home production and social security reform this paper incorporates home production into a dynamic general equilibrium model of overlapping generations with endogenous retirement to study social se curity reforms as such the model dierentiates both consumption goods and labor eort according to their respective roles in home production and market activities using a calibrated model we nd that eliminating the current pay as you go social security system has important implications for both labor supply and consumption decisions and that these decisions are in uenced by the presence of a home production technology comparing our benchmark economy to one with dierentiated goods but no home production we nd that eliminating social security bene ts generates larger welfare gains in the presence of home produc tion this result is due to the self insurance aspects generated by the presence of home production comparing our economy to a one good economy without home production we show that the welfare gains of eliminating social security are magni ed even further these policy analyses suggest the importance of mod eling home production and distinguishing between both time use and consumption goods depending on whether they are involved in market or home production

the dynamic behavior of the real exchange rate in sticky price models comment in an article published in the american economic review j n steinsson 2008 argues that two sticky price models driven by real shocks can explain the observed persistence volatility and hump shaped impulse response function of the real exchange rate this comment shows first that correcting an error in one of steinsson s models leads to substantially lower persistence and volatility of the real exchange rate second that steinsson s models cannot match real exchange rate volatility relative to output and third that reasonable variations of the model calibration or specification all lead to lower real exchange rate persistence and volatility or both

a general equilibrium analysis of the insurance bonding approach to pollution threats abstract this paper sheds additional light on the important issue of toxic accidental releases or spills the pollution control literature contains relatively little discussion of accidental releases even risk assessments are more about the risks to the public of predictable continuous emissions than about the risk of major accidents because spills of stored and transported chemicals are not continuous or even inevitable analogs of economic incentive approaches like emissions fees and transferable pollution allowances are inappropriate allowances are inappropriate because potential spills are often too harmful to allow and a fee large enough to pay for clean up and damages is beyond the means of many potential sources the accidental release threat suggests an approach analogous to automobile liability insurance since a car can do more damage than most people can afford to pay for states mandate insurance to ensure financial responsibility some potential sources of harmful spills are already required to demonstrate financial responsibility and more could be insurance is one option for meeting financial responsibility requirements in many cases the only viable option to develop testable hypotheses and determine where traditional partial equilibrium analyses would probably be misleading the paper compares a very basic insurance bonding approach to the traditional command and control approach in a general equilibrium setting that allows a comparison of effectiveness and impacts on output levels prices and factor returns

temporal causality and the dynamic interactions between terms of trade and current account deficits in co integrated var processes further evidence from ivorian time series this paper investigates the relationship between the terms of trade and current account deficits within a context of vecm the results indicate that for the coted ivoire there is a long run relationship between the terms of trade and current account deficits they also indicate that current account deficits in cote d ivoire cannot be explained by the terms of trade a strong unidirectional relationship exists between current account deficits and the terms of trade since the first one granger causes the second finally dynamic simulations have indicated that a significant portion of fluctuations in the terms of trade is explained by current account deficits in light of these findings it can be concluded that economic policy in cote d ivoire should be carried out with extreme caution due to the nature of international commodity markets the mechanism of the terms of trade s formation and the relative exogeneity of current account deficits

an equilibrium model of the business cycle with household production and fiscal policy the authors estimate a dynamic general equilibrium model of the u s economy that includes an explicit household production sector and stochastic fiscal variables they use their estimates to investigate two issues first the authors analyze how well the model accounts for aggregate fluctuations they find that household production has a significant impact and reject a nested specification in which changes in the home production technology do not matter for market variables second the authors study the effects of some simple fiscal policy experiments and show that the model generates different predictions for the effects of tax changes than similar models without home production copyright 1997 by economics department of the university of pennsylvania and the osaka university institute of social and economic research association

consumer demand and the life cycle allocation of household expenditures the purpose of this paper is to estimate the parameters of household preferences that determine the allocation of goods within the period and over the life cycle using micro data in doing so the authors are able to identify important effects of demographics labor market status and other household characteristics on the intertemporal allocation of expenditure they test the validity of the life cycle model using excess sensitivity tests and find that controlling for demographics and labor market status variables can largely explain the excess sensitivity of consumption to anticipated changes in income

