth rates of the four us census regions and the aggregate us economy besides the standard minnesota prior we also use additional priors that constrain the sum of coefficients of the var models we compare 1 to 24 months ahead forecasts of the large scale models over an out of sample horizon of 1995 01 2009 03 based on an in sample of 1968 02 1994 12 relative to a random walk model a small scale var model comprising just the five real house price growth rates and a medium scale var model containing 36 of the 145 fundamental variables besides the five real house price growth rates in addition to the forecast comparison exercise across small medium and large scale models we also look at the ability of the optimal model i e the model that produces the minimum average mean squared forecast error f

inflation real returns and capital investment we find evidence for the hypothesis of mundell 1963 and tobin 1965 that the expected real return component of interest rates is negatively related to the expected inflation component in the mundell tobin model the variation in expected real returns is caused by the variation in expected inflation our evidence suggests however that the variation in expected real returns is more fundamentally an outcome of the capital expenditures process equilibrium expected real returns vary directly with capital expenditures in order to induce equilibrium allocations of resources between consumption and investment this positive relation between expected real returns and real activity which comes out of the real sector combines with a negative relation between expected inflation and real activity which is traced to the monetary sector thus inducing the negative relation between expected inflation and expected real returns predicted by mundell and tobin but explained in terms of a model much different from theirs

net migration and state labor market dynamics existing empirical estimates of net migration models are not identified because they lack an explicit measure of expected future conditions i find that using actual one period ahead net migration at the state level to control for expectations reduces the strength of the relationship between current wages and net migration by more than one third i use the case of michigan to show how existing empirical models mischaracterize the response of migration to shocks that are expected to be transitory i add migration to a labor market model and simulate responses to permanent and transitory demand shocks

disability policy and the labor market evidence from a natural experiment in canada 1998 2006 abstract this paper examines the effect of changes in two key parameters in disability policy a the earnings that disability insurance beneficiaries are allowed to earn without losing their disability benefits and b automatic reinstatement where beneficiaries can have benefits reinstated without re application and re testing for disability determination we examine the effects of these policy changes on the probability of employment for disability beneficiaries as well as the flows onto and off the disability rolls we obtain our estimates using a difference in difference strategy that exploits the unique structure of disability insurance arrangements in canada namely that there are two programs one that covers individuals in the province of quebec and one in the rest of canada our preferred estimates indicate that the introduction of the allowable earnings change increased the propensity of disability beneficiaries to work but we do not find that the earnings exemption had an effect on the flows on to or off the disability rolls in contrast we find that the introduction of the automatic reinstatement policy did not have an effect on any of the outcomes we examine

the compelling effects of compulsory schooling evidence from canada abstract compulsory school laws have existed for more than a hundred years and policies to mandate further education continue to be discussed the implications of these laws however are not well understood historical changes to compulsory schooling in canada permit an examination of their effects on would be dropouts under very different circumstances than those during changes in other countries mandating education substantially increased adult income and substantially decreased the likelihood of being below the low income cut off unemployed and in a manual occupation these findings suggest significant gains from this legislation which seem unlikely offset by the costs incurred while having to remain in school jel classification i20 i28

house price dynamics and market fundamentals the parisian housing market the paper compares two methods to evaluate the effect of market fundamentals on housing price dynamics the first method follows the traditional two step procedures found in the literature in which

empirical age earnings profiles the human capital earnings function in which earnings are expressed as a quadratic in potential experience is probably the most widely accepted empirical specification in economics in spite of its widespread acceptance the human capital earnings function provides a very poor approximation of the true empirical relationship between earnings and experience the standard formulation understates early career earnings growth by about 30 50 and overstates midcareer growth by 20 50 however simple alternative specifications that fit the data are available

crowd out effects of place based subsidized rental housing new evidence from the lihtc program abstract since its inception in 1987 the low income housing tax credit lihtc program has ballooned into the largest ever source of subsidized construction of low income housing in the united states accounting for one third of all recent multi family rental construction this paper examines the crowd out effects of this increasingly important source of low moderate income housing to do so we analyze the impact of lihtc construction at three different levels of geography msa county and 10 mile radius circles this allows us to employ increasingly extensive geographic fixed effects that help to difference away unobserved factors political variables are also used as instruments to further facilitate identification in all of our models iv estimates yield substantially greater crowd out than ols confirming the endogenous attraction of lihtc development to areas ripe for new construction our most robust iv estimates indicate that nearly 100 of lihtc development is offset by a reduction in the number of newly built unsubsidized rental units although the confidence band around this point estimate allows for less dramatic assessments additional estimates suggest that lihtc development has a much more moderate impact on construction of owner occupied housing but these estimates are imprecise overall while lihtc development may well affect the location of low moderate income rental housing opportunities our estimates suggest that the impact of the program on the number of newly developed rental housing units appears to be small

