an aggregate consumption function for canada a cointegration approach this study utilizes cointegration theory and error correction models ecms to specify a candidate dynamiac formulation of the aggregate consumption function using quarterly canadian date the variables entering the long run equlibrium relationship are tested for unit roots using a variety of techniques such as the dickey fuller the augemented dickey fuller and the phillips perron test profedures the engle and granger cointegration test and the fully modified consistent and efficient estimator of phillips and hansen are used to estimate the cointegration relationship johansen s maximum likelihood approach is also used to determine the rank of the cointegrating matrix the error correction model which appears to be a tentatively adequate conditional characterization of the date generating process revelas that disposable income wealth government expenditures relative prices and liquidity constraints proxied by the unemployment rate are important variables non nested tests are carried out against

irreversibility of pollution accumulation this paper presents an optimal endogenous growth model with pollutionaccumulation and abatement activities which analyzes the implications ofpollution accumulation irreversibility on the existence of sustainablegrowth paths this model studies different pollution decay functions whichpresent among others the feature that a sufficiently high pollution stocklevel can reduce the rate of decay to zero this study shows that this newfeature which gains support for the biological literature significantlyalters the traditional results on the properties of sustainable endogenousgrowth by reducing the field of existence and strengthening the role ofindividual preferences

seasonal flutuations and equilibrium models of exchange rate most of the evidence on dynamic equilibrium exchange rate models is based on seasonally adjusted consumption data equilibrium models have not worked well in explaining the actual exchange rate however the use of seasonally adjusted data might be responsible for the spurious rejection of the model this article presents a new equilibrium model for the exchange rates that incorporates seasonal preferences the fit of the model to the data is evaluated for five industrialized countries using seasonally unadjusted data our findings indicate that a model with seasonal preferences can generate monthly time series of the exchange rate without seasonality even when the variables that theoretically determine the exchange rate show clear seasonal behaviours further the model can generate theoretical exchange rates with the same order of integration than actual exchange rates and in some cases with the same stochastic trend

comparing consumption based asset pricing models we make use of a recently developed method to estimate the intertemporal mar ginal rate of substitution consistent with the fluctuations of asset return data from the toronto stock exchange these estimates are then used to evaluate various parametric specifications for preferences often used in empirical studies of consumption and asset returns in contrast to existing studies we are able to perform a formal statistical comparison of these models we consider six extensions of the usual power utility model and we find that none can be said to be a demonstrable improvement on the standard model

quantitative versus qualitative growth with recyclable resource we reassess the issue of limits to growth in an endogenous growth model of a decentralized economy where final productions require a recyclable essential material input the model follows a material balance approach and relies on technological assumptions consistent with the material balance principle and on explicit distinction between the material content and the quality of produced goods growth follows from research activities that allow firms to improve the quality of their output and to reduce the material resource intensiveness of their production process even though recycling is assumed perfect we show that 1 the material balance constraint affect the whole transitory dynamics of the growth process 2 quantitative growth i e positive growth of material output can only be a transitory phenomenon long term economic growth taking exclusively the form of perpetual improvements in the quality of final goods a long term growth path is characterized by constant values of material variables or in a less favorable scenario by a constant negative growth rate of those variables we establish the existence conditions of a growth path based on quality improvements and constant material variables it may fail to exist in a decentralized framework even though it is quite feasible from a purely physical point of view

a theory of economic growth with material energy resources and dematerialization interaction of three growth mechanisms the nature of energy and material resources in a non optimizing growth theory framework is clarified this involves two modifications of the conventional theory firstly multiple feedback mechanisms or growth engines are identified such that the impact of the cost of production through demand on growth is accounted for secondly a production function distinguishes between resource use technical efficiency and value creation the resulting model is analytically solved under the condition of a constant growth rate given model complexity numerical experiments are performed as well providing relevant insights to the academic and political debates on environmental kuznets curves and dematerialization