tastes and technology in a two country model of the business cycle explaining international trade on international financial markets allows people to insure country specific risk and smooth consumption intertemporally equilibrium models of business cycles with trade on global financial markets typically yield international consumption correlations near one and excessive volatility of investment the authors incorporate nontraded goods in the model and find that the implications for aggregate consumption investment and the trade balance are consistent with business cycle properties of industrialized countries however the model driven by technology shocks alone yields counterfactual implications for comovements between consumption and prices at the sectoral level taste shocks produce price quantity relationships more consistent with the data copyright 1995 by american economic association

investment the current account and the relative price of non traded goods in a small open economy abstract this paper incorporates traded and non traded investment expenditure into an infinite horizon setting with optimizing economic agents extending previous research that has incorporated traded and non traded investment into a two period setting the paper analyzes the dynamic adjustment of the relative price of non traded output the market price of capital and the current account following exogenous shocks to the system the exogenous shocks considered by the paper include permanent transitory and anticipated changes in an income tax and an investment subsidy as well as changes in the level of government purchases of traded and non traded output

valuing lost home production of dual earner couples using a life cycle model in which women divide their time between home and market work we establish a link between retirement wealth and the value of forgone home production we use data from the health and retirement study to estimate the model s parameters and adjust the growth rate of gdp to reflect reductions in non market output we find that the value of forgone home production is modest about 25 percent of women s measured earnings

panel data modelling and the tax spend controversy in the euro zone this article attempts to differentiate between the debatable tax and spend spend and tax fiscal synchronization and institutional separation hypotheses in order to explore empirically the interplay between public expenditures and public revenues in the economic and monetary union emu member states for this purpose panel data models are derived to test the validity of the four hypotheses in emu countries a notable characteristic of this article is that the four hypotheses are tested by dividing emu countries into various subgroups and using disaggregated data for government expenditures and revenues seeking for the robustness of the empirical evidence the panel data methods of generalized two stage least squares gtsls and generalized method of moments gmm are accordingly applied to identify the relationship between public outlays and taxation receipts gtsls and gmm results strongly support the fiscal synchronization hypothesis implying that budget decision making is significantly influenced b

a time series analysis of representative agent models of consumption andleisure choice under uncertainty this paper investigates empirically a model of aggregate consumption and leisure decisions in which utility from goods and leisure is nontime separable the nonseparability of preferences accommodates intertemporal substitution or complementarity of leisure and thereby affects the comovements in aggregate compensation and hours worked these cross relations are examined empirically using postwar monthly u s data on quantities real wages and the real return on the one month treasury bill the estimated values of the parameters governing preferences differ significantly from the values assumed in several studies of real business models several possible explanations of these discrepancies are discussed

co integration and error correction models the temporal causality between government taxes and spending several interesting papers have recently considered whether government taxes granger cause government spending or vice versa the findings based on standard granger 6 causality tests are not consistent manage and marlow 10 conclude that when evidence of one way causality exists federal taxes granger cause federal spending while anderson wallace and warner 1 conclude that the evidence supports one way causality in the opposite direction ram 11 reexamining the issue concludes that taxes granger cause spending at the federal level but that spending granger causes taxes at the state and local level von furstenberg green and jeong 13 in another related article examine the tax and spend spend and tax causality issue using a more general vector autoregressive var model they introduce in addition to federal taxes and spending two economic variables the gnp gap and the inflation rate decompose federal spending into several categories and remove the effects of automatic stabilizers when appropriate they find little evidence that taxes granger cause spending and limited evidence that spending causes taxes a finding which corresponds most closely to that of anderson wallace and warner 1 our purpose is to reconsider the causality issue with the aid of co integration and errorcorrection modeling our analysis illustrates with a specific example how sources of causality can be neglected in standard granger causality tests moreover addressing the question of temporal causality between government taxes and spending provides insight as to how different policies might or might not help control the growth of government the results of our estimating various co integration and error correction models with quarterly data suggest bi directional causality between government taxes and spending both for the federal and state and local sectors this finding counters the conclusions of previous studies when annual data are used however our

new evidence on labor supply employment versus hours elasticities by sex and marital status using the tri annual micro panel data of the survey of income and program participation we estimate fixed effects labor supply models separating the extensive and intensive margins the employment elasticity is 0 6 for single men versus 1 1 for married men the employment elasticity is 2 4 for single women versus 1 8 for married women the compensated hours worked elasticity is 0 4 for employed single and married men and 0 7 for employed single and married women the implied aggregate employment elasticity of 1 5 and hours per employee elasticity of 0 5 indicate employment fluctuations account for three fourths of wage induced variation in labor hours

