buffer stocks and precautionary savings with loss aversion abstract this paper reexamines buffer stocks and precautionary savings in the presence of loss aversion we assume that agents are disappointment averse as in gul econometrica 59 1991 667 686 we show that the concavity of the marginal utility continues to determine precautionary saving but its effect is of a second order magnitude proportional to the square of the coefficient of variation compared to the first order effect proportional to the coefficient of variation induced by loss aversion we show that a stabilization fund that is rather small when agents are maximizing the conventional expected utility turns out to be rather large with loss aversion

frontiers of real time data analysis in the past ten years researchers have explored the impact of data revisions in many different contexts researchers have examined the properties of data revisions how structural modeling is affected by data revisions how data revisions affect forecasting the impact of data revisions on monetary policy analysis and the use of real time data in current analysis this paper summarizes many of the questions for which real time data analysis has provided answers in addition researchers and institutions have developed better real time data sets around the world still additional research is needed in key areas and research to date has uncovered even more fruitful areas worth exploring jel c52 c53 c80 e01

rules stability and growth abstract this paper examines two systems of fiscal redistribution in the context of a growing economy subject to unexpected shocks rules and discretion under the former system the tax system is in place and is known to households contemplating investment decisions under the second redistribution is decided upon only after the investment decisions have been made i find that rules always lead to faster capital accumulation and growth but political support for them is only likely to occur in a stable economy income inequality adversely affects the likelihood of adopting rules especially so in an unstable economy

the impact of body weight on occupational mobility and career development this paper examines the relationship between individuals weight and their employment decisions over the life cycle i estimate a dynamic stochastic model of individuals annual joint decisions of occupation hours worked and schooling the model allows body weight to affect non monetary costs switching costs and distribution of wages for each occupation and also allows individuals employment decisions to affect body weight i use conditional density estimation to formulate the distributions of wages and body weight evolution i find that heavier individuals face higher switching costs when transitioning into white collar occupations earn lower returns to experience in white collar occupations and earn lower wages in socially intensive jobs simulating the model with estimated parameters decreased occupational mobility accounts for 10 percent of the obesity wage gap while contemporaneous wage penalties for body weight are small the cost over the life cycle is substantial an exogenous increase in initial body mass by 20 percent leads to a 10 percent decrease in wages over the life course

the political economy of public savings and the role of capital mobility abstract this paper explains public saving and investment in economies where many groups compete for scarce public funds we show that there is a collective action problem if there is no strong center then this problem manifests itself in a very low savings and investment rates in the extreme current spending may be determined simply by the current tax income and access to borrowing this explains why in the face of a temporary boom governments may not save but may even borrow more to finance even higher levels of expenditure we deal also with several mitigating factors repetition insiders outsiders interaction elections

a flexible approach for estimating the effects of covariates on health expenditures our estimation strategy uses sequences of conditional probability functions similar to those used in discrete time hazard rate analyses to construct a discrete approximation to the density function of an outcome of interest conditional on exogenous explanatory variables once the conditional density function has been constructed we can examine expectations of arbitrary functions of the outcome of interest and evaluate how these expectations vary with observed exogenous covariates we demonstrate the features and precision of the conditional density estimation method and compare it to other commonly used methods through monte carlo experiments and an application to health expenditures using the rand health insurance experiment data overall we find that the approximate conditional density estimator provides accurate and precise estimates of derivatives of expected outcomes for a wide range of types of explanatory variables

the limits of political compromise debt ceilings and political turnover we study the desirability of limits on the public debt and of political turnover in an economy where incumbents have an incentive to set public expenditures above the socially optimal level due to rent seeking motives parties alternate in office and cannot commit to future policies but they can forge a political compromise where each party curbs excessive spending when in office if it expects future governments to do the same in contrast to the received literature we find that strict limits on government borrowing can exacerbate political economy distortions by making a political compromise unsustainable this tends to happen when political turnover is limited conversely a tight limit on the public debt fosters a compromise that yields the efficient outcome if political turnover is vigorous our analysis thus suggests that to sustain good economic policies a society needs to restrict either the extent of political turnover or the ability of governments to issue debt but not both

the tragedy of the commons and economic growth why does capital flow from poor to rich countries we analyze a differential game in which all interest groups have access to a common capital stock we show that the introduction of a technology that has inferior productivity but enjoys private access may ameliorate the tragedy of the commons we use this model to analyze capital flight in many poor countries property rights are not well defined since safe bank accounts in rich countries the inferior technology are available to citizens of these countries they engage in capital flight we show that the occurrence of capital flight does not imply that opening the capital account reduces growth and welfare

