tax adjusted duration for amortizing debt instruments this research provides improved techniques for analyzing the after tax risk exposure of taxable institutions holding amortizing instruments such as commercial real estate and consumer loans we derive after tax duration for amortizing instruments and analyze it for sensitivity to tax rates coupon and maturity taxable investors who hedge and ignore the effects of taxes on amortizing instruments will underestimate differences in durations on bonds versus amortizing instruments of equal maturities bond durations increase much faster as tax rates increase one unexpected result shows that unlike bond duration amor tizing instrument duration often increases with coupon rate and sometimes is independent of coupon rate

can education subsidy reverse falling fertility the case of taiwan abstract the education subsidy in taiwan is available for government employees only in 1996 the government ceased to index the education subsidy for inflation which created a natural experiment ideal for studying the effect of the education subsidy on fertility using the difference in differences approach we find that the reform reduced the fertility probability for public sector households by 17 per cent and this negative response appears to be permanent the estimated probability elasticity of fertility is 0 05 which is smaller than that of personal tax exemption 0 8 the results also suggest that the education subsidy has a heterogeneous effect on fertility across income groups

hedging interest rate risk with futures portfolios under full rank assumptions a spot portfolio of rate sensitive assets can be hedged by a portfolio of interest sensitive futures contracts the hedge ratios of minimum variance portfolios are unique when the fixed cash flows of underlying instruments are linearly independent and when the covari ance matrix of unexpected changes in spot rates over the term of the cash flows is of full rank hilliard s 1984 full rank model has produced smaller portfolio variances than a duration model in a short term hedging context however the methodology typically re quires extensive econometric analysis this paper develops a structured covariance matrix of full rank that requires only one parameter estimate hedging examples are provided

duration models and irr management a question of dimensions abstract this paper compares the immunization performance of alternative single and multiple factor duration models using spanish government bond data over 1 2 and 3 year horizons the aim is to assess whether the success of duration matching strategies is primarily attributable to the particular model chosen or to the number of risk factors considered empirical tests show that i traditional immunization is easily bettered by more realistic strategies ii the number of risk factors considered has a greater influence on the result than the particular model chosen and iii three factor immunization strategies offer the highest immunization benchmarks

the duration vector a continuous time extension to default free interest rate contingent claims abstract this paper presents a continuous time contingent claims framework for the traditional duration vector models of chambers et al journal of financial and quantitative analysis march 1988 89 104 prisman and shores journal of banking and finance 12 1988 493 504 and others by embedding these into the merton the bell journal of economics and management science 4 1973 141 183 stochastic interest rate option pricing model using this framework we analyze the interest rate risk characteristics of bond options and callable bonds we derive duration measures that are significantly different from the ones reported previously in the literature by garman journal of financial economics 14 1985 309 315 jamshidian and zhu advances in futures and options research 3 1988 63 95 and others the upper and lower bounds of the duration vectors of bond options and callable bonds are investigated an empirical technique based on the implied volatility methodology is suggested for the computation of the duration vectors of bond options and callable bonds

tax incentives and fertility in canada quantum vs tempo effects using inter jurisdictional differences in the implementation of the family allowance program in canada in the mid 1970s this paper first shows that quebec families with two or more children prior to being exposed to the program responded quite strongly to the added incentives in the short run relative to women in other canadian provinces tracking down the cohorts across censuses we find that the same group of quebec families subsequently showed a decrease in fertility relative to the rest of canada leaving ultimate family size unaffected these results are consistent with the program having generated only a timing effect utilisant les differences entre juridictions dans la mise en uvre du programme d allocations familiales au canada au milieu des annees 70 ce memoire montre d abord que les familles quebecoises qui avaient deux enfants ou plus avant d etre exposees au programme ont repondu tres fortement aux incitations additionnelles a court terme en comparaison avec ce qui s est passe dans les autres provinces canadiennes en suivant les cohortes a travers les recensements on montre que ce meme groupe de familles du quebec a par la suite subi un declin de fecondite par rapport au reste du canada ce qui a eu pour effet de laisser la taille de la famille ultimement non affectee d une maniere relative ces resultats sont coherents avec la conclusion que le programme a seulement eu un effet sur le profil temporel de la fecondite

the career costs of children this paper analyzes the life cycle career costs associated with child rearing and decomposes their eects into unearned wages as women drop out of the labor market loss of human capital and selection into more child friendly occupations we estimate a dynamic life cycle model of fertility occupational choice and labor supply using detailed survey and administrative data for germany for numerous birth cohorts across dierent regions we use this model to analyze both the male female wage gap as it evolves from labor market entry onward and the eect of pro fertility policies we show that a substantial portion of the gender wage gap is explainable by realized and expected fertility and that the long run eect of policies encouraging fertility are considerably lower than the short run eects typically estimated in the literature