fiscal deficits and relative prices in a growing world economy abstract this paper studies the transmission of fiscal disturbances between countries and the effect of those disturbances on worldwide capital intensity in a context of growth the model developed to address these issues allows for the production of both nontradable and relatively capital intensive tradable goods a central finding is that factor markets can be a major channel for the communication of fiscal policy shocks to world interest rates to private saving decisions and ultimately to global asset supplies and their distribution among countries particular predictions of the model illustrate how changes in public debt ratios and shifts in government spending patterns affect resource allocation and the welfare of various generations both at home and abroad

an empirical model of labor supply in a life cycle setting this paper formulates and estimates a structural intertemporal model of labor supply using theoretical characterizations derived from an economic model of lifetime behavior a two step empirical analysis yields estimates of intertemporal and uncompensated substitution effects which provide the information needed to predict the response of hours of work to life cycle wage growth and shifts in the lifetime wage path

taxation and household labor supply we evaluate reforms to the u s tax system in a life cycle setup with heterogeneous married and single households and with an operative extensive margin in labor supply we restrict our model with observations on gender and skill premia labor force participation of married females across skill groups children and the structure of marital sorting we concentrate on two revenue neutral tax reforms a proportional income tax and a reform in which married individuals flle taxes separately separate flling our flndings indicate that tax reforms are accompanied by large increases in labor supply that difier across demographic groups with the bulk of the increase coming from married females under a proportional income tax reform married females account for more than 50 of the changes in hours across steady states while under separate flling reform married females account for all the change in hours

economics and sustainability balancing trade offs and imperatives the concept of sustainability has been increasingly invoked in scholarly and public policy debates discussion has been hampered however by uncertainty and lack of uniformity in the meaning of sustainability this paper seeks to identify some common ground among economists ecologists and environmen tal ethicists two issues seem salient require ments for intergenerational and the defi nition of social capital to be provided to future generations a concept of safe minimum standard which has received at least some recognition in the ecology philosophy and eco nomics literatures may provide the beginnings of a common ground for debate about sus tainability jel q2

capital mobility and the current account abstract this paper analyzes the effect of unanticipated changes in the terms of trade on consumption expenditures and the current account in a small open economy simple formulas are obtained for the covariances of changes in consumption expenditures the current account and the expected current account with changes in the terms of trade it is shown that if investment is uncorrelated with the terms of trade a necessary condition for unanticipated changes in the terms of trade to be correlated with changes in consumption expenditures and the expected current account is that the real expected return on foreign bonds differs from the real expected return on domestic bonds

capital flows investment and exchange rates abstract this paper incorporates international capital flows into a two country monetary general equilibrium model of asset prices with investment and production we calculate theoretical covariances between investment the current account the exchange rate and the terms of trade these covariances depend upon the coefficient of relative risk aversion the magnitude and sign of a country s net international indebtedness other properties of tastes and technologies and the stochastic processes on disturbances to productivity and monetary growth rates international capital flows arise from changes in world wealth and its relative composition in foreign and domestic assets

persistent trade effects of large exchange rate shocks this paper presents a theoretical basis for the argument that large exchange rate shocks such as the 1980s dollar cycle may have persistent effects on trade flows and the equilibrium exchange rate itself we begin with a partial equilibrium model in which large exchange rate fluctuations lead to entry or exit decisions that are not reversed when the currency returns to its previous level then we develop a simple model of the feedback from hysteresis in trade to the exchange rate itself here we see that a large capital inflow which leads to an initial appreciation can result in a persistent reduction in the exchange rate consistent with trade balance

is the budget deficit too large yes specifically we find that recent spending and taxing policies of the government if continued violate the government s intertemporal budget constraint as a result government spending must be reduced and or tax revenues must be increased these conclusions are based on tests of whether government spending and revenue are cointegrated in addition to examining real spending and revenue we also normalize these variables by real gnp and population for a growing economy these normalized measures are perhaps more pertinent we also test and find support for the hypothesis that deficits have become a problem only in recent years

aggregate spending and the terms of trade is there a laursen metzler effect this paper investigates the spending and current account effects of terms of trade shifts in a model where households maximize utility over an infinite planning period in the framework developed here an economy specialized in production must experience a fall in aggregate spending and a current surplus as a result of an unanticipated permanent worsening in its terms of trade the paper s model thus provides a setting in which the current account deficit predicted by laursen and metzier harberger and others fails to materialize