the build up of cooperative behavior among non cooperative selfish agents abstract we develop a theoretical model in which each individual is in some ultimate sense motivated by purely egoistic satisfaction derived from the goods accruing to him but there is an implicit social contract such that each performs duties for the others in a way that enhances the satisfaction of all we introduce a state variable that acts as a proxy for social capital of trustworthiness and that we call the stock of cooperation we show that non cooperative agents might condition their action on this state variable agents build up the society s stock of cooperation and gradually overcome the free riding problem in a game of private contribution to a public good we assume that there are neither penalties in the sense of trigger strategies nor guilt and that each individual is rational

efficient equilibria in a differential game of capitalism abstract one considers a differential game of capitalism a la lancaster feedback nash equilibria and pareto optimal solutions are characterized under the assumption that the planning horizon is infinite it is then shown that by combining a pareto optimal solution with the nash feedback equilibrium strategy pair which plays the role of a threat one can obtain an efficient equilibrium which is also subgame perfect in the sense of selten this result modifies sensibly the previous interpretation of the inherent inefficiency of capitalism

parental compensatory behaviors and early child health outcomes in cebu philippines a dynamic optimization model of parents choosing investments in their children s health motivates an empirical model of parents choices of health inputs for their children and the impacts of these decisions on their children s subsequent health estimates of the child health input demand functions and the child health production functions from the cebu longitudinal health and nutrition survey accord with the prediction that optimizing behavior results in higher levels of aggregate child health observable parental behaviors respond to the physical developmental status of their children these parental responses appear to yield large and statistically significant improvements in children s early physiological outcomes however because some health inputs choices are not observable it is impossible to ascertain whether these measured effects are due solely to variations in the observed input choices

external debt capital flight and political risk abstract this paper explains the simultaneous occurence of large external debts private capital outflows and low domestic capital formation we consider a general equilibrium model in which two government types with conflicting distributional goals randomly alternate in office uncertainty over the fiscal policies of future governments generates capital flight and small domestic investment and induces the government to overaccumulate external debt the model also predicts that left wing governments are more inclined to restrict capital outflows than right wing governments finally we examine how political uncertainty affects the risk premium and how debt repudiation may occur after a regime change

voracity vs scale effect in a growing economy without secure property rights abstract this paper extends the standard model of growth with insecure property rights by introducing variable labor supply and increasing returns to scale it is assumed that capital stock is jointly owned by multiple interest groups and that each group participates in production activities by supplying its labor force in this setting there are two opposing factors that affect growth over consumption in the absence of secure property rights and the scale effect due to the presence of increasing returns the growth performance of the economy thus depends on which factor dominates

using capital mobility to enforce commitment abstract in this paper i show that capital mobility helps to enforce commitment in an environment where there is no commitment mechanism this is done by comparing the set of sustainable outcomes a la chari and kehoe journal of political economy 1990 98 783 802 in an open economy to those in a closed economy i show that the set in an open economy is always larger

soft budget constraints taxes and the incentive to cooperate this paper applies the tacit coordination framework to the political macroeconomic context the macroeconomic equilibrium is the outcome of an administration consisting of a large number of decisionmakers whose horizon being endogenously determined by their behavior is uncertain the public imposes a degree of discipline on the policymakers by its option to replace the administration and the administration imposes discipline on the policymakers by monitoring their effective expenditure adverse shocks or a shorter horizon are shown to reduce cooperation among policymakers and increase the inflation rate and the use of discretionary taxes copyright 1993 by economics department of the university of pennsylvania and the osaka university institute of social and economic research association

censored quantile instrumental variable estimates of the price elasticity of expenditure on medical care efforts to control medical care costs depend critically on how individuals respond to prices i estimate the price elasticity of expenditure on medical care using a censored quantile instrumental variable cqiv estimator cqiv allows estimates to vary across the conditional expenditure distribution relaxes traditional censored model assumptions and addresses endogeneity with an instrumental variable my instrumental variable strategy uses a family member s injury to induce variation in an individual s own price across the conditional deciles of the expenditure distribution i find elasticities that vary from 0 76 to 1 49 which are an order of magnitude larger than previous estimates

measuring forecast uncertainty by disagreement the missing link using a standard decomposition of forecast errors into common and idiosyncratic shocks we show that aggregate forecast uncertainty can be expressed as the disagreement among the forecasters plus the perceived variability of future aggregate shocks thus the reliability of disagreement as a proxy for uncertainty will be determined by the stability of the forecasting environment and the length of the forecast horizon using density forecasts from the survey of professional forecasters we find direct evidence in support of our hypothesis our results support the use of garch type models rather than the ex post squared errors in consensus forecasts to estimate the ex ante variability of aggregate shocks as a component of aggregate uncertainty copyright 2010 john wiley sons ltd