housing dynamics an urban approach abstract a dynamic linear rational equilibrium model in the tradition of alonso rosen and roback is consistent with many outstanding stylized facts of housing markets these include a that the markets are local in nature b that construction persistence is fully compatible with mean reversion in prices and c that price changes are predictable calibration exercises to match moments of the real data have notable successes and failures the volatility in local income processes as reflected in hmda mortgage applicant data can account for much of the observed price and construction volatility except for the most inelastically supplied local markets the model s biggest failure lies in its inability to match the strong persistence in high frequency price changes from year to year

natural disasters and macroeconomic performance recent empirical research has shown that output and gdp per capita in the aftermath of natural disasters are not necessarily lower than before the event in many cases both are not significantly affected and surprisingly sometimes they are found to respond positively to natural disasters here we propose a novel economic theory that explains these observations specifically we show that gdp is driven above its pre shock level when natural disasters destroy predominantly durable consumption goods cars furniture etc disasters destroying mainly productive capital in contrast are predicted to reduce gdp insignificant responses of gdp can be expected when disasters destroy both durable goods and productive capital we extend the model by a residential housing sector and show that disasters may also have an insignificant impact on gdp when they destroy residential houses and durable goods we show that disasters irrespective of whether their impact on gdp is positive negative or insignificant entail considerable losses of aggregate welfare

is there an equilibrating relationship between house prices and replacement cost empirical evidence from berlin abstract it is a feature of competitive markets with forward looking participants that a good s benefit and its production cost are equalized in equilibrium and that no resources are wasted during the adjustment process for housing markets there is mixed evidence whether they meet this standard of allocative efficiency based on a unique data set with rich information on prices and cost we examine the market for single family houses in germany s capital berlin at the aggregate market level we find that prices and cost tend to equalize in the long run short run adjustment appears to be sufficiently fast and properly anticipated to prevent systematic excess profit opportunities at the cross sectional level of individual houses we find support that resources are allocated efficiently between different market segments taken together our results provide sufficient evidence that the market in berlin is efficient

cojumps and asset allocation in international equity markets abstract this paper examines the patterns of intraday cojumps between international equity markets as well as their impact on international asset holdings and portfolio diversification benefits using intraday index based data for exchange traded funds as proxies for international equity markets we document evidence of significant cojumps with the intensity increasing during the global financial crisis of 2008 2009 the application of the hawkes process also shows that jumps propagate from the us and other developed markets to emerging markets correlated jumps are found to reduce diversification benefits and foreign asset holdings in minimum risk portfolios whereas idiosyncratic jumps increase the diversification benefits of international equity portfolios in contrast the impact of higher order moments induced by idiosyncratic and systematic jumps on the optimal composition of international portfolios is not significant

on the stability of age earnings profiles age earnings profiles are compared across three countries japan sweden and the united states dynamic changes in period age and cohort characteristics and permanent differences across countries are discussed observed differences in profiles are explained partly by intertemporal country differences in the labor market situation and partly by institutional differences

life cycle variations in the association between current and lifetime income replication and extension for sweden we apply haider and solon s generalized errors in variables model to swedish income tax data to produce estimates of the association between current and lifetime income our estimates demonstrate strong life cycle patterns this implies that the widespread use of current income as a proxy for lifetime income leads to inconsistent parameter estimates i e life cycle bias even when the proxy is used as the dependent variable estimates for comparable cohorts of swedish and american men demonstrate surprising similarities there are however significant gender and cohort differences in this association that lead to statistically significant and quantitatively meaningful differences in life cycle biases