returns to scale market power and the nature of price rigidity in new keynesian models with self fulfilling expectations increasing returns to scale and firms market power are two potential sources of sunspot expectations in neoclassical models we show that in new keynesian models returns to scale and market power can have fundamentally different implications for broad macroeconomic issues including self fulfilling expectations depending on the nature of price rigidity our findings suggest that the design of stabilization monetary policy can depend on precise knowledge about the economy s real and nominal features therefore a clear understanding of the specific economic environment and its relevance to monetary policymaking for ensuring macroeconomic stability can be an integrated part of monetary policy practice

life cycle prices and production we use scanner data and time diaries to document how households substitute time for money through shopping and home production we document substantial heterogeneity in prices paid for identical goods for the same area and time with older households shopping the most and paying the lowest prices doubling shopping frequency lowers a good s price by 7 to 10 percent we estimate the shopper s price of time and use this series to estimate an elasticity of substitution between time and goods in home production of roughly 1 8 the observed life cycle time allocation implies a consumption series that differs markedly from expenditures

labor market frictions investment and capital flows the standard neoclassical model predicts that countries with higher productivity growth rates experience sharp increases in investment that are followed by rapid declines this monotonic investment response contrasts with the empirical evidence that suggests a rather hump shaped investment behavior in this paper i present a two country general equilibrium model that generates hump shaped investment responses from labor market frictions in the model i decompose investment into tradable and non tradable components and show that an increase in the growth rate of a country results in scarcities of the non tradable components which raise the relative price of investment goods these scarcities occur because labor is unable to reallocate quickly between sectors within economies this mechanism has two main implications first the induced movement in relative prices equates cross country returns to capital and thus greatly reduces initial investment second domestic saving now plays a more important role in financing investment inducing a co movement between these variables

does home production replace consumption spending evidence from shocks in housing wealth in the great recession becker s theory of home production suggests substitutability between consumption spending and home production using panel data with detailed information on spending and time use we analyze househ

on the limitations of government borrowing a framework for empiricaltesting this paper seeks to distinguish empirically between two views on the limitations of government borrowing according to one view nothing precludes the government from running a permanent budget deficit paying interest due on the growing debt load simply by issuing new debt an alternative perspective holds that creditors would be unwilling to purchase government debt unless the government made a credible commitment to balance its budget in present value terms we show that distinguishing between these possibilities is mathematically equivalent to testing whether a continuing currency inflation might be fueled by speculation alone or is instead driven solely by economic fundamentals empirical tests which have been developed for this economic question lead us to conclude that postwar u s deficits are largely consistent with the proposition that the government budget must be balanced in present value terms this abstract was borrowed from another version of this item

the effects of health events on the economic status of married couples this paper uses measures of exogenous health shocks to identify the different channels through which changes in health conditions affect income wealth and consumption behavior the results indicate that serious health conditions have strong effects on household wealth but that the effects for women are larger and more significant than the effects for men the source of the asymmetry arises from the fact that general living expenses increase when wives become seriously ill while for husbands health shocks do not affect these expenditures

government spending and taxation what causes what in the past few years as federal deficits have risen to high nominal levels economists have argued about the effect that raising taxes ostensibly to reduce deficits might have on government spending some economists including milton friedman have argued that raising taxes will simply lead to more spending others including james buchanan and richard wagner have said that the high deficits themselves have been responsible for the growth of federal spending and that if that spending had to be financed completely by direct taxes people would demand that the federal government spend less a third group led by robert barro says that increased taxes and borrowing are results of increased government spending in section ii we briefly review various hypotheses about the relationship between federal government spending and revenues section iii describes the testing procedure used to discriminate between these hypotheses the results of four tests are presented in section iv section v contains a summary and major conclusions to foreshadow what follows we find no evidence that higher real federal taxes today lead to either higher or lower federal spending tomorrow on the other hand we find strong evidence that higher spending now will lead to higher taxes later our results support a view of the world in which the political system somehow determines how much to spend and then looks for revenue sources to finance that level of spending including direct taxation borrowing and money creation we also find evidence that real federal revenues are positively affected by real gross national product gnp real federal spending also rises with real gnp but it appears to be independent of the rate of inflation