the relationships among expected inflation disagreement and uncertainty evidence from matched point and density forecasts abstract this paper examines matched point and density forecasts of inflation from the survey of professional forecasters to analyze the relationships among expected inflation disagreement and uncertainty we undertake the empirical analysis within a seemingly unrelated regression framework and derive measures of uncertainty using a decomposition proposed by wallis 2004 2005 and by drawing on the concept of entropy the results offer little evidence that disagreement is a useful proxy for uncertainty and mixed evidence that increases in expected inflation are accompanied by heightened uncertainty conversely we document a quantitatively and statistically significant positive association between disagreement and expected inflation

overturning mundell fiscal policy in a monetary union central to ongoing debates over the desirability of monetary unions is a supposed trade off outlined by mundell 1961 a monetary union reduces transactions costs but renders stabilization policy less effective if shocks across countries are sufficiently correlated then according to this argument delegating monetary policy to a single central bank is not very costly and a monetary union is desirable this paper explores this argument in a setting with both monetary and fiscal policies in an economy with monetary policy alone we confirm the presence of the trade off and find that indeed a monetary union will not be welfare improving if the correlation of national shocks is too low however fiscal interventions by national governments combined with a central bank that has the ability to commit to monetary policy overturn these results in equilibrium such a monetary union will be welfare improving for any correlation of shocks

real vs financial investment can tobin taxes eliminate the irreversibility distortion abstract in the recent past several developing countries have failed to achieve significant real capital investment despite episodes of large capital inflows although there are real projects with seemingly high returns investors prefer to wait for the correct time to invest in this paper we address this issue by considering a two sector economy where investment in real capital is irreversible and debt financed furthermore the interest rate which is determined in the financial sector is random as a result of volatile expectations in this economy the expected return on real capital is above the expected interest rate this is because the option to wait for lower interest rates has a positive value in the presence of rumors taxes on international financial transactions tobin taxes reduce the variance of the domestic interest rate while leaving its mean unchanged as a result they induce more investment in irreversible real capital the model borrows from the irreversible investment literature a difference with other models is that the source of noise is a mean reverting process not just a geometric brownian motion we solve for the optimal decision rule using the girsanov theorem of the maxims of orthodox finance none surely is more anti social than the fetish of liquidity it forgets that there is no such thing as liquidity of investment for the society as a whole the introduction of a substantial government transfer tax on all transactions might prove the most serviceable reform available with a view to mitigating the predominance of speculation over enterprise keynes the general theory

much ado about two reconsidering retransformation and the two part model in health econometrics in health economics applications involving outcomes y and covariates x it is often the case that the central inferential problems of interest involve e y x and its associated partial effects or elasticities many such outcomes have two fundamental statistical properties y 0 and the outcome y 0 is observed with sufficient frequency that the zeros cannot be ignored econometrically this paper 1 describes circumstances where the standard two part model with homoskedastic retransformation will fail to provide consistent inferences about important policy parameters and 2 demonstrates some alternative approaches that are likely to prove helpful in applications

why are stabilizations delayed when a stabilization has significant distributional implications e g tax increases to eliminate a large budget deficit socioeconomic groups may attempt to shift the burden of stabilization onto other groups the process leading to stabilization becomes a war of attrition each group attempting to wait the others out and stabilization occurring only when one group concedes and bears a disproportionate share of the burden the authors solve for the expected time of stabilization in a model of rational delay and relate it to several political and economic variables they motivate this approach and its results by comparison to historical and current episodes copyright 1991 by american economic association

are preliminary announcements of the money stock rational forecasts abstract we develop a theoretical framework of analyzing preliminary announcements of economic data and then apply this framework to the money stock we find that preliminary announcements of the money stock are best characterized as measured with classical errors in variables that is the revision is not correlated with the true value of the series the revision is however forecastable using information available at the time of the preliminary announcement our ability to forecast the revision implies that preliminary announcements are not rational estimates of the true money stock

