national co2 policy and externalities some general equilibrium results for switzerland abstract switzerland following the kyoto agreement plans to reduce co 2 emissions by 10 over the next decade with a tax on the use of fossil fuels this policy while having a marginal effect on global co 2 emission levels will have a positive effect on local environmental quality however since different sources of energy produce different local external effects a uniform co 2 tax is ill targeted this paper shows that a policy setting tax rates equal to the lower bounds of the estimated local marginal external effects would reduce the national co 2 level by 30 using a computable general equilibrium model of the swiss economy it also finds substantial efficiency gains of pigovian taxes as compared to a uniform co 2 tax

on identification of bayesian dsge models this article is concerned with local identification of individual parameters of dynamic stochastic general equilibrium dsge models estimated by bayesian methods identification is often judged by a comparison of the posterior distribution of a parameter with its prior however these can differ even when the parameter is not identified instead we propose two bayesian indicators of identification the first follows a suggestion by poirier of comparing the posterior density of the parameter of interest with the posterior expectation of its prior conditional on the remaining parameters the second examines the rate at which the posterior precision of the parameter gets updated with the sample size using data simulated at the parameter point of interest for an increasing sequence of sample sizes t for identified parameters the posterior precision increases at rate t for parameters that are either unidentified or are weakly identified the posterior precision may get updated but its rate of update wi

sources of intra industry wage dispersion how much do employers matter observed human capital explains less than half of wage variation in bls industry wage surveys establishment based wage differentials controlling for occupation account for 20 70 percent of intra industry wage variation this corresponds to a standard deviation in wages of 14 percent of the mean almost as large as interindustry wage variation investigation suggests that establishment wage differentials are not random variations or returns to usual measures of human capital

testing for indeterminacy an application to u s monetary policy reply this paper considers a prototypical new keynesian model in which the equilibrium is undetermined if monetary policy is passive the likelihood based estimation of dynamic equilibrium models is extended to allow for indeterminacies and sunspot fluctuations we construct posterior weights for the determinacy and indeterminacy region of the parameter space and estimates for the propagation of fundamental and sunspot shocks according to the estimated model u s monetary policy post 1982 is consistent with determinacy whereas the pre volcker policy is not we find that before 1979 indeterminacy substantially altered the propagation of shocks

the elusive wage benefit trade off the case of employer provided health insurance this study shows that standard regressions estimated to measure a trade off between wages and health insurance are misspecified by insufficiently accounting for establishment and firm size an interactive size corrected specification is more likely to reveal a trade off furthermore because insurance decisions are typically made by firms and wages set by establishments the insurance constraint on establishments in multi establishment firms weakens the trade off we use model generated data to show that both factors contribute to the failure in previous research to identify a trade off and data from a cross section of northern californian establishments to test for a trade off in multi establishment and single establishment firms

measuring the sensitivity of parameter estimates to estimation moments we propose a local measure of the relationship between parameter estimates and the moments of the data they depend on our measure can be computed at negligible cost even for complex structural models we argue that reporting this measure can increase the transparency of structural estimates making it easier for readers to predict the way violations of identifying assumptions would affect the results when the key assumptions are orthogonality between error terms and excluded instruments we show that our measure provides a natural extension of the omitted variables bias formula for nonlinear models we illustrate with applications to published articles in several fields of economics

a computable general equilibrium model of energy economy and equity interactions in pakistan this article introduces a computable general equilibrium model of the pakistan economy some major extensions to a standard neoclassical model have been made to capture the interlinkages between economy energy and equity the model has been designed mainly to carry out policy oriented short term studies especially for the energy sector an illustrative application of the model shows its capability to provide detailed information which are useful in analysis of a policy issue

international business cycles the authors estimate a dynamic two country model in which economic fluctuations are driven by a worldwide supply shock country specific supply shocks and relative fiscal money and preference shocks identification is achieved using only long run restrictions based on a theoretical model the main results are 1 supply shocks particularly country specific ones are very important in generating international business cycles and 2 although the post 1973 flexible exchange rate period has been inherently more volatile there are no differences in transmission properties of economic disturbances across exchange rate regimes for the endogenous variables they focus on copyright 1993 by american economic association

the economics of schooling production and efficiency in public schools n recent years public and professional interest in schools has been heightened by a spate of reports many of them critical of current school policy these policy documents have added to persistent and long standing concerns about the cost effectiveness and fairness of the current school structure and have made schooling once again a serious public issue as in the past however any renewed interest in education is likely to be short lived doomed to dissipate as frustration over the inability of policy to improve school practice sets in this frustration about school policy relates directly to knowledge about the educational production process and in turn to underlying research on schools although the educational process has been extensively researched clear policy prescriptions flowing from this research have been difficult to derive 2 there exists however a consistency to the research findings that does have an immediate application to school policy schools differ dramatically in quality