non linear production abatement pollution and materials balance reconsidered abstract in the environmental economics literature the standard approach of modeling non linear production and abatement processes is to treat waste emissions simply as another factor of production cropper and oates j econ lit 30 1992 675 740 that approach does not map the materials flow involved completely and hides moreover the exact links between production residuals generation and abatement this paper shows that production functions with emissions treated as inputs can be reconstructed as a subsystem of a comprehensive production cum abatement technology that is in line with the materials balance principle in a simple economy with full regard of the materials flow it also explores the consequences for allocative efficiency and efficiency restoring taxation of multiple and interdependent residuals generated in the transformation processes of production abatement and consumption finally the paper demonstrates that efficiency may require setting the emissions tax rate above or below conventionally defined marginal abatement cost if the residual subject to abatement is not the only residual causing pollution

household production and the excess sensitivity of consumption to current income empirical research on the permanent income hypothesis pih has found that consumption growth is excessively sensitive to predictable changes in income this finding is interpreted as strong evidence against the pih we propose an explanation for apparent excess sensitivity that is based on a quantitative equilibrium model of household production in which permanent income consumers respond to shifts in sectoral wages and prices by substituting work effort and consumption across home and market sectors although the pih is true this mechanism generates apparent excess sensitivity because market consumption responds to predictable income growth

capital controls in brazil stemming a tide with a signal controls on capital inflows have been experiencing a renaissance since 2008 with several prominent emerging markets implementing them in recent years we focus on brazil which instituted five changes in its capital account regime in 2008 2011 using the synthetic control method we construct counterfactuals i e brazil with no policy change for each of these changes we find no evidence that any tightening of controls was effective in reducing the magnitudes of capital inflows but we observe some modest and short lived success in preventing further declines in inflows when the capital controls were relaxed we hypothesize that price based capital controls only perceptible effect is to be found in the content of the signal they broadcast regarding the government s larger intentions and sensibilities in the case of brazil its left of center government s willingness to remove controls was perceived as a noteworthy indication that the government was not as hostile to the international financial markets as many expected it to be

cyclical drivers of euro area consumption what can we learn from durable goods abstract we study the cyclical dynamics of consumption in the euro area ea and the large ea countries by distinguishing durable from nondurable expenditures we adopt a theoretical partial equilibrium framework to justify the identification strategy of our empirical model a time varying parameter structural vector autoregression tvp svar following the main insight from the theoretical model that liquidity constraints induce important interactions between durables and nondurables we distinguish durable specific demand and supply shocks while taking into account monetary and credit conditions our main findings are i durables react faster and more strongly than nondurables after monetary shocks in the euro area and in the largest ea countries a confirmation of an outcome commonly reported for the us ii there is a large degree of cross country heterogeneity in how different factors including durable specific ones explain consumption iii the strength of spillovers from durable to nondurable consumption as predicted by theory is empirically correlated with how much households across countries are likely to be liquidity constrained

consumer durables and the real interest rate one important channel through which real interest rates affect aggregate demand is consumer expenditure on durable goods this paper examines empirically the link between interest rates and consumer durables solving for the decision rule relating income and interest rates to consumer demand is an intractable task this paper avoids this problem by examining the first order conditions necessary for maximization by the representative consumer structural parameters of there presentative utility function are thus recovered the estimated model suggests that expenditure on consumer durables is far more sensitive to changes in the interest rate than is expenditure on nondurables and services this abstract was borrowed from another version of this item

the real exchange rate abstract this essay concerns the real value of the u s relative to the g 10 i what are the dynamics of the fundamental determinants of the real exchange rate and its steady state value ii to what extent are the observed movements in the exchange rate from 1973 to 1988 due to the fundamentals iii how integrated are international capital markets iv how does the real exchange rate respond to a changes in the cyclically adjusted government budget deficit and to b changes in the marginal efficiency of investment

future fiscal and budgetary shocks abstract we study the effects of future tax and budgetary shocks in a non monetary and possibly non ricardian economy an unanticipated temporary labor tax cut to be effective on a given future date a delayed debt bomb causes at once a drop in the unit value placed on the firms business asset the customer with the result that share prices the hourly wage and employment drop in tandem this paradox of reduced activity through announcement of future stimulus does not hinge on an upward jump of long interest rates a future tax rate cut lacking a sunset provision has the same negative effects