four themes in fertility research this study is concerned with four main themes that have been combined to describe u s fertility trends since 1920 these themes are identified as a time adjustment mechanism income the wifes labor force activities and some intergenerational factor in order to obtain an unambiguous picture each theme will be represented by only one variable after selecting the variables and estimating a model an examination of the changing role these variables have had in explaining changes in fertility the total fertility rate throughout much of this century will be made finally the implications these themes have for future fertility will be examined the authors conclude that in interpreting historical u s fertility rates the results seem to indicate that much of the early decline in u s fertility was due to falling infant mortality after the second world war fertility rose sharply as the age structure variable declined and income rose eventually both womens labor force participation rates and the age structure variable rose and consequently fertility fell they also suggest that the age structure variable may cause a temporary upward swing in fertility in the near future excerpt

estimating the correlation structure of international share prices recently the case for international portfolio diversification has been convincingly argued in the framework of mean variance portfolio analysis by a number of researchers however virtually no empirical documentation exists concerning the best method for estimating the correlation structure of international share prices in this paper 12 models for estimating the international correlation matrix are presented and empirically tested relative to full historical extrapolation the major evaluation criteria are the mean squared error and stochastic dominance based on the frequency distribution of the squared forecast errors the results indicate that the national mean model strictly dominates all the others in terms of forecasting accuracy in the last fifteen years or so a number of researchers have convincingly argued the case for international portfolio diversification as opposed to purely domestic diversification in the framework of mean variance portfolio analysis see e g grubel 4 levy and sarnat 8 solnik 12 mcdonald 10 lessard 6 and subrahmanyam 15 1 in spite of the emerging consensus in the academic and investment communities that investors can benefit from international diversification in terms of a more efficient risk return tradeoff virtually no empirical documentation exists concerning the best method for estimating the correlation structure of international share prices since estimating this correlation structure is a necessary precondition for being able to apply modern portfolio theory to international investments empirical examination is of major importance moreover only through empirical examination of the correlation structure will the effort to devise a simple algorithm that can be used to solve for the optimal international portfolio be facilitated in order to trace out the set of ex ante efficient international porffolios using the tenets of modern portfolio theory the investor must obtain accurate estimates of the expected return and the variance of return for each domestic and foreign security and he must also obtain accurate estimates of the correlation coefficients of the returns between each pair of securities stated in terms of his numeraire

duration measures immunization and utility maximization abstract this paper explores the conditions under which a risk averse investor behaves like an immunizer in choosing the maturity structure of a balance sheet the setting is similar to grove s study in that the liabilities are assumed fixed but differs in the assumed evolution of interest rates m a grove on duration and the optimal maturity structure of the balance sheet bell journal of economics and management science 5 1974 696 709 it transpires that the circumstances under which a risk averse investor behave like an immunizer are not as limited as concluded in grove s study the model thus explains the extensive use of immunization by the business community

fertility and the personal exemption implicit pronatalist policy in the united states the personal exemption in the us provides households with an income tax subsidy for each child this paper uses aggregate time series data for the us from 1913 to 1984 to estimate the impact of the tax value of the personal exemption on the aggregate birth rate the empirical results indicate that the personal exemption has a positive and significant impact on fertility and this result is robust to a variety of specifications the us therefore pursues an implicit pronatalist policy through the income tax and the empirical results indicate that the recent tax reform act of 1986 will on average increase this subsidy for fertility authors

generalized solutions of higher order duration measures abstract higher order duration measures have been shown to permit near perfect immunization this paper presents formulae for these measures which are valid not only at coupon payment dates but between these dates as well we show that errors caused by using formulae valid only at the coupon payment dates increase as one advances from lower order to higher order duration measures a portfolio immunization example comparing both traditional and generalized closed form solutions is given

single factor duration models in a discrete general equilibrium framework single factor duration models sfdms for valuing debt securities have gained rapid acceptance by bond practitioners in recent years but slower acceptance by academics in large measure the slower academic acceptance reflects the lack of a rigorously developed underlying economic or financial theoretic base partially as a result some sfdms have undesirable behavioral characteristics foremost among these is that they appear to be inconsistent with accepted general equilibrium conditions this paper has two purposes the first is to construct explicitly the theoretical underpinnings of the model and the second is to develop the conditions under which the model does satisfy general equilibrium conditions this is done in sections i and ii respectively