international business cycles world region and country specific factors the paper investigates the common dynamic properties of business cycle fluctuations across countries regions and the world we employ a bayesian dynamic latent factor model to estimate common components in macroeconomic aggregates output consumption and investment in a 60 country sample covering seven regions of the world the results indicate that a common world factor is an important source of volatility for aggregates in most countries providing evidence for a world business cycle we find that region specific factors play only a minor role in explaining fluctuations in economic activity we also document similarities and differences across regions countries and aggregates jel f41 e32 c11 c32

teacher sorting teacher quality and student composition abstract using panel data for norwegian schools we establish a two equation supply and demand model for teachers with approved education taking into account nationally determined teacher pay and a strict teacher appointment rule the data enable us to separately estimate supply and demand functions for certified teachers the results clearly indicate that the student body composition and in particular students belonging to ethnic minorities influences both teacher supply and teacher demand the implied negative relationship between excess demand for certified teachers and the share of minority students is likely to be important for teacher quality

the hidden winners of renewable energy promotion insights into sector specific wage differentials abstract in light of germany s energy system transformation this paper examines differences in employment structures and wage differentials between renewable energy establishments and their sector peers to do so we have developed a novel data set by linking company level information from the german renewable energy federation with administrative establishment level data from the institute for employment research descriptive evidence shows significant differences in wages and several other characteristics between renewable energy establishments and their sector peers our estimates give evidence that human capital and other establishment level characteristics mostly explain the wage differential among manufacturers and energy providers however we find a persistent renewable energy wage premium of more than ten percent in construction installation activities and architectural engineering services we interpret this premium as a positive indirect effect of the promotion of renewable energies for the benefit of employees in renewable energy establishments within these two sectors

the time varying volatility of macroeconomic fluctuations we investigate the sources of the important shifts in the volatility of us mac roeconomic variables in the postwar period to this end we propose the esti mation of dsge models allowing for time variation in the volatility of the structural innovations we apply our estimation strategy to a large scale model of the business cycle and find that shocks specific to the equilibrium condition of investment account for most of the sharp decline in volatility of the last two decades jel c51 e32

a public policy aid for bioenergy investment case study of failed plants abstract recent failures of renewable energy plants have raised concerns regarding government s role in providing credit subsidies and have harmed the long run development of renewable energy the major reason for these failures lies in government loan appraisers not having a model that addresses these root causes and instead relying on traditional net present value npv analysis what is required is a model representing entrepreneurs investment decision processes when faced with uncertainty irreversibility and flexibility that characterize renewable energy investments the aim is to develop such a model with a real options analysis roa criterion as the foundation a case study comparing npv with roa decisions for 50 and 100 million gallon ethanol plants is used as a basis for future development of a template government loan appraisers can use for evaluating the feasibility of renewable energy investments

context dependent preferences the standard theory of choice based on value maximization associates with each option a real value such that given an offered set the decision maker chooses the option with the highest value despite its simplicity and intuitive appeal there is a growing body of data that is inconsistent with this theory in particular the relative attractiveness of x compared to y often depends on the presence or absence of a third option z and the market share of an option can actually be increased by enlarging the offered set we review recent empirical findings that are inconsistent with value maximization and present a context dependent model that expresses the value of each option as an additive combination of two components a contingent weighting process that captures the effect of the background context and a binary comparison process that describes the effect of the local context the model accounts for observed violations of the standard theory and provides a framework for analyzing context dependent p