local taxation and urban development testing for the side effects of the italian property tax land is an essential yet limited natural resource its current unsustainable use asks for a better understanding of the main determinants of urban expansion a heuristic approach is used to analyze urban development in italy in particular the paper estimates an econometric model to test the impact of the italian property tax ici on the local authorities behavior and in particular on urban planning and development it tests whether its introduction has fostered rather than dampened construction activity the hypothesis put forward is that because of the concurrent market conditions the introduction of the tax has facilitated urban development the structure of the tax and the devolution process that began in the 90s induced local municipalities to adopt less tight accommodative urban policies to offset budgetary needs a more elastic urban policy reduces price volatility however its overall welfare effect is not clearly determined indeed ceteris paribus geographical areas with more elastic housing supply witness larger land consumption the land use changes we witnessed in the last decades could be the combined effect of financial and fiscal aspects if this is so careful attention should be given to the issue of whether leaving urban planning and the power to levy property taxes under the same jurisdiction

why has house price dispersion gone up we calibrate a dynamic general equilibrium island model to investigate the 30 year increase in the level of house prices and their dispersion across u s metropolitan areas the model is based on two main assumptions households o w in and out metropolitan areas in response to local productivity shocks and the housing supply cannot adjust instantly because of technological and regulatory constraints the calibration reveals that the observed tightening of housing supply regulation cannot quantitatively account for the rise in the level and dispersion of house prices in equilibrium workers o w out of tightly regulated towards less regulated metropolitan areas undoing most of the price impact of local supply restrictions in contrast the observed increase in wage dispersion across metropolitan areas does create the observed increase in the level and dispersion of house prices workers o w towards exceptionally productive metropolitan areas and drive house prices up the calibration also suggests that the welfare eects of housing supply regulation are large when wages become more dispersed

on resolving the dilemma of rent control this research examines the motivations for adopting rent control and discusses a policy alternative designed to respond to the political appeal of rent control while minimising the investment distortion capricious redistribution and administrative complexity of most controls the policy involves limiting regulation to those rents paid by households in the tenant population that are deemed unable to afford adequate housing all rental units in a jurisdiction register their rents with the relevant authority and are assigned a controlled rent landlords must charge the controlled rent only for eligible households but receive the difference between that rent and the market rent from the government the analysis considers the design of such a policy its behavioural incentives and some administrative implications there is also consideration of the appeal of this policy relative to both conventional controls and policies more popular in the literature such as a housing allowance

demographic change and the housing market evidence from a comparison of scotland and england this paper examines the impact of demographic change on the housing market more specifically a difference in differences methodology is used to explore the effect of population decline and population ageing on house prices in scotland and england wales the analysis suggests that population decline and population ageing put downward pressure on prices therefore the long run trend of rising real house prices can not be assumed to continue into the future particularly in scotland

spatial housing economics a survey this introduction to the virtual special issue surveys the development of spatial housing economics from its roots in neoclassical theory through more recent developments in social interactions modelling and touching on the role of institutions path dependence and economic history the survey also points to some of the more promising future directions for the subject that are beginning to appear in the literature the survey covers elements of hedonic models spatial econometrics neighbourhood models housing market areas housing supply models of segregation migration housing tenure subnational house price modelling including the so called ripple effect and agent based models possible future directions are set in the context of a selection of recent papers that have appeared in urban studies nevertheless there are still important gaps in the literature that merit further attention arising at least partly from emerging policy problems these include more research on housing and biodiversity

construction elasticities and land availability a two stage least squares model of housing supply using the variable elasticity approach this paper uses data at english local authority district level to construct a simultaneous equation model of housing construction that compares elasticities of supply between two cross sectional periods 1988 boom and 1992 slump using the variable elasticity approach econometric issues raised by earlier supply studies are discussed and tested for the paper also discusses the rationale for and tests the existence of a backward bending supply relationship and finds that supply is concave in both periods and bends backwards during the boom evidence of a structural break between boom and bust is found producing average price elasticities of supply noticeably smaller in the boom 0 58 than in the slump 1 03 with considerable variation across disticts land supply elasticities are found to be more stable over time and marginally greater in the boom 0 75 than in the slump 0 71 the paper also calculates second partial derivatives based on the whole demand supply system to obtain estimates

changes in life cycle earnings what do social security data show a matched sample of social security and current population survey records is used to examine life cycle earnings patterns of white males over the 1951 1976 period estimated direct effects of schooling and experience compare well with other studies but interaction effects with cohort do not younger cohorts exhibit smaller marginal returns to schooling and larger marginal returns to experience but differences between cohorts are very small when demographic factors namely veteran status are controlled direct cohort effects are linear in these data and show no tendency to vary with cohort size