the terms of trade and the current account the harberger laursen metzler effect the paper examines the effect of terms of trade changes on a small country s spending and current account assuming optimizing behavior in an intertemporal framework with perfect international capital mobility a temporary future terms of trade deterioration implies a deterioration improvement of the trade balance whereas a permanent terms of trade deterioration has an ambiguous effect depending on the rate of time preference nominal and real variables are considered via exact price indexes two periods and an infinite horizon are examined

international portfolio diversification and endogenous labor supply choice abstract this paper presents a multi country general equilibrium model driven by productivity shocks where labor supply and consumption are chosen endogenously we use this framework to study the effect of labor supply for optimal international diversification we find that the model s ability to help explain home bias depends crucially on the level of substitutability between consumption and non working time quantitatively the non separability in the preferences helps in a nonnegligible way but it cannot entirely explain the extreme degree of home bias in u s portfolios

retirement home production and labor supply elasticities a standard life cycle model with home production implies a tight relationship between key preference parameters and the changes in time allocated to home production and leisure at retirement we derive this relationship and use data from the atus to explore its quantitative implications the key finding is that the intertemporal elasticity of substitution for leisure and the elasticity of substitution between time and goods in home production are approximately equal in contrast to what is commonly assumed

explaining saving investment correlations national saving and investment rates are highly positively correlated in virtually all countries this is puzzling as it apparently implies a low degree of international capital mobility this paper shows that the observed positive correlation between national saving and investment rates arises naturally within a quantitatively restricted equilibrium model with perfect mobility of financial and physical capital the model is consistent with the fact that saving investment correlations are larger for larger countries but are still substantial for small countries further the model is consistent with the finding that current account deficits tend to be associated with investment booms copyright 1993 by american economic association

consumption versus expenditure previous authors have documented a dramatic decline in food expenditures at the time of retirement we show that this is matched by an equally dramatic rise in time spent shopping for and preparing meals using a novel data set that collects detailed food diaries for a large cross section of u s households we show that neither the quality nor the quantity of food intake deteriorates with retirement status we also show that unemployed households experience a decline in food expenditure and food consumption commensurate with the impact of job displacement on permanent income these results highlight how direct measures of consumption distinguish between anticipated and unanticipated shocks to income whereas measures of expenditures obscure the distinction

regulatory schemes and self protective environmental risk control a comparison of insurance liability and deposit refund systems abstract there has been an increasing interest in considering non traditional regulatory instruments for control of environmental risks traditional regulation has relied on liability in various forms after risky events have actually occurred there is concern that traditional instruments do not provide adequate signals to firms regarding social costs of risks this paper considers two important alternatives to traditional liability instruments insurance and deposit refund systems the purpose of the paper is to determine whether there is any theoretical superiority of these non traditional instruments in controlling environmental risk and safety a relatively simple model designed to capture the essential features of liability insurance and deposit refund instruments is developed and used to compare the resulting control levels under pure risk and pure uncertainty the paper shows how risk aversion limited liability afforded through bankruptcy and differences between social and private discount rates can affect the ranking of control levels under each of the three primary instruments the paper shows that under reasonable assumptions deposit refund systems such as input or discharge deposits or performance bonds will result in higher levels of controls than the other instruments results also suggest that it may be necessary to tailor regulatory instruments to specific firm situations such as requiring deposits from small firms in competitive industries

cointegration and government borrowing constraints evidence for the united states testable implications are derived in a present value borrowing constraint model for the u s federal government critical values for unit root and cointegration tests are calculated with monte carlo studies cointegration techniques are employed to determine whether the government has been involved in perpetual debt financing in recent years the data reject this assertion

why do europeans work so little market work per person is roughly 10 higher in the united states than in sweden however if we include the work carried out in home production the total amount of work only differs by 1 i set up a model and show that differences in policy mainly taxes can account for the discrepancy in both labor supply and home production between sweden and the united states these results are independent of the elasticity of labor supply