measuring marginal income tax rates for individuals in canada averages and distributions over time average marginal tax rates amtrs and the dispersion of marginal tax rates across income groups for canada over 1947 91 are reported federal amtrs fluctuated with little trend from 1947 to the mid 1960s rose to the mid 1970s fell and then rose from the early 1980s through to 1991 federal plus provincial amtrs trended upward after 1949 increasing fastest from the mid 1960s to the mid 1970s relative dispersion of mtrs shows a strong downward trend over the sample period this compression has been due partly to a decline in top mtrs but the main influence has been the steady increase in the portion of the population and of income subject to tax the amtr time series is quite volatile difference stationarity is not rejected

dispersion measures as immunization risk measures the quadratic and linear cash flow dispersion measures m 2 and n are two immunization risk measures designed to build immunized bond portfolios this paper generalizes these two measures by showing that any dispersion measure is an immunization risk measure and therefore it sets up a tool to be used in empirical testing each new measure is derived from a different set of shocks changes on the term structure of interest rates and depends on the corresponding subset of worst shocks consequently a criterion for choosing appropriate immunization risk measures is to take those developed from the most reasonable sets of shocks and the associated subset of worst shocks and then select those that work best empirically adopting this approach this paper then explores both numerical examples and a short empirical study on the spanish bond market in the mid 1990s to show that measures between linear and quadratic are the most appropriate and amongst them the linear measure has the best properties this confirms previous studies on us and canadian markets that maturityconstrained duration matched portfolios also have good empirical behavior 2002 elsevier science b v all rights reserved

income distribution and macroeconomics this paper analyzes the role of wealth distribution in macroeconomics through investment in human capital it is shown that in the presence of credit markets imperfections and indivisibilities in investment in human capital the initial distribution of wealth affects aggregate output and investment both in the short and in the long run as there are multiple steady states this paper therefore provides an additional explanation for the persistent differences in per capita output across countries furthermore the paper shows that cross country differences in macroeconomic adjustment to aggregate shocks can be attributed among other factors to differences in wealth and income distribution across countries

the effect of tax transfer policies on fertility in canada 1921 88 this paper estimates the effect on fertility of the personal tax exemption for children child tax credit family allowances and maternity leave benefits in canada using time series data from 1921 to 1988 it is found that the exemption child tax credit and family allowances all have significant and positive effects on fertility the results are robust to a variety of specifications including first differencing while the three tax transfer programs seem to be very distinct the null hypothesis that they have no differential effects on fertility can hardly be rejected all the results also hold for the cumulative effect of the three tax transfer programs the estimates predict that a large increase in the value of the tax transfer programs would be needed to increase fertility to the replacement level

political equilibrium income distribution and growth this paper analyzes the impact of income distribution on growth when investment in human capital is the source of growth and individuals vote over the degree of redistribution in the economy the model has three main features first very different patterns of income distribution are conducive to high growth at different levels of per capita income second growth is associated with an externality whereby investment in human capital by one group increases the productivity of other groups thus potentially enabling them to invest in human capital third the initial pattern of income distribution and the resulting political equilibrium are crucial in determining whether the transmission of this externality is promoted in which case growth is enhanced or prevented in which case growth is stopped using a non overlapping generations model with voting i derive several empirical implications in particular the model implies an inverted u relation between levels of inequality and levels of income in cross sections but not necessarily in time series a result that seems consistent with a number of empirical studies

financial incentives and fertility using panel data on over 300 000 israeli women from 1999 to 2005 we exploit variation in israel s child subsidy to identify the impact of changes in the price of a marginal child on fertility we find a positive statistically significant and economically meaningful price effect on overall fertility and consistent with becker 1960 and becker and tomes 1976 a small effect of income on fertility which is negative at low and positive at high income levels we also find a price effect on fertility among older women suggesting that part of the overall effect is due to a reduction in total fertility

an estimable dynamic stochastic model of fertility and child mortality this paper develops a finite horizon dynamic stochastic model of discrete choice with respect to life cycle fertility within an environment where infant survival is uncertain the model yields implications for the number timing and spacing of children a tractable estimation method is developed for the linear constraint quadratic utility case that is intimately tied to the dynamic optimization problem and the method is applied to malaysian household data estimation is based on integrating the numerical solution of the dynamic programming model of behavior with a maximum likelihood procedure