insurance induced moral hazard a dynamic model of within year medical care decision making under uncertainty health insurance may lead individuals to overconsume medical care many studies explore this moral hazard using models that aggregate medical care decisions up to the annual level using employer employee matched data from the medical expenditure panel survey meps i estimate moral hazard using a dynamic model of within year medical care consumption that allows for endogenous health transitions variation in medical care prices and individual uncertainty within a health insurance year i then estimate moral hazard under a second set of conditions that are consistent with the assumptions of most annual decision making models the within year decision making model produces a moral hazard estimate that is 19 2 larger than the alternative model i highlight the importance of controlling for within year dynamics in a model of medical care consumption using a counterfactual policy simulation that implements the individual mandate provision of the 2010 patient protection and aordable care act i nd that full implementation of the policy decreases the percentage of uninsured individuals in the population being analyzed from 11 8 to 6 0 furthermore when all uninsured individuals are forced into coverage their predicted annual medical care expenditure increases by 45 5

a strategic analysis of global warming theory and some numbers we model the global warming process as a dynamic commons game in which the players are countries their actions at each date produce emissions of greenhouse gases and the state variable is the current stock of greenhouse gases the theoretical analysis is complemented by a calibration exercise the first set of results establishes theoretically and then with illustrative numbers the over emissions due to a tragedy of the commons the power of simple sanctions to lower emissions and increase welfare is then examined as is the effect of cost asymmetry finally a complete theoretical charactrization is provided for the best equilibrium and it is shown that it has a very simple structure it involves a constant emission rate through time

why do forecasters disagree lessons from the term structure of cross sectional dispersion abstract key sources of disagreement among economic forecasters are identified by using data on cross sectional dispersion in forecasters long and short run predictions of macroeconomic variables dispersion among forecasters is highest at long horizons where private information is of limited value and lower at short forecast horizons moreover differences in views persist through time such differences in opinion cannot be explained by differences in information sets our results indicate they stem from heterogeneity in priors or models differences in opinion move countercyclically with heterogeneity being strongest during recessions where forecasters appear to place greater weight on their prior beliefs

the voracity effect abstract we analyze an economy that lacks a strong legal political institutional infrastructure and is populated by multiple powerful groups powerful groups dynamically interact via a fiscal process that effectively allows open access to the aggregate capital stock in equilibrium this leads to slow economic growth and a voracity effect by which a shock such as a terms of trade windfall perversely generates a more than proportionate increase in fiscal redistribution and reduces growth we also show that a dilution in the concentration of power leads to faster growth and a less procyclical response to shocks jel f43 o10 o23 o40

health insurance and the demand for medical care evidence from a randomized experiment we estimate how cost sharing the portion of the bill the patient pays affects the demand for medical services the data come from a randomized experiment a catastrophic insurance plan reduces expenditures 31 percent relative to zero out of pocket price the price elasticity is approximately 0 2 we reject the hypothesis that less favorable coverage of outpatient services increases total expenditure for example by deterring preventive care or inducing hospitalization

on the effectiveness of capital controls the experience of colombia during the 1990s abstract this paper analyzes the effectiveness of capital controls in colombia the evidence presented points towards a relative inability of the measures adopted to reduce the level of capital inflows nonetheless the evidence suggests that non remunerated deposits have been successful in inducing a recomposition of foreign liabilities in favor of long term maturities it is likely that this is a positive result as it has made the country less vulnerable to a reversal in capital flows in this sense controls may be viewed as an effective way of internalizing the negative externality imposed by short term maturities

inefficient foreign borrowing a dual and common agency perspective studying the implications of uncoordinated borrowing the paper first looks at whether and when countries borrow too much in the aggregate it then revisits the original sin debate analyzing whether and when equity portfolio investment international portfolio diversification domestic currency denomination and longer maturities enhance borrowing countries access to international lending the paper thereby relates a country s level and quality of access to international capital markets to a variety of institutional features such as the level of domestic savings their location the extent of control rights held by political authorities and the interests of dominant domestic political forces

policy effectiveness in spatial resource wars a two region model abstract we develop a spatial resource model in continuous time in which two agents strategically exploit a mobile resource in a two region setup to counteract the overexploitation of the resource the tragedy of commons that occurs when players are free to choose where to harvest the regulator can establish a series of spatially structured policies we compare the equilibria in the case of a common resource with those that emerge when the regulator either creates a natural reserve or assigns territorial user rights to the players we show that when technological and preference parameters dictate a low harvesting effort the policies are ineffective in promoting the conservation of the resource and in addition they lead to a lower payoff for at least one of the players conversely in a context of higher harvesting effort the intervention can help to safeguard the resource preventing extinction while also improving the welfare of both players

inequality lobbying and resource allocation this paper describes how wealth inequality may distort public resource allocation a government seeks to allocate limited resources to productive sectors but sectoral productivity is privately known by agents with vested interests in those sectors they lobby the government for preferential treatment the government even if it honestly seeks to maximize economic efficiency may be confounded by the possibility that both high wealth and true economic desirability create loud lobbies broadly speaking both poorer economies and unequal economies display greater public misallocation the paper warns against the conventional wisdom that this is so because such governments are more corrupt jel d72 d78 d82 016 in this paper we propose a particular channel through which wealth inequality distorts the resource allocation process our analysis rests on four premises