feasibility and optimality of sustainable growth under materials balance abstract pollution from consumption and production is an inevitable part of economic processes we employ a materials balance approach and develop an endogenous growth theory with recycling activity to examine the evolution of the economic and environment systems this paper provides feasibility and optimality conditions for sustainable economic growth with rising environmental quality the fundamental condition of feasibility is that the flow of natural resources which eventually returns to the environment as waste and pollution has a negative growth rate in the long run

are there limits to growth a simple theoretical model of pollution is developed that generates an inverted u shape relationship between per capita income and environmental quality this model is then used to study long run growth the same inverted u shape is shown to appear in time series and the prospects for sustained growth are shown to hinge on whether increasingly strict environmental regulation is compatible with a constant rate of return on capital implementation is also studied tax and voucher schemes are shown to have an advantage over direct regulation because they provide the correct incentives for capital accumulation copyright 1998 by economics department of the university of pennsylvania and the osaka university institute of social and economic research association

product design and efficient management of recycling and waste treatment abstract using a general equilibrium model where material is first extracted then used for producing a consumption good recycled and finally treated to reduce environmental damage we study efficiency restoring policies when one or more of the constituent markets are inactive the material is modeled as being embodied in the output and forms an important aspect of green product design if all markets for embodied material per unit output fail and if recycling benefit exceeds environmental damage the policy instruments needed for green design are a tax on the consumption good supply and a subsidy on the demand for material input

sustainable growth and the environmental kuznets curve abstract this paper develops an endogenous growth model with pollution and both human and physical capital human capital is produced cleanly and physical capital can be used for pollution control economic growth is sustainable in the long run it is optimal for human capital to grow more rapidly than physical capital output and consumption while pollution declines for realistic parameter values our results differ sharply from stokey s result for an ak technology that sustained economic growth is not optimal the model can generate an environmental kuznets curve a pollution tax or a voucher system can implement the pareto efficiency solution

measuring intertemporal substitution the importance of method choices and selective reporting i examine 2 735 estimates of the elasticity of intertemporal substitution in consumption eis reported in 169 published studies the literature shows strong selective reporting researchers discard negative and insignicant estimates too often which pulls the mean estimate up by about 0 5 the reporting bias dwarfs the effects of methods with the exception of the choice between micro and macro data when i correct the mean for the bias for macro estimates i get zero even though the reported t statistics are on average two the corrected mean of micro estimates of the eis for asset holders is around 0 3 0 4 calibrations greater than 0 8 are inconsistent with the bulk of the empirical evidence jel e21 c83

capital flow management there is a wide variety in the capital account policies of emerging markets and developing economies some countries such as brazil have recently experimented with prudential controls on capital inflows whereas others such as china have continued to maintain tight controls this paper reviews the recent theoretical literature explaining the motivations behind capital account policies and whether there is a case for international coordination in this area

the intertemporal elasticity of substitution an analysis based on japanese data this paper investigates whether the intertemporal elasticity of substitution ies for japan possesses similar properties to that found for the united states in the literature as the existing empirical findings are mixed there is no clear consensus this paper uses a model with both production and non separability between nondurables and durables in order to control for possible factors that cause a bias in the ies we present the empirical results demonstrating that the ies is quite similar between the two countries

inverse demand systems and welfare measurement in quantity space most studies of welfare or cost benefit analyses are concerned with the welfare effects of price changes 11 19 27 33 50 there are however many situations in which policy options are directly related to quantity changes the welfare effects of price changes are analyzed with the traditional demand system in which commodity quantities are determined as functions of their prices the welfare effects of quantity changes on the other hand are associated with the inverse demand system in which commodity prices are dependent on their quantities in conventional welfare analysis of price change prices are taken to be exogenous or predetermined while quantities are endogenous in contrast in welfare analysis of quantity changes quantities are exogenous while prices are endogenous price based or dual welfare measures are relevant when there are well functioning competitive markets and quantities are fully adjusted to changes in prices on the other hand quantity based or primal welfare measures are useful in situations where there are constraints on commodity quantities or when transaction costs impede consumers from fully adjusting to changes in prices the choice between priceand quantity based welfare measures is empirical and proper measurement of welfare effects requires the knowledge as to which variable price or quantity is the exogenous one for individual consumers it may be reasonable to assume that the supply of commodities is perfectly elastic and therefore prices can be taken as exogenous but this assumption may not be tenable for consumers in the aggregate or if highly aggregated economy wide data are used to estimate demand relations at the aggregate level quantities are more properly viewed as exogenous than are prices although individual consumers make their consumption decisions based on given prices the quantities of commodities are predetermined by production at the market level and prices must adjust so that the available quantities are consumed 28 1 2