housing cycles and the period of production us fixed residential investment is one of the most periodic economic time series a theory of housing cycles is analysed on the basis of the period of housing construction substantial lags between planning and completion phases of housing construction cause housing investment to respond cyclically to exogenous shocks in demand and production costs known structural parameters of the housing industry provide sharp numerical benchmarks for the resulting dynamic system the calibrated model with two construction lags describes the housing data and cycles well

the out of sample forecasting performance of nonlinear models of regional housing prices in the us this article provides out of sample forecasts of linear and nonlinear models of us and four census subregions housing prices the forecasts include the traditional point forecasts but also include interval and density forecasts of the housing price distributions the nonlinear smooth transition autoregressive model outperforms the linear autoregressive model in point forecasts at longer horizons but the linear autoregressive and nonlinear smooth transition autoregressive models perform equally at short horizons in addition we generally do not find major differences in performance for the interval and density forecasts between the linear and nonlinear models finally in a dynamic 25 step ex ante and interval forecasting design we once again do not find major differences between the linear and nonlinear models in sum we conclude that when forecasting regional housing prices in the united states generally the additional costs associated with nonlinear forecasts outweigh the benefits for forecast

pricing home mortgages and bank collateral a rational expectations approach the efficiency of the housing finance system is of interest to homeowners financial intermediaries and policy makers we study the design of optimal mortgage contracts for risk averse economic agents with access to symmetric information on the payoffs of a risky home our non linear framework helps demonstrate the pareto efficiency of a risk free loan over its risky counterpart it also allows us to evaluate the unique equilibrium interest rate loan amount and home price in contrast to the capital structure theorems finally we conduct numerical simulations in lieu of comparative statics to shed some light on the complex causal relationship between mortgage pricing parameters and the underlying collateral i e home value

measuring the average marginal tax rate from the individual income tax the economic effects of taxation depend on the configuration of marginal tax rates we consider here the appropriate measure of a marginal tax rate for the federal individual income tax which has a graduated rate structure and allows for numerous legal and illegal deductions from total income our conclusion is that the explicit marginal rate from the tax schedule is the right concept for many purposes hence we construct approximately weighted averages of these marginal tax rates for 1916 80 when weighted by adjusted gross income the arithmetic average of marginal tax rates is 5 in 1920 2 in 1930 6 in 1940 20 in 1950 23 in 1960 24 in 1970 and 30 in 1980 we also discuss the dispersion of marginal tax rates as well as the behavior of average tax rates and deductions from taxable income one noteworthy result concerns the fraction of adjusted gross income that accrues to families that face a marginal tax rate of at least 35 this fraction quadruples from 1964 to 1980 this abstract was borrowed from another version of this item

supply constraints and housing market dynamics abstract although the volatility of house prices is often ascribed to demand side factors constraints on housing supply have important and little studied implications for housing dynamics i illustrate the strong relationship between the volatility of house prices and the regulation of new housing supply i then employ a dynamic structural model of housing investment to investigate the mechanisms underlying this relationship i find that supply constraints increase volatility through two channels first regulation lowers the elasticity of new housing supply by increasing lags in the permit process and adding to the cost of supplying new houses on the margin second geographic limitations on the area available for building houses such as steep slopes and water bodies lead to less investment on average relative to the size of the existing housing stock leaving less scope for the supply response to attenuate the effects of a demand shock my estimates and simulations confirm that regulation and geographic constraints play critical and complementary roles in decreasing the responsiveness of investment to demand shocks which in turn amplifies house price volatility

vive la revolution long term educational returns of 1968 to the angry students the famous events of may 1968 starting with student riots threw france into a state of turmoil as a result normal examination procedures were abandoned and the pass rate for various qualifications increased enormously the lowering of thresholds at critical stages of the education system enabled a proportion of students to pursue more years of higher education than would otherwise have been possible for those on the margin of passing their examinations additional years of higher education increased future wages and occupational levels interestingly the effect is also transmitted across generations and is reflected in the educational performance of children

education earnings and the canadian g i bill canadian second world war veterans benefited from an extensive educational pro gram similar to the u s g i bill because of differences in military enlistment rates how ever a much lower fraction of quebec men were eligible for these benefits than men from other provinces building on this fact we analyse inter cohort patterns of education and earnings for english speaking men from ontario using french speaking men from quebec as a control group we find that the instrumental variables estimates of the return to school ing are typically as big or bigger than the corresponding ols estimates jel classification j24 i21