alternative duration specifications and the measurement of basis risk empirical tests dramatic increases in interest rate levels and volatility since the early 1970s have renewed interest in fixed income securities and have motivated much study of the appropriate measure of risk for bonds many authors have expanded on macaulay s 1938 concept of duration as a surrogate for risk measurement and have developed a variety of new measures of duration numerous commercial duration based immunization programs are now available purporting to explain returns to provide good measures of risk and to protect fixed income portfolios from volatile interest rates e g leibowitz 1979 leibowitz and weinberger 1981 this paper tests the explanatory power of a number of recently proposed duration measures we show that despite the flood of articles and commercial programs claiming superiority for particular measures of duration the measures studied were virtually indistinguishable empirically in fact none of them did much better than this paper empirically investigates seven duration measures and their role in explaining price volatility caused by interest rate movements that is basis risk the data analysis does not support the important testable implications of the various durations as measures of basis risk all seven durations fail linearity and single risk factor tests from which their advantages are supposed to derive fixed income performance comparisons and immunization strategies based on these durations have not been worthwhile

federal deposit insurance regulatory policy and optimal bank capital this paper seeks to explain the combination of explicit and implicit pricing for deposit insurance employed by the fdic essentially the fdic sells two products insurance and regulation to span the product space it must and does set two prices we argue that the need to establish regulatory disincentives to bank risk taking is the heart of the controversy over the adequacy of bank capital and that the ability to close risky banks before exhausting their charter value i e the value of their right to continue in business stands at the center of these disincentives and in front of the fdic s insurance reserves just as a book shouldn t be judged by its cover a government agency shouldn t be judged by the words behind its initials with the fdic federal deposit insurance corporation the agency s name describes only part of its formal operations the fdic is quasi governmental has a regional structure and sells deposit insurance however the initials fail to convey the fdic s critical place in the governmental regulatory structure as the sole federal overseer of the approximately 8900 state chartered commercial banks that have chosen not to belong the federal reserve system reflecting the federal reserve s membership problem the number of these banks is growing year by year besides selling deposit insurance at bargain explicit rates the fdic performs four regulatory functions 1 entry regulation it passes on new banks applications for deposit insurance and on branch and merger proposals as well thereby protecting the value of existing bank charters 2 examination two thirds of fdic employees are concerned with inspecting bank records and supervising managerial activity 3 regulation of deposit rates and conditions for withdrawal by tradition fdic policies on these matters conform entirely with regulations applicable to federal reserve member banks and 4 disposition of failed banks when an insured bank fails the fdic usually chooses not to liquidate it 2

the seasonality of risk and return on agricultural futures positions this study uses spectral analysis to investigate the risk and return seasonality of agricultural futures contracts the results indicate that neither the expected return nor the contribution of agricultural futures to the risk of diversified investment portfolios vary seasonally because numerous authors have hypothesized that seasonality might exist the findings of this article have important implications for speculators hedgers and researchers

an improved immunization strategy m absolute current immunization models have limited power in interest rate risk protection a new approach entitled m absolute is designed to provide powerful and practical single risk measure immunization in particular circumstances m absolute is similar to m square but is derived as a first order lower bound immunization risk model like duration m absolute can be implemented as a simple single risk measure immunization model m absolute of a bond is defined as the weighted average of the absolute distances of the bond s cash flows from a horizon point even though it is a single risk measure m absolute can act effectively to reduce the impacts of several types of interest rate risks rather than hedge against only a single type of term structure shift empirical tests show that m absolute reduces the interest rate risk inherent in the traditional duration model by more than half these results are independent of the particular time period chosen

fertility and the personal exemption comment one of the most commonly cited studies on the effect of child subsidies on fertility whittington alm and peters 1990 claimed a large positive effect of child tax benefits on fertility using time series methods we revisit this question in light of recent increases in child tax benefits by replicating this earlier study and extending the analysis we do not find strong evidence to justify the model specification from the original paper moreover even if the original specification is appropriate we show that the results are not robust to more general measures of child tax benefits jel h24 j13

population aging class context and age inequality in public spending although recent experiences in the united states suggest that population aging for both demographic and political reasons favors public spending for the elderly relative to children many european nations with different political environments show no shuch pattern this paper investigates age inequality or bias in public spending for these two age based dependent groups using annual time series data for 18 advanced industrial democracies the results show that a large aged population reduces age inequality in favor of the eldearly in the presence of 1 class based corporatism and 2 strong leftist parties whereas a large aged population increases age inequality in the absence of these two factors