intertemporal substitution in import demand abstract this paper investigates the role of intertemporal substitution in us import demand using a model of import consumption based on the permanent income hypothesis estimation of the model yields an intertemporal elasticity for consumer imports which is close to 0 8 an estimate which may include importers purchase and inventory responses to the real interest rate the implied relative price elasticity of import consumption is also estimated to be close to one these results indicate that consumption imports may respond to changes in their intertemporal price as well as changes in their price relative to that of domestic substitutes

nominal interest rates consumption booms and lack of credibility a quantitative examination abstract exchange rate based stabilization programs in chronic inflation countries have often been accompanied by an initial expansion of private consumption followed by a contraction this consumption cycle has been attributed to lack of credibility in the sense that the public views the reduction in the devaluation rate as temporary this paper assesses the quantitative relevance of the temporariness hypothesis by comparing the predictions of a simple model to the actual figures for seven major programs the paper concludes that nominal interest rates must fall substantially for the temporariness hypothesis to account for an important fraction of the observed consumption booms

dynamics of sectoral business cycle comovement abstractsectoral comovement accounts for a considerable share of the variance of aggregate variables however little is known about its time varying aspects by now in this article a multivariate dcc garch framework is employed to study dynamics of sectoral comovement across manufacturing sectors both in the united states and in germany to account for possible nonlinearities asymmetric effects in conditional volatilities as well as in conditional correlations are being assessed we find that comovement across sectors is not stable but shows irregular movements particularly contractions tend to be more synchronized than expansions in manufacturing sector moreover we examine the role of various aggregate factors for the fluctuations in conditional correlations our findings reveal that both the non constant variability of common factors and the changes in the effects of these factors play role for the fluctuations in sectoral comovement

interest rates and the market for new light vehicles we study the impact of interest rates changes on both the demand for and supply of new light vehicles in an environment where consumers and manufacturers face their own interest rates an increase in the consumers interest rate raises their cost of financing and thus lowers the demand for new vehicles an increase in the manufacturers interest rate raises their cost of holding inventories both channels have equilibrium effects that are amplified and propagated over time through inventories which serve as a way to both smooth production and facilitate greater sales at a given price through the estimation of a dynamic stochastic market equilibrium model we find evidence of both channels at work and of the important role played by inventories a temporary 100 basis point increase in both interest rates causes vehicle production to fall 12 percent and sales to fall 3 25 percent at an annual rate in the short run

sustainability constraints versus optimality versus intertemporal concern and axioms versus data sustainable sustained or survivable development are defined here as distinct sustainability constraints on intertemporal distribution in a context which ignores uncertainty environmental and intratemporal concerns such constraints are neither self contradictory nor redundant for they can conflict with maximizing the present value of utility optimality nor inferior since the axioms underlying optimality are ethically arbitrary and refuted by empirical psychological data axiomatic arguments may clarify but cannot resolve debates about intertemporal concerns data suggest that sustainability constraints are not respected and that intertemporal welfare functions containing a preference for sustained improvement may better reflect what bodies politic mean by sustainability

dynamic inconsistencies counterfactual implications of a class of rational expectations models a number of recent papers have developed dynamic macroeconomic models that incorporate rational expectations and optimizing foundations while the theoretical motivation behind these models is sound the dynamic implications of many of the specifications that assume rational expectations and optimizing behavior can be seriously at odds with the data for both inflation and real side variables exhibit gradual and hump shaped responses to real and monetary shocks for models that are intended for monetary policy analysis these dynamic shortcomings should be considered quite serious when monetary policy has only short run effects on real variables the inability to approximately capture the short run responses of inflation or real variables to policy shocks makes a model unsuitable for policy analysis this paper identifies a simple feature common to many dynamic specifications for prices and real variables that causes the problem the paper also discusses several potential solutions to the problem including alterations to the expectations assumption to the order of differencing implicit in the model and to the underlying behavioral assumptions this abstract was borrowed from another version of this item