labor market effects of employer provided health insurance i introduction increasing health insurance coverage is arguably an important policy goal the congressional budget office 2003 estimates that in 1998 20 30 million americans had no health insurance for the entire year approximately 40 million were uninsured at a specific point in time in the year and nearly 60 million were without coverage some time during the year most individuals who have health insurance in the united states obtain it through their employer in 1999 65 8 of nonelderly americans had employer provided insurance also called group insurance or employer sponsored insurance either through their own employer or through the employer of another household member see gruber 2001 employer provided insurance plans generally have lower premiums and offer more benefits than individual insurance plans health insurance providers can offer cheaper and better plans to company employees for at least two reasons first the average administrative cost of such plans is lower than individual plans second employment based plans are typically subject to less adverse selection than individual plans particularly so for large employers furthermore the tax subsidy afforded employment based health insurance renders the effective consumer price substantially lower than the cost see pauly 1986 and gruber 2001 together these various factors give a strong incentive for employers to offer and employees to accept coverage as part of their employment contract as employer provided insurance is by far the most prevalent form of coverage in the private sector policy makers look for further expansion of this base as a way to insure the uninsured while avoiding direct public financing as a way to increase employer based health insurance coverage some states either have or are considering government mandates that require employers to provide insurance to certain types of workers 1 the state of hawaii requires private sector employers to offer health insurance to all workers who work for more than 20 h a week and requires these workers to have insurance the state of california is currently considering a similar mandate there is a considerable interest from policy makers on the effects of such mandates on labor market outcomes in this study we report on an experiment that was designed to provide some insights about possible effects of alternative health insurance regulations on the competitive labor market with a particular focus on mandates since we only considered a competitive market setting with complete contracts and no wage rigidities our results may not be directly applicable to all labor market situations 2 however the study provides useful insights about the interaction of health insurance benefit provision wages and employment structure for labor markets where the competitive wage setting and the complete contracts assumptions are reasonable with these limitations in mind our results can be also generalized to other types of employer provided fringe benefits such as paid vacations or pension plans as any government intervention health insurance regulation may affect the labor market theory predicts that in perfectly competitive labor markets health insurance creates no distortionary effects on the labor market equilibrium as long as the coverage is not mandated and there are no wage rigidities 3 all workers who value insurance above its cost of provision are offered insurance and accept it the wages are adjusted downward see rosen 1986 and gruber 2000 summers 1989 used a simple supply and demand analysis to show that the effect of increases in premiums on equilibrium labor hours and wage depends both on the elasticity of labor demand and labor supply and on how fully workers value changes in the cost of health insurance if the demand or the supply of labor is completely inelastic or if workers fully value the insurance then an increase in the premium would result in an equal decrease shift in wages

measuring prior sensitivity and prior informativeness in large bayesian models abstract in large bayesian models such as modern dsge models it is difficult to assess how much the prior affects the results this paper derives measures of prior sensitivity and prior informativeness that account for the high dimensional interaction between prior and likelihood information the basis for both measures is the derivative matrix of the posterior mean with respect to the prior mean which is easily obtained from markov chain monte carlo output we illustrate the approach by examining posterior results in the small model of lubik and schorfheide 2004 and the large model of smets and wouters 2007

when does government debt crowd out investment summary we examine when government debt crowds out investment for the us economy using an estimated new keynesian model with detailed fiscal specifications and accounting for monetary and fiscal policy interactions whether investment is crowded in or out in the short term depends on policy shocks triggering debt expansions higher debt can crowd in investment for cutting capital tax rates or increasing government investment contrary to the conventional view no systematic relationships between real interest rates and investment exist explaining why reduced form regressions are inconclusive about crowding out at longer horizons distortionary financing is important for the negative investment response to debt copyright 2013 john wiley sons ltd

what to expect when you re calibrating measuring the effect of calibration on the estimation of macroeconomic models abstract i propose two measures of the impact of calibration on the estimation of macroeconomic models the first quantifies the amount of information introduced with respect to each estimated parameter as a result of fixing the value of one or more calibrated parameters the second is a measure of the sensitivity of parameter estimates to perturbations in the calibration values the purpose of the measures is to show researchers how much and in what way calibration affects their estimation results by shifting the location and reducing the spread of the marginal posterior distributions of the estimated parameters such analysis is often appropriate since macroeconomists do not always agree on whether and how to calibrate structural parameters in macroeconomic models the methodology is illustrated using the models estimated in smets and wouters 2007 and schmitt grohe and uribe 2012

policy regimes policy shifts and u s business cycles abstract using an estimated dsge model with monetary and fiscal policy interactions and allowing for equilibrium indeterminacy we find that a passive monetary and passive fiscal policy regime prevailed in the pre volcker period this gave rise to self fulfilling beliefs and unconventional transmission mechanisms of policy shifts unanticipated increases in interest rates increased inflation and output while unanticipated increases in lump sum taxes decreased inflation and output we show that had the monetary policy regime of the post volcker era been in place pre volcker inflation volatility would have been lower by 25 and the rise of inflation in the 1970s would not have occurred

propagation mechanisms for government spending shocks a bayesian comparison the inability of a simple real business cycle model to predict a rise in consumption in response to increased government expenditures observed in many empirical studies has stimulated the development of alternative theories of government spending shocks using the bayesian approach we evaluate the quantitative performance of five extant models and find that neither of the considered transmission mechanisms for government spending helps improve the fit of the baseline model moreover we find that consumption decreases in all estimated models in response to a rise in government spending