hedging interest rate risk with futures portfolios under term structure effects this study develops and tests a methodology for reducing interest rate risk in a fixed spot portfolio of assets and liabilities with default free cash flows a minimum variance hedge is constructed by adding a portfolio of financial futures to the spot portfolio theorems are given which establish necessary and sufficient conditions for the existence of unique and zero variance hedges the risk reduction characteristics of the methodology are demonstrated by an empirical analysis unexpected interest rate fluctuations may have significant impact on the market value of both bond portfolios and interest sensitive institutions the early literature on this subject includes the seminal works of samuelson 27 redington 26 and wallas 29 all of whom consider the impact of unexpected interest rate changes on financial institutions briefly their results indicate that interest rate risk is minimized when the mean time of the assets and liabilities are equal assuming equal initial asset and liability values redington coined the term immunization to refer to the absence of interest rate risk the immunization solutions in their simplest form depend on the duration mean time of asset and liability cash flows the concept of duration was apparently developed independently by macaulay 22 and hicks 18 macaulay interested in the effective maturity of a bond defined duration as

intra day tests of the efficiency of the treasury bill futures market in this paper we use intra day prices to examine the efficiency of the treasury bill futures market the use of intra day data allows us to carefully match in time trades in the futures and cash markets by matching trades and allowing delays between observing apparent inefficiencies and the trade we are examining realistic trading strategies we find profitable arbitrage swaps and a preferred strategy for initial purchase these profits do not depend on an assumption of an equilibrium model hence these tests are direct tests of efficiency rather than a joint test of efficiency and equilibrium t his paper examines the efficiency of the treasury bill futures market this subject has been examined before by capozza and cornell 1979 cornell 1981 lang and rasche 1978 rendleman and carabini 1979 vignola and dale 1979 poole 1978 and puglisi 1978 there are a number of reasons why this paper makes an important contribution to the literature the first reason is that by using trade by trade futures prices we can make more realistic assumptions about the pnces at which trades could have taken place this paper uses intra day prices to examine efficiency prior studies at best used closing prices to examine apparent inefficiencies and assumed that transactions took place at these closing prices there are two problems with this procedure first simultaneous transactions cannot actually occur at closing prices there is almost an hour difference between the closing of the chicago futures and new york spot markets thus when the closing spot market price is observed the futures market has been closed for about an hour closing prices could be used to judge apparent discrepancies however it would be necessary to execute trades at the open making decisions based on closing prices and then assuming trades can take place at these prices is an approximation which could significantly affect results in addition using only closing prices ignores any intra day trades which could lead to profits in this study we match in time intra day prices in the spot and futures market these matched prices are used to identify apparently profitable trading rules we then assume trades take place at prices which are observed later in the day this is a test of a trading rule which an investor could actually follow as we discuss later in the paper our results differ from prior studies these differences are primarily due to using intra day prices and carefully matching times so that information used to initiate trades would actually be available to the investor at the time of the trade the second reason is that we examine more complex trading strategies than those which have been employed in other studies the random walk literature provides a useful analogy the original random walk studies simply correlated past and future prices or returns later studies examined filter rules and other more complicated trading rules in this study we employ alternative trading rules of increased complexity to test for the existence of trading profits finally we explicitly examine the consequence of t bills futures contracts being futures rather than forward contracts futures contracts unlike forward contracts involve flows every settlement day the intermediate cash flows on futures contracts can affect the profitability of any strategy the only prior study that even considered this effect is the one by rendleman and carabini 1979 they used the theoretical model of cox ingersoll and ross 1981 to try to estimate whether the difference between forward and futures prices was likely to be large enough to affect the payoff from alternative trading strategies this is a useful first attempt however ultimately the effect of daily settlement or marking to the market has to be examined directly as part of trading strategies to see if it affects the outcome of these strategies there are other problems with prior studies these involve gross estimates of prices and averaging data in a way that can mask inefficiencies since these problems are discussed in some detail in rendleman and carabini there is no reason to review them further here probably no area in finance has received more attention than the efficiency literature the reader may well wonder why even given the approximareceived for publication august 23 1982 revision accepted for publication may 20 1983 new york university new york university and baruch college respectively the authors would like to thank the center for the study of futures markets at columbia business school for financial support