exploring the variability of patient costs in disease management programs a hierarchical modelling approach disease management programs include a wide variation of patients with different chronic diseases and different health care utilization the aim of this article was to identify factors on patient level and organizational level that explain the variability in costs of patients with different chronic diseases enrolled in a dmp by employing a rigorous analytical model a generalized linear mixed model glmm was specified to perform a multi level analysis of cross sectional hierarchical data from 16 dmps in the netherlands multiple imputation sub group analysis per disease and analysis from both the health care and the societal perspectives were also performed our model showed that age the presence of cardiovascular disease multi morbidity and payments on top of the payment for the usual care had positive relation with costs while better quality of life was associated with lower health care costs in the copd sample physical activity and employment were associated with health care costs our study show

trade reform aggregate investment and capital flight on credibility and the value of information abstract in this paper we demonstrate that uncertainty about future policy reversals coupled with irreversible investment confers an option value to foreign exchange and may lead to capital flight and a fall in aggregate investment after a trade reform the analysis focuses on the value of information and the credibility of the policy reform the conclusion points to a potential role for international institutions to prevent such problems

workers warriors and criminals social conflict in general equilibrium we incorporate appropriation activities social conflict into canonical models of trade and study how economic shocks and policies affect the intensity of conflict we show that not all shocks that could make society richer reduce conflict positive shocks to labor intensive industries diminish conflict while positive shocks to capital intensive industries increase it the key requirement is that conflict activities be more labor intensive than the economy as this determines how shocks affect the returns and costs of conflict our theory is consistent with several observed patterns of conflict and implies that empirical work should take into account the relative factor intensities of the productive and conflict sectors in each country incorporating appropriation into a canonic general equilibrium model affects what policies may be deemed desirable in order to reduce conflict and generate pareto improvements policy must be distortionary while reforms that appear efficiency enhancing under the unrealistic assumption of perfect property rights may backfire this offers one explanation for why reforms based on traditional models without appropriation may be delayed and become unpopular when implemented and why societies may sympathize with seemingly inefficient redistribution

appropriation violent enforcement and transaction costs a critical survey this paper focuses on the extension of transaction costs to appropriative activity and coercive power in the property rights approach it has been argued that including the costs of appropriation and violent enforcement in transaction costs is based on the assumption that coaseian bargaining can be extended to any institutional scenario i e voluntary as well as coercive exchange however voluntary transactions cannot capture the logic of coercive power this means that the assumption of an efficient political market is not valid and that the political coase theorem lacks the logical consistency to provide a cornerstone for political theory

dynamic government performance honeymoons and crises of confidence we use a formal theoretical framework to explore the interplay between a government s longevity and its performance ministers perform well when their careers are valuable this is so when the government s duration is expected to be long the government s survival depends on its popularity and finally that popularity depends on its ministers performance the feedback loop between performance and longevity means that multiple rational expectations equilibria can arise ministers work hard for a popular government but divert efforts elsewhere if they believe the government is doomed these alternatives are both self fulfilling prophecies however the presence of perhaps small random events that buffet the performance and popularity of a government is sufficient to pin down a unique equilibrium we explore the dynamics that arise a crisis of confidence involving the rapid collapse of a government s performance is sparked when a sequence of negative shocks push the popularity of the government below a unique critical threshold

inequality and conservation on the local commons a theoretical exercise to analyse the effect of asset inequality on co operation within a group we consider a twoplayer nonco operative model of conservation of a common pool resource overexploitation by one user affects another s payoff by reducing the next period catch we give necessary and sufficient conditions such that conservation is a nash equilibrium and show that increasing inequality does not in general favour full conservation however once inequality is sufficiently great further inequality can raise efficiency thus the relationship between inequality and economic efficiency is u shaped finally we analyse the implications for conservation if players have earning opportunities outside the commons the daily livelihood of vast masses of the rural poor in many countries depends on the success with which common pool resources cprs such as forest resources grazing lands in shore fisheries and irrigation water are managed and on the environmental consequences of their management understanding the factors that lead to success or failure of community management of these resources is thus critical to rural development cpr management is a collective action dilemma a situation in which mutual cooperation is collectively rational for the group as a whole but individual cooperation is not necessarily individually rational for each member one factor that has not always been recognised as critical to the outcome of collective action dilemmas is heterogeneity among the resource users in this paper our attention will be largely restricted to a single but potent kind of heterogeneity inequality in asset ownership olson 1965 hypothesised that inequality might favour the provision of a public good