on the difficulty of eliminating deficits with higher taxes some canadian evidence government budget deficits have increased along with government revenues from direct and indirect taxation both in absolute amounts and as a share of national income in canada as well as in several other countries especially since the 1960s this phenomenon also has coincided particularly since 1980 with skepticism over the notion that government deficit spending stimulates economic growth and employment instead many now expect deficits to produce negative effects on economic activity including high real interest rates reduced real capital formation and production increased unemployment and possible long term inflation 2 these expectations have produced a near concensus on the need to reduce government budget deficits but not on the means of achieving that goal some advocate reductions in government spending as the optimal solution while others call for increases in taxation to raise revenue although either policy in principle may achieve the same result for the deficit they arise from different theories of the determinants of government spending in particular those who advocate expenditure cuts suggest that increased taxation would increase government spending more than it would reduce the deficit arguing that there is a causal direction from increased tax revenues to increased government expenditures although the taxation spending causality hypothesis has assumed increased prominence over the last decade 3 little statistical testing has been done for canada studies by manage and marlow 18 and ram 21 lend support to the argument that expenditures are more responsive to revenues than the reverse on the basis of u s data indeed ram s work contradicts the earlier conclu

inattentive consumers and international business cycles this paper presents and studies the properties of a sticky information exchange rate model where consumers and producers update their information sets infrequently introducing inattentive consumers has important implications through a mechanism resembling the limited participation models exchange rate volatility observed in the data can be addressed for reasonable values of risk aversion the model generates more persistence in output consumption and employment which brings us closer to the data impulse responses to monetary shocks are hump shaped consistent with the empirical evidence forecast errors of inattentive consumers provide a channel to reduce the correlation of relative consumption and real exchange rate the decline in the correlation is quantitatively small for our benchmark model model generates a substantial amount of consumer forecast errors when producers are attentive and productivity shocks are persistent this specification results in a large decline of the correlation of real exchange rate and relative consumption due to consumer inattentiveness when trade elasticity is set to values at the low end of macro estimates or at higher values consistent with sectoral estimates the correlation is in the negative territory with inattentive consumers

governing uncertain and unknown effects of genetically modified crops this paper analyzes the capabilities of three different governance regimes for adequately handling uncertain and unknown effects of genetically modified gm crops adequate handling requires the development of sound procedures for identification of uncertainty and ignorance ui gm crops are produced by private firms and the government decides whether the crops should be marketed gr2 and gm crops are produced and the government decides whether the crops should be marketed gr3 the effect of bringing the civil society into the decision making process is also analyzed gr3 will be stronger in cooperative adaptation and communicative rationality than gr2 public research organizations have fewer conflicts of interest with the government than private firms and academic norms are important difficulties in proving harm and identifying the responsible firm will make gr1 weak in cooperative adaptation and communicative rationality

dynamics of the trade balance and the terms of trade the j curve the authors provide a theoretical interpretation of two features of international data the countercyclical movements in net exports and the tendency for the trade balance to be negatively correlated with current and future movements in terms of trade but positively correlated with past movements they document the same properties in a two country stochastic growth model in which trade fluctuations reflect in large part the dynamics of capital formation the authors find that their general equilibrium perspective is essential the relation between the trade balance and the terms of trade depends critically on the source of fluctuations copyright 1994 by american economic association

an institutional analysis of methods for environmental appraisal abstract this paper focuses on a set of issues when choosing between methods for environmental appraisal approaches like cost benefit analysis contingent valuation multicriteria analysis and deliberative methods are based on very different assumptions concerning the characteristics of environmental resources the capacities of the individuals involved and the role the methods play in framing the process the present paper views environmental appraisal methods as institutional structures they are seen as rules concerning a who should participate and in which capacity b what is considered data and which form data should take and c rules about how a conclusion is reached specifically the choice of method defines the logic of the appraisal process and next influences the output while cost benefit analysis is based on the assumption of individual rationality deliberative methods assume that individuals can act according to social rationality the first part of the paper is devoted to clarifying what institutions are and their role in the valuation process second the main features of environmental or ecosystem services and the demands they raise for decision making are described a general framework for evaluating appraisal methods is then developed finally this structure is elaborated in more detail as a basis for deciding over the choices of methods in the case of evaluating ecosystem services a set of unresolved issues are identified especially related to how the choice of appraisal methods themselves should be instituted

the dynamics of a small open economy in response to monetary fiscal and productivity shocks abstract this paper evaluates empirically the relative importance of monetary and fiscal versus technology shocks in an open economy characterized by perfect international capital mobility the variance covariance matrix of these shocks is estimated a stochastic model is used to perform numerical simulations the results show that persistent shocks to productivity can reproduce several empirical regularities including the puzzling high correlation between national saving and investment remarkably well and that monetary and fiscal shocks play a minor role