economic aspects of human cloning and reprogenetics while most discussions of human cloning start and end with ethics this paper analyses the economics of human cloning i analyse the incentives for cloning and its implications for the long run distribution of skills and income i discuss models of human cloning for different motives focusing on those that tend to produce new human beings with improved ability i distinguish three cases cloning as a means of assisted reproduction for infertile couples cloning by fertile couples aimed at producing high ability offspring and finally financially motivated cloning the third case supposes that the creator of a clone can appropriate some fraction of the clone s future income even if this fraction is small the possibility of producing exceptionally talented clones with correspondingly high incomes might make it profitable and thus turn cloning into a form of financial investment an important consequence of these models is that to the extent that ability is genetically determined and cloners prefer to make high ability clones cloning will act as a form of what might be called unnatural selection following standard darwinian logic such selection will tend to increase the proportion of high ability people in society indeed under some assumptions the distribution of ability eventually converges to a mass point at the highest possible ability level under weaker assumptions it is shown that ability reducing genes are eventually eliminated these results do not depend on cloning displacing sexual reproduction or even being widespread they hold even if a small or even negligible number of top ability workers are cloned at a small but not negligible number of copies the paper discusses the plausibility of the models and their results in light on the evidence on marriage markets child selection human assisted reproduction and animal husbandry finally it is shown how the analysis can be used to help formulate policies toward cloning whether they aim at preventing it or managing its external effects gilles saint paul

a maxmin policy for bond management a simple immunization problem is formulated as a maxmin optimal control problem and analytically solved by means of dynamic programming the optimal control law namely the immunization policy turns out to be quite different from any duration based immunization policy moreover it is seemingly able to discriminate between favourable and unfavourable changes in the yield curve

public policy in a model of long term unemployment this paper considers a model in which the unemployed have to incur a cost to maintain their skills if whether they have done so is not observable the economy has multiple equilibria supported by self fulfilling beliefs on the part of the employers one of these equilibria which we argue is more likely to arise has equilibrium discrimination against the long term unemployed who in response decide to let their skills atrophy as a result in this equilibrium the exit probabilities from unemployment are duration dependent it is shown that equilibrium discrimination survives even if workers are allowed to accept negative wages at the beginning of the employment relation since this equilibrium is highly inefficient constructive government action in the form of positive discrimination subsidies and labour market policies are suggested to correct the market failures however subsidies and positive discrimination by private firms are shown not to have beneficial effects labour market policies in the form of retraining of the long term unemployed are beneficial but reduce the likelihood of a switch to the pareto preferred equilibrium the most useful policy appears to be a limited form of positive discrimination by a government sector

search equilibrium and social and private returns to education social and private returns to education are computed using the structural estimates of an extended burdett mortensen search equilibrium model the extension includes different skill groups linked via a production function with variable degree of homogeneity allowing thereby for a unimodal earnings density with a decreasing right tail we find that the decreasing unemployment risk for higher skill groups and the absence of tuition fees in germany increase private returns and lead to a too large share of high skilled individuals in the workforce which is suboptimal from the social point of view c 2009 elsevier b v all rights reserved

a defense of traditional hypotheses about the term structure of interest rates expectations theories of asset returns may be interpreted either as stating that risk premia are zero or that they are constant through time under the former interpretation different versions of the expectations theory of the term structure are inconsistent with one another but i show that this does not necessarily carry over to the constant risk premium interpretation of the theory i present a general equilibrium example in which different types of risk premium are constant through time and dependent only on maturity furthermore i argue that differences among expectations theories are secondorder effects of bond yield variability i develop an approximate linearized framework for analysis of the term structure in which these differences disappear and i test its accuracy in practice using data from the crsp government bond tapes in a well known article in this journal cox ingersoll and ross cir 4 reexamine and find wanting certain hypotheses about the term structure of interest rates a striking feature of cir s re examination is that it is entirely theoretical cir show that different versions of the pure expectations theory of the term structure which traditionally were regarded as equivalent are in fact inconsistent with one another when interest rates are random furthermore in a fairly general continuous time arbitrage pricing framework when interest rates are random all versions of the theory except one are incompatible with equilibrium at first sight cir s results appear to be devastating to traditional empirical work on the term structure they suggest that researchers must specify arbitrage pricing models with a small number of state variables before proceeding to empirical work such models must restrict not only the deterministic components

are children really inferior goods evidence from displacement driven income shocks abstract this paper explores the causal link between income and fertility by analyzing women s fertility response to the large and permanent income shock generated by a husband s job displacement i find that the shock reduces total fertility suggesting that the causal effect of income on fertility is positive a model that incorporates the time cost of children and assortative matching of spouses can simultaneously explain this result and the negative cross sectional relationship i also find that a husband s displacement accelerates childbearing which is consistent with lifecycle models of fertility in which the incentive to delay is driven by expected earnings growth