duopoly can be more anti competitive than monopoly abstract we prove two results on feedback equilibria under dynamic renewable resource duopoly the linear feedback output is smallest which sharply contrasts to the existing literature where it is largest moreover prices in two feedback equilibria are higher than under monopoly

does cross sectional forecast dispersion proxy for macroeconomic uncertainty new empirical evidence we investigate the link between forecast dispersion and macroeconomic uncertainty resulting from the data revision structure of inflation and real output we find that disagreement is significantly related to data uncertainty however results are considerably more distinctive for inflation uncertainty

money debt and deficits in a dynamic game this paper analyzes a dynamic linear quadratic game between the fiscal and monetary authorities the equilibrium outcome of the game determines the time path of money creation fiscal deficits and public debt the game is solved for different equilibrium concepts the equilibria are then compared and interpreted with reference to alternative institutional arrangements the main results are i coordination increases the speed of adjustment towards the steady state and takes the steady state value of public debt closer to the desired target ii precommitments take the non cooperative equilibrium closer to the coordinated outcome iii increasing the weight that each policymaker assigns to his own private objectives slows down the adjustment process places more burden on the opponent but has ambiguous effects on the steady state value of public debt

health and other asset holdings despite clear evidence of correlations between financial and medical statuses and decisions most models treat financial and health related choices separately this article bridges this gap by proposing a tractable dynamic framework for the joint determination of optimal consumption portfolio holdings health investment and health insurance we solve for the optimal rules in closed form and capitalize on this tractability to gain a better understanding of the conditions under which separation between financial and health related decisions is sensible and of the pathways through which wealth and health determine allocations welfare and other variables of interest such as expected longevity or the value of health furthermore we show that the model is consistent with the observed patterns of individual allocations and provide realistic estimates of the parameters that confirm the relevance of all the main characteristics of the model

institutional causes macroeconomic symptoms volatility crises and growth countries that have pursued distortionary macroeconomic policies including high inflation large budget deficits and misaligned exchange rates appear to have suffered more macroeconomic volatility and also grown more slowly during the postwar period does this reflect the causal effect of these macroeconomic policies on economic outcomes one reason to suspect that the answer may be no is that countries pursuing poor macroeconomic policies also have weak institutions including political institutions that do not constrain politicians and political elites ineffective enforcement of property rights for investors widespread corruption and a high degree of political instability this paper documents that countries that inherited more extractive institutions from their colonial past were more likely to experience high volatility and economic crises during the postwar period more specifically societies where european colonists faced high mortality rates more than 100 years ago are much more volatile and prone to crises based on our previous work we interpret this relationship as due to the causal effect of institutions on economic outcomes europeans did not settle and were more likely to set up extractive institutions in areas where they faced high mortality once we control for the effect of institutions macroeconomic policies appear to have only a minor impact on volatility and crises this suggests that distortionary macroeconomic policies are more likely to be symptoms of underlying institutional problems rather than the main causes of economic

are statistical reporting agencies getting it right data rationality and business cycle asymmetry this article provides new evidence on the rationality of early releases of industrial production ip and producer price index ppi data rather than following the usual practice of examining only first available and fully revised data we examine the entire revision history for each variable thus we are able to assess for example whether earlier releases of data are in any sense less rational than later releases and when data become rational our findings suggest that seasonally unadjusted ip and ppi become rational after approximately 3 4 months whereas seasonally adjusted versions of these series remain irrational for at least 6 12 months after initial release for all variables examined we find evidence that the remaining revision is predictable from its own past or from publicly available information in other economic and financial variables in addition we find a clear increase in the volatility of revisions during recessions suggesting that early data releases are less reliable in toughe

differences in wage distributions between canada and the united states an application of a flexible estimator of distribution functions in the presence of covariates we construct a tractable flexible functional form estimator of cumulative distribution functions for non negative random variables which admits large numbers of covariates the estimator adopts and extends techniques from the spell duration literature for estimating hazard functions to distribution functions for wages earnings and income we apply these methods to investigate sources of wage inequality for full time male workers between canada and the united states finding that the canadian wage density has a thinner left tail because low educated workers have higher pay and a thinner right tail because of a lower proportion of highly educated workers unions appear to play a large role in these outcomes