the aggregate effects of sectoral reallocations abstract can a one time permanent change in the fundamentals behind the sectoral composition of the economy prompt an aggregate downturn can this downturn be non negligible even if one uses us data to determine the relative size of gross vs net job flows and the importance of job creation costs can one consider the military build down of the 1990s as a plausible cause for the 1990 1991 recession do sectoral reallocations generate responses that are qualitatively similar to productivity shocks we use a variant of the mortensen pissarides 1994 review of economic studies 61 397 415 job creation destruction model calibrate it to us labor market data and run experiments that suggest one can answer yes to all these questions

productivity shocks non traded goods and optimal capital accumulation this paper considers the interaction of saving and investment in determining the current account for a small open economy subjected to productivity shocks by emphasizing the distinction between traded and non traded goods the analysis highlights the crucial role of the real exchange rate in macroeconomic adjustment our results demonstrate the importance of intertemporal substitution for determining the response of investment to anticipated productivity disturbances we also show how the correlation of movements in saving and investment following an anticipated disturbance depends critically on relative sectoral factor intensities

margin requirements and stock market volatility abstract it has long been recognized that margin requirements through leverage affect the volume of speculative activity controlling speculative behavior is one approach to inhibiting overvaluation in stocks and reducing the potential for a precipitate price decline fueled by the involuntary selling that stems for example from margin calls

consumption and time use over the life cycle we incorporate home production in a dynamic general equilibrium model of consumption and savings with illiquid housing and a collateralized borrowing constraint the calibrated model explains life cycle patterns of households time use and consumption of different categories documented from the microdata it predicts that the interaction of the labor efficiency profile and the home production technology explains households time use the resulting income profiles the endogenous borrowing constraint and home production account for the initial hump in consumption the complementarity of home hours home input and housing in home production drives the consumption profiles later in the life cycle

the revenues expenditures nexus evidence from local government data this paper examines the intertemporal linkages between local government expenditures and revenues the main results that emerge from an analysis of fiscal data from 171 municipal governments over the period 1972 80 are that 1 one or two years are sufficient to summarize the relevant dynamic interrelationships 2 there are important intertemporal linkages between expenditures taxes and grants and 3 past revenues help predict current expenditures but past expenditures do not alter the future path of revenues this last finding is contrary to results that have emerged from previous analyses of federal fiscal data copyright 1989 by economics department of the university of pennsylvania and the osaka university institute of social and economic research association

structural adjustment to a terms of trade disturbance the role of relative prices abstract this paper investigates the impact of a terms of trade disturbance on a small economy which responds gradually to changes in relative prices the key intertemporal link is as in dornbusch 1983 between the price of nontraded goods the real interest rate savings and the current account if the traded and nontraded goods are bad substitutes in consumption then an improvement in the terms of trade leads to a transitory current account surplus and conversely international capital mobility reduces the impact of a terms of trade disturbance on relative prices and also reduces the speed with which the economy adjusts to the disturbance

intertemporal substitution in labor supply evidence from micro data the sensitivity of the supply of labor to intertemporal variation in the wage is an important issue in macroeconomics the analysis of social security and pensions and the study of life cycle patterns of work this paper explores two approaches to the measurement of intertemporal substitution that have appeared in the literature the first approach is to use consumption to control for wealth and unobserved expectations about future wages in the labor supply equation the second approach is to estimate a first difference equation for hours in which labor supply from the previous period serves as a control for wealth and wage expectations the results indicate that intertemporal substitution elasticity for married men is positive but small

causality and comovement between taxes and expenditures historical evidence from argentina brazil and mexico abstract this paper presents empirical tests for stationarity of fiscal deficits for three latin america countries it also examines the causality patterns between government expenditures and government revenues long historical series covering most of the 20th century for argentina brazil and mexico are used the findings suggest that deficits were stationary in argentina and mexico but not in brazil

family economics and macro behavior in this 1987 presidential address to the american economic association the author explores the contributions of the field of family economics to macroeconomic analysis the focus is on family behavior as an active endogenous factor that both affects and is affected by the evolution of the economy much of the time is spent on long term economic growth although i also discuss short and long cycles in economic activity and the interaction between overlapping generations through social security transmission of inequality and in other ways many conclusions in these and presumably other macro areas change radically when family choices get the attention they deserve excerpt