redistribution fertility and growth the effect of the opportunities abroad abstract this article analyzes the effect of the opportunities abroad on the growth path that a small open economy in which redistribution policy in favor of less prosperous segments takes place is expected to follow the model shows that redistribution policy raises fertility among the unskilled recipients lowers fertility among the contributing skilled slows human capital accumulation and reduces per capita output growth the paper demonstrates that the opportunities abroad determine the share of income redistributed and ultimately induce the offspring of the unskilled to invest in human capital and decrease their family size

unemployment and increasing private returns to human capital abstract this paper studies a model of human capital accumulation with real wage rigidity it is shown that the arbitrage condition between hiring a skilled vs an unskilled worker may be stated as a positive relationship between their relative unemployment rates it may be the case that this locus is steep enough to generate increasing returns to education this may lead to multiple equilibria a high education equilibrium may co exist with a low education equilibrium in the former the unskilled are more exposed to unemployment relative to the skilled as compared with the latter the two equilibria cannot be pareto ranked but the latter is preferred to the former by workers while savers prefer the high education one

testing the neoclassical model of family labor supply and fertility the mcelroy horney nash bargaining model of family demand behavior relaxes the restriction that nonearned income of husband and wife has the identical effect on family labor supply and commodity demands this restriction of the neoclassical model offamily behavior is tested for the determination of husband and wife labor supply andfertility based on the 1981 socioeconomic survey of thailand the neoclassical restriction is rejected for female labor supply andfertility another unexplored limitation offamily demand studies due to the sample self selection of intact marriages is empirically treated through alternative estimation strategies in this case a more sharply focused theory of marital behavior is needed to identify family demand models

subsidizing the stork new evidence on tax incentives and fertility this paper exploits the introduction of a pronatalist transfer policy in the canadian province of quebec that paid up to c 8 000 to families having a child i implement a quasi experimental strategy by forming treatment and control groups defined by time jurisdiction and family type the incentive was available broadly rather than to a narrow population as studied in previous work providing an exceptional opportunity to investigate heterogeneous responses i find a strong effect of the policy on fertility and some evidence of a heterogeneous response that may help reconcile these results with previous estimates

immunizing default free bond portfolios with a duration vector dissatisfaction occasionally has been expressed with traditional measures of duration for immunization on conceptual grounds however more elegant duration measures have not been found to be superior to the traditional ones in empirical tests of immunization efficacy under the assumption that the term structure of continuously compounded interest rates can be expressed as a polynomial chambers and carleton 1981 demonstrate that the finite and noninstantaneous return of a default free bond can be expressed as a vector product of a duration vector and a shift vector this study derives immunization strategies from the model and tests them the results of the portfolio tests indicate that the tradi tional duration approach of macaulay provides enhanced immunization relative to matu rity approaches or naive approaches however the duration vector approach produces further improvements

the role of rents to human capital in economic development abstract we study the role of rents to human capital in economic development in an overlapping generations model rents to human capital play a key role in increasing savings in the absence of such rents the return to human capital is entirely appropriated by the old and accumulation is entirely determined by the income to fixed factors if rents are introduced by setting a ceiling on human capital accumulation the economy may achieve a larger income level even though the ceiling reduces the economy s feasibility set threshold effects and multiple steady states arise because rents to human capital are self perpetuating inequality in abilities may be good for growth because it allows inframarginal workers to earn rents on their human capital which then increase savings public education is also good for growth because it gives the young property rights over their own human capital thus being equivalent to rents

ranking unemployment duration and wages it explores the implication of one central assumption when firms receive multiple acceptable applications they hire the worker who has been unemployed for the least amount of time this assumption ranking is contrasted with the assumption of random hiring no ranking by embodying this assumption in a model of the labour market with job creation destruction and matching the joint behaviour of unemployment the distribution of unemployment durations and wages are characterized the implication that the re employment prospects of employed workers were they to become unemployed are better than those of the currently unemployed appears to have been an important feature of european unemployment experience in the 1980 s this paper examines the effects of the composition of unemployment on wage determination it explores one central assumption when firms receive multiple acceptable applications they hire the worker who has been unemployed for the least amount of time we refer to this assumption as ranking and contrast it throughout to the assumption of random hiring or no ranking by embodying this assumption in a model of the labour market with job creation destruction and matching we characterize the joint behaviour of unemployment the distribution of unemployment durations and wages ranking has a number of important implications first in addition to the obvious result that the exit rate from unemployment is a decreasing function of duration we show that the effect of duration is stronger the higher the rate of unemployment second with the wage depending on the distributions of prospective unemployment durations the presence of long term unemployed per se has little effect on wages third looking at the relation between the wage and the aggregate level of unemployment and comparing ranking to the case of no ranking the wage moves less with the level of unemployment but more with the change in unemployment put simply ranking and no ranking models show exactly the same aggregate unemployment slightly different long run responses of wages to unemployment and sharply different wage dynamics the paper is organized as follows section i characterizes the matching process and derives a matching function based on an urn ball process with vacancies as urns and applications by unemployed workers as balls thus the distribution of applications per vacancy depends on aggregate unemployment and vacancies vacancies with at least one acceptable application are filled when a vacancy receives more than one acceptable application firms use a rule to choose among applicants thus the rule determines who is hired but does not affect the number of hires section ii uses this matching function in a model of the labour market with continual job creation and destruction and characterizes the equilibrium values of unemployment vacancies and hires