risky business political instability and greenfield foreign direct investment in the arab world which foreign direct investments are most affected by political instability analysis of quarterly greenfield investment flows into countries in the middle east and north africa during the period from 2003 to 2012 shows that adverse political shocks are associated with significantly reduced investment inflows in the non resource tradable sectors by contrast investments in natural resource sectors and non tradable activities appear insensitive to such shocks political instability is thus associated with increased reliance on non tradables and aggravated resource dependence

was this time different fiscal policy in commodity republics abstract we revisit the issue of fiscal procyclicality in commodity rich nations commodity republics in the nomenclature of this paper since commodity prices are plausibly a main driver of fiscal policy outcomes in these countries we focus on the behavior of fiscal variables across the commodity cycle in contrast to behavior across the output cycle which has been the main focus of earlier research on fiscal procyclicality we present evidence of reduced fiscal policy procyclicality in a number of countries our empirical results suggest that improvements in institutional quality have led to a more countercyclical fiscal policy stance in a number of countries the presence of fiscal rules also seems to have made a difference countries that use them displayed a larger shift toward fiscal counter cyclicality between the two episodes

reference health and the demand for medical care we propose that health in prior periods termed reference health is theoretically and empirically relevant to the demand for medical care to address non normality in the distributions of medical care spending consumption and health we use a conditional density estimator nested in a finite mixture framework we find that reference health can help explain the variation in spending among individuals with the same contemporaneous health particularly in the top tail of the spending distribution we demonstrate that omitting reference health understates the potential cost savings of healthy aging initiatives by 50 percent this article is protected by copyright all rights reserved

unemployment insurance and unemployment spells this paper tests the effects of the level and length of unemployment insurance benefits on unemployment durations the paper particularly studies individual behavior during the weeks just prior to when benefits lapse higher unemployment insurance benefits are found to have a strong negative effect on the probability of leaving unemployment however the probability of leaving unemployment rises dramatically just prior to when benefits lapse individual data are used with accurate information of spell durations and the level and length of benefits the semiparametric estimation techniques used in the paper yield more plausible estimates than conventional approaches and provide useful diagnostics copyright 1990 by the econometric society

economic backwardness in political perspective government policies and institutions shape economic incentives and via this channel have a first order impact on economic development why then do many societies adopt policies that discourage investment and maintain institutions that cause economic backwardness perhaps politically powerful groups elites are not in favor of economic growth but why it would appear that economic growth would provide more resources for these groups to take over or tax increasing their economic returns so why don t powerful groups always support economic development in this paper we develop a theory of inefficient government policies and institutions all else equal politically powerful groups would welcome superior institutions and technologies but in practice all else is not equal because superior institutions and technologies may reduce their political power and make it more likely that they will be replaced at the center of our theory is therefore the idea that changes in institutions or the introduction of new technologies often create turbulence eroding the political advantages and future economic rents of incumbent elites alternatively new technologies may enrich competing groups increasing their threat to incumbents these considerations make politically powerful groups fear losing power and oppose economic and political change even when such change will benefit society as a whole to understand the mechanism at work and its potential applications consider a concrete example industrialization in the nineteenth century bairoch 1982 estimates that between 1830 and 1913 world manufacturing output increased by a factor of 5 see table 1 panel a nevertheless this process was highly uneven across regions and countries bairoch also calculates that over the same period manufacturing output in developed countries europe and north america increasedbyafactorofover10 whereasitdeclinedinthe third world among developed countries there were

the competitive externalities and the optimal seignorage this study analyzes the inflation tax in an economy with several competing decisionmakers who can effectively print more money via the central bank the author derives the sequential rational expectation equilibrium and shows that the presence of competing decisionmakers increases the inflation rate and may put the economy on the wrong side of the inflation tax laffer curve the analysis is interpreted for a country consisting of several states or provinces where the centralized government system is weak similar results apply to the case of competing ministers in an economy where the central bank is weak copyright 1992 by ohio state university press

resource grabbing by status conscious agents abstract we introduce a dynamic model of resource grabbing by status conscious agents i e agents value not only their absolute consumption levels but also the relative status within their reference group we explore the effect of the concern for relative consumption on the growth rate and the welfare of an economy where agents appropriate from a common property resource our model shows that the greater is agents concern about their relative status the more aggressively they tend to behave consequently social welfare is lower because the growth rate of the public asset is reduced due to higher extraction rate we also consider the effect of increased heterogeneity and show that social welfare decreases as the distribution of status consciousness among agents widens