an equilibrium model of health insurance provision and wage determination we investigate the effect of employer provided health insurance on job mobility rates and economic welfare using a search matching and bargaining framework in our model health insurance coverage decisions are made in a cooperative manner that recognizes the productivity effects of health insurance as well as its nonpecuniary value to the employee the resulting equilibrium is one in which not all employment matches are covered by health insurance wages at jobs providing health insurance are larger in a stochastic sense than those at jobs without health insurance and workers at jobs with health insurance are less likely to leave those jobs even after conditioning on the wage rate we estimate the model using the 1996 panel of the survey of income and program participation and find that the employer provided health insurance system does not lead to any serious inefficiencies in mobility decisions

an ahp decision making model for optimal allocation of energy subsidy among socio economic subsectors in iran abstract this paper presents an analytical hierarchy process ahp decision model for sectoral allocation of energy subsidy based on several criteria with determination of priorities for these criteria through questionnaire and ahp method the overall rank of these criteria that have the most influence on distribution of energy subsidy among socio economic sub sectors are as the following inflation economic growth labor intensity distribution of energy subsidy among socio economic levels energy intensity and social cost of air pollution according to the model the first priority for allocation of energy subsidy is commercial sector and the last priority is related to transportation sector investigating the impact of changing priority of the criteria on overall results indicates that the socio economic sub sectors ranking in receiving subsidy have little sensitivity for changing priority of the subsidy criteria

on the contract curve a test of alternative models of collective bargaining the traditional model of collective bargaining confines unions to settlements constrained by the employer s labor demand curve but an alternative model places wage employment outcomes on a contract curve that extends beyond the labor demand curve this paper derives a multidimensional hedonic contract curve model in which employment security provisions are used to maintain efficient bargains outside the employer s demand curve and distinguishes empirically between the contract curve and demand constraint models using data for public school teachers in new york state estimates clearly support the contract curve model over the demand constraint model by linking the gap between compensation and the value of the marginal product to the strength of employment security provisions

local identification in dsge models abstract the issue of identification arises whenever structural models are estimated lack of identification means that the empirical implications of some model parameters are either undetectable or indistinguishable from the implications of other parameters therefore identifiability must be verified prior to estimation this paper provides a simple method for conducting local identification analysis in linearized dsge models estimated in both full and limited information settings in addition to establishing which parameters are locally identified and which are not researchers can determine whether the identification failures are due to data limitations such as lack of observations for some variables or whether they are intrinsic to the structure of the model the methodology is illustrated using a medium scale dsge model

priors from general equilibrium models for vars abstract this paper uses a simple new keynesian dynamic stochastic general equilibrium model as a prior for a vector autoregression shows that the resulting model is competitive with standard benchmarks in terms of forecasting and can be used for policy analysis jel classification c11 c32 c53 key words bayesian analysis dsge models forecasting vector autoregressions 1 introduction dynamic stochastic general equilibrium dsge models are popular nowadays in macroeconomics they are taught in virtually every economics ph d program and represent a predominant share of publications in the field yet when it comes to policy making these models are scarcely used at least from a quantitative point of view the main quantitative workhorse for policy making at the federal reserve system is frb us a macro econometric model built in the cowles foundation tradition a style of macroeconomics that is no longer taught in many ph d programs 1 in their decision process fed policy makers rely heavily on forecasting they want to know the expected path of inflation in the next few quarters and by how much a 50 basis point increase in the federal funds rate would affect that path frb us offers answers to these questions answers that many macroeconomists would regard with suspicion given both the lucas 1976 critique and the fact that in general the restrictions imposed by cowles foundation models are at odds with dynamic general equilibrium macroeconomics sims 1980 general equilibrium models on the other hand have a hard time providing alternative answers the fact that these models are perceived to do badly in terms of forecasting as they are scarcely parameterized is perhaps one of the reasons why they are not at the forefront of policy making while progress is being made in the development of dsge models that deliver acceptable forecasts e g smets and wouters 2003 this paper proposes an approach that combines a stylized general equilibrium model with a vector autoregression var to obtain a specification that both forecasts well and is usable for policy analysis specifically the approach involves using prior information coming from a dsge model in the estimation of a vector autoregression loosely speaking this prior can be thought of as the result of the following exercise i simulate time series data from the dsge model ii fit a var to these data in practice we replace the sample moments of the simulated data by population moments computed from the dsge model solution since the dsge model depends on unknown structural parameters we use a hierarchical prior in our analysis by placing a distribution on the dsge model parameters a tightness parameter controls the weight of the dsge model prior relative to the weight of the actual sample markov chain monte carlo methods are used to generate draws from the joint posterior distribution of the var and dsge model parameters the paper shows that the approach makes even a fairly stylized new keynesian dsge model competitive with standard benchmarks in terms of forecasting real output growth inflation and the nominal interest rate the three variables that are of most interest to policy makers 2 up to this point our procedure borrows from the work of dejong ingram and whiteman 1993 and ingram and whiteman 1994 who are the first to use priors from dsge models for vars ingram and whiteman showed that prior information from the bare bones stochastic growth model of king plosser and rebelo 1988 is helpful in forecasting real economic activity such as output consumption investment and hours worked in addition to documenting the forecasting performance of a trivariate var with a prior derived from a monetary dsge model this paper makes two contributions that significantly extend the earlier work first we show formally how posterior inference for the var parameters can be translated into posterior inference for dsge model parameters