fertility and the tax benefit system a reconsideration of the theory of family taxation the author examines the simultaneous nature of the decision to have children the decision to spend money on them and the decision to seek employment it will be argued that the children income trade off emphasised by the present paper is more relevant to most family decisions than the income leisure trade off on which much of the policy debate has been centred in order to do that we shall bring together the recently developed economic theory of the family or new home economics with the microeconomic branch of the theory of public finance a model of family choice is developed the main message of the present paper is that if as the evidence suggests parents have some control over the number of children they put into the world then the effect of taxes and subsidies on the familys allocation of time and money will be generally weaker and in some respects the opposite of what it would be if the number of children were physiologically constrained or exogenously given another is that if parents derive utility from having children this has to be taken into account in any welfare calculation fertility may thus affect the design of optimal policy in two ways indirectly through its effect on market behaviour and directly through its effect on welfare excerpt

when can you immunize a bond portfolio abstract this paper presents a condition equivalent to the existence of a riskless shadow asset that guarantees a minimum return when the asset prices are convex functions of interest rates or other state variables we apply this lemma to immunize default free and option free coupon bonds and reach three main conclusions first we give a solution to an old puzzle why do simple duration matching portfolios work well in empirical studies of immunization even though they are derived in a model inconsistent with equilibrium and shifts on the term structure of interest rates are not parallel as assumed second we establish a clear distinction between the concepts of immunized and maxmin portfolios third we develop a framework that includes the main results of this literature as special cases next we present a new strategy of immunization that consists in matching duration and minimizing a new linear dispersion measure of immunization risk

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

the performance of alternative interest rate risk measures and immunization strategies under a heath jarrow morton framework using a monte carlo simulation this study addresses the question of how traditional risk measures and immunization strategies perform when the term structure evolves in a heath jarrow morton 1992 manner the results suggest that for immunization purposes im munization strategies and portfolio formation strategies are more important than interest rate risk measures the performance of immunization strategies depends more on the transaction costs and the holding period than on the risk measures moreover the immu nization performance of bullet and barbell portfolios is not very sensitive to interest rate risk measures

simultaneous equations analysis of fertility in the u s a comment comments on a study by conger and campbell which postulated a 6 equation dynamic model including a fertility equation estimated by 2 stage least squares on the basis of aggregate data for the u s the authors present a table with 3 sets of estimates for each of the 6 structural equations specified in the earlier study 2 stage least squares estimates obtained for 1946 70 and 1946 76 and the estimates obtained by conger and campbell are indicated the authors report that they were unable to obtain the results reported by the latter their estimates were quite different and did not seem to support the conclusions offered in the earlier study estimates for the longer period were substantially different from those for the shorter the authors believe that the conger campbell data also do not support the conger campbell conclusions each point is discussed with reference to the table the equations are used to evaluate fertility female participation infant mortality income education and medical expenditure

immunization in markets with tax clientele effects evidence from the canadian market empirical immunization studies have considered the efficacy of immunization strategies in which the durations of assets and of liabilities are equated against a strategy involving maturity matching however all these studies have ignored tax effects in the presence of tax clientele effects immunization requires that the portfolio consists only of bonds that are correctly priced for a particular clientele testing for these effects therefore requires the identification of the correctly priced bonds for the investors in the clientele however since bond prices contain noise determining these bonds is still an unresolved problem consequently an empirical test of the magnitude of the error caused by ignoring taxes may be an impossible task in some markets and indeed has never been conducted the canadian bond market provides perfect laboratory conditions for such a test tax clientele effects are present in the canadian market and among the clienteles is a representative clientele this paper examines the tax effects on immunization strategies the results show that the error caused by ignoring tax effects is not negligible and practitioners should use immunization with reference to tax effects