consensus and uncertainty in economic prediction we define consensus as the degree of agreement among point predictions aimed at the same target by different individuals and uncertainty as the diffuseness of the corresponding probability distributions this distinction is made operational with the aid of the nber asa survey data on matched point and probabilistic forecasts of inflation and the rate of change in gross national product the means of the two sets of forecasts agree closely standard deviations of point forecasts tend to understate uncertainty as measured by standard deviations of the predictive probability distributions however these measures of consensus and uncertainty are on the whole positively correlated there is evidence that expectations of higher inflation generate greater uncertainty about inflation tests also favor the hypothesis that a rise in inflation uncertainty has adverse effects on real growth

news and noise in g 7 gdp announcements revisions to gdp announcements are known to be quite large in all g 7 countries quarterly growth rate revisions are regularly more than a full percentage point at an annualized rate we examine the predictability of these revisions using standard statistical tests of whether the preliminary announcement is a rational forecast of the subsequently revised data previous work suggests that u s gdp revisions are largely unpredictable as would be the case if the revisions reflect news not available at the time that the preliminary number is produced we find that the degree of predictability varies throughout the g 7 although we find little predictability in u s revisions the data revisions for several foreign countries are highly predictable we also perform a simple real time forecasting exercise showing that for several countries the predictability of data revision could be used to generate improved preliminary data

modelling political instability and economic performance israeli investment during the intifada i construct a model of investment in israel that incorporates both standard economic factors and indicators of political instability and unrest the model is used to estimate both the extent to which the intifada has depressed israeli investment in different kinds of capital good and the size of the corresponding peace dividend

the influence of capital controls on long run growth where and how much abstract the financial crisis in east asia generated a revival of interest in the merits of financial openness the ensuing debate on the benefits of openness has focused more on short and medium run issues than on the long run effects within the empirical literature on economic growth little or no attention has been paid to the effects of financial openness contrary to the orthodox position the few results that exist suggest that capital controls have no effect on economic growth this paper argues that this conclusion emerges from a failure to account for underlying differences across countries with similar degrees of capital controls we show that the degree of ethnic and linguistic heterogeneity in a country plays a significant role in explaining the effects of controls on economic growth for countries with relatively higher degrees of ethnic heterogeneity the effects are particularly adverse whereas for countries with high degrees of homogeneity capital controls actually have a net positive effect on economic growth on balance more developing countries suffered due to controls than not within the sample of 57 non oecd countries that did implement controls for the period 1975 1995 as many as 39 saw a reduction in their growth rates this result is robust to a number of variables commonly used in the economic growth regressions

aggressive oil extraction and precautionary saving coping with volatility the effects of stochastic oil demand on optimal oil extraction paths and tax spending and government debt policies are analyzed when the oil demand schedule is linear and preferences quadratic without prudence optimal oil extraction is governed by the hotelling rule and optimal budgetary policies by the tax and consumption smoothing principle volatile oil demand brings forward oil extraction and induces a bigger government surplus with prudence the government depletes oil reserves even more aggressively and engages in additional precautionary saving financed by postponing spending and bringing taxes forward especially if it has substantial monopoly power on the oil market gives high priority to the public spending target is very prudent and future oil demand has high variance uncertain economic prospects induce even higher precautionary saving and if non oil revenue shocks and oil revenue shocks are positively correlated even more aggressive oil extraction in contrast prudent governments deliberately underestimate oil reserves which induce less aggressive oil depletion and less government saving but less so if uncertainty about reserves and oil demand are positively correlated

debts and deficits with fragmented fiscal policymaking abstract this paper develops a political economic model of fiscal policy one in which government resources are a common property out of which interest groups can finance expenditures on their preferred items this setup has striking macroeconomic implications transfers are higher than a benevolent planner would choose them to be fiscal deficits emerge even when there are no reasons for intertemporal smoothing and in the long run government debt tends to be excessively high peculiar time profiles for transfers can emerge with high net transfers early on giving rise to high taxes later on

terms of trade shocks and economic performance 1870 1940 prebisch and singer revisited debate over trends in the terms of trade between primary commodities and manufactures their causes and their impact has dominated the literature for more than a century classical economists claimed that the terms of trade of primary commodities should improve since land and natural resources are always in inelastic supply following the great depression a new view emerged what came to be known as the prebisch singer thesis was instead that the terms of trade for primary products had deteriorated up to the 1950s the subsequent literature has almost exclusively and obsessively asked whether a deterioration has actually taken place over the 130 years following 1870 nowhere in this literature has the impact of these terms of trade shocks on long run growth been assessed although it is certainly full of lively speculation and debate this paper fills part of this empirical gap by constructing a country specific panel data base 1870 1940 by documenting terms of trade trends by country and region and finally by estimating the impact of the price shocks on long run economic performance we find the impact to have been asymmetric between center and periphery this abstract was borrowed from another version of this item