were there regime switches in u s monetary policy working paper 2004 14 june 2004 abstract a multivariate model identifying monetary policy and allowing for simultaneity and regime switching in coefficients and variances is confronted with u s data since 1959 the best fit is with a model that allows time variation in structural disturbance variances only among models that also allow for changes in equation coefficients the best fit is for a model that allows coefficients to change only in the monetary policy rule that model allows switching among three main regimes and one rarely and briefly occurring regime the three main regimes correspond roughly to periods when most observers believe that monetary policy actually differed and the differences in policy behavior are substantively interesting though statistically ill determined the estimates imply monetary targeting was central in the early 80s but was also important sporadically in the 70s the changes in regime were essential neither to the rise in inflation in the 70s nor to its decline in the 80s jel classification e52 e47 c53 key words counterfactuals lucas critique policy rule monetary targeting simultaneity volatility model comparison i the debate over monetary policy change in an influential paper clarida gali and gertler 2000 cgg presented evidence that us monetary policy changed between the 1970 s and the 1980 s indeed that in the 70 s it was drastically worse they found that the policy rule apparently followed in the 70 s was one that when embedded in most stochastic general equilibrium models would imply non uniqueness of the equilibrium and hence vulnerability of the economy to sunspot fluctuations of arbitrarily large size their estimated policy rule for the later period on the other hand eliminated this indeterminacy these results are a possible explanation of the volatile and rising inflation of the 70 s and of its subsequent decline the cgg analysis has two important weaknesses one is that it fails to account for stochastic volatility us macroeconomic variables and particularly the federal funds rate have gone through periods of tranquility and of agitation with forecast error variances varying greatly from period to period ignoring such variation does not lead to inconsistent estimates of model parameters when the forecasting equations themselves are constant but it strongly biases toward a finding of changed parameters tests of the stability of the forecasting equations the other weakness is that the cgg analysis rests on powerful and implausible identifying assumptions they require that we accept that the response of the monetary authority to expected future inflation and output does not depend on the recent history of inflation money growth or output it is hard to understand why this should be so especially in the 70 s when monetarism was a prominent theme in policy debates congress was requiring reports from the fed of projected time paths of monetary aggregates and financial markets were reacting sensitively to weekly money supply numbers the requirement for existence and uniqueness of equilibrium in dynamic models is that the monetary policy rule show a more than unit response of interest rates to the sum of the logs of all nominal variables that appear on the right hand side of the reaction function if we force a particular measure of expected future inflation to proxy for all the nominal variables that actually appear independently in the reaction function we are bound to get distorted conclusions on the one hand because expected future inflation will be a noisy measure of the full set of nominal influences on policy we might get downward bias in our estimates from the usual errorsin variables effect on the other hand to the extent that expected future inflation like most expected future values shows less variation than current nominal variables we could find a mistaken scaling up of coefficients

health insurance provision and labor contracts for small firms healthcare reform in the usa requires all americans to buy health insurance and businesses above a certain size to offer healthcare coverage to their employees by 2014 understanding why some entrepreneurs do not provide employer based health insurance is important and might help to solve future health insurance problems using two unique features which have not yet been discussed in the literature namely efficiency wage theory and a compensation package of monetary wage and health insurance coverage we provide here a theoretical foundation to why small firms are less likely to offer health insurance and are more likely to have employees with only a weak preference for acquiring health insurance to reach the goal of health insurance coverage for all one feasible solution is to allow small firms or individuals to pool together and pay a lower insurance premium