increasing returns and unsynchronized wage adjustment in sunspot models of the business cycle a challenge to models of equilibrium indeterminacy based on increasing returns is that required increasing returns for generating indeterminacy can be implausibly large and rise quickly with the relative risk aversion in labor we show that unsynchronized wage adjustment via a relative wage effect can both lower the required degree of increasing returns for indeterminacy to a plausible level and make it invariant to the relative risk aversion in labor consequently indeterminacy and sunspot driven fluctuations can emerge for plausible increasing returns regardless of the relative risk aversion in labor our model generates reasonable dynamics in terms of matching the business cycle and sunspot shocks become more important with labor market friction

government revenue and government expenditure nexus evidence from developing countries the relationship between government revenue and government expenditure has attracted a lot of interest given its policy relevance particularly with respect to budget deficits the goal of this paper is to investigate evidence for causality between government revenue and government expenditure within a multivariate framework by modelling them together with gross domestic product for 12 developing countries our application of the toda and yamamoto 1995 test for granger causality reveals support for the tax and spend hypothesis for mauritius el salvador haiti chile and venezuela for haiti there is evidence for the spend and tax hypothesis while for peru south africa guatemala uruguay and ecuador there is evidence of neutrality

methodological and empirical issues in real business cycle theory abstract in this paper we argue that the major impact of the rbc literature has been to propose a new methodology for macroeconomics this methodology is distinguished first by the importance it attributes to the empirical description of the phenomena to be explained and second by the use of this description in conjunction with quantitative theorizing i e the construction of computable general equilibrium models whose characteristic statistics match those of the data in accordance with this approach we first report on the current state of knowledge concerning business cycle regularities and conclude that additional empirical effort is called for in order to arrive at the appropriate basis for theorizing we then examine the performance of existing models and evaluate the case for integrating monetary factors and demand shocks into them lastly we review the recent efforts to explain the employment variability puzzle and argue that the search for a solution naturally leads to the incorporation of significant non walrasian features into the rbc framework

taxing women a macroeconomic analysis based on well known evidence on labor supply elasticities several authors have concluded that women should be taxed at lower rates than men we evaluate the quantitative implications and merits of this proposition relative to the current system of taxation setting a proportional tax rate on married females equal to 4 8 increases output and married female labor force participation by about 3 9 3 4 and 6 9 4 0 respectively gender based taxes improve welfare and are preferred by a majority of households nevertheless welfare gains are higher when the u s tax system is replaced by a proportional gender neutral income tax 2011 published by elsevier b v

environmental impairment liability as an instrument of environmental policy abstract this paper evaluates the role of liability that may arise in the context of an impairment of the environment environmental impairment liability or eil for short is analyzed as an instrument of environmental policy interrelationships between injurers victims the legal system insurers and the environment serve to show that eil may contribute to preserve the environment however peculiarities such as mass torts and uncertain behavior of courts serve to detract from the effectiveness of eil the question arises of whether these shortcomings are 1 mitigated or exacerbated by eil insurance the potential contribution of insurance to eil is found to be undermined by partial market failure which however can be alleviated by permitting the flotation of environmental risk warrants on capital markets

the causal relation between federal expenditures and receipts federal expenditures have consistently exceeded federal revenues since 1970 in fact the federal government has seen a surplus in only five years since 1950 the symptoms of such fiscal imbalance are of course budget deficits while budget deficits are nothing new in u s history the recent and projected size of the deficit during peacetime nonrecessionary years has been the cause of much concern to academics the news media and politicians this preoccupation with federal deficits has produced a variety of policy proposals to deal with them

u s federal indebtedness and the conduct of fiscal policy abstract this paper examines whether the conduct of u s fiscal policy since the 1920s has been influenced by constraints on the accumulated stock of outstanding federal debt the evidence is affirmative during most of the inter and post war period policy in effect stabilized the federal debt relative to gnp but after 1981 large debt and debt service costs failed to produce deficit reductions consistent with the pattern of previous decades

public expenditure and national income causality further evidence on the role of omitted variables whether changes in public expenditure growth help predict changes in national income growth and or vice versa remains an important issue of sustained interest in the empirical public finance literature in recent years attention has mainly been confined to two specific areas namely estimation of the impact of the public sector on output growth by means of regression analysis and causality testing unfortunately the outcome of both types of analysis has been inconclusive focussing on the impact studies we note that a number of empirical investigations have attempted to measure the effect of the size of the public sector on overall economic growth for instance ram 19 utilizing a two sector model found that growth of government size has a positive effect on economic growth landau 14 15 however presented opposite evidence indicating that the government sector expansion led to a decline in output growth for many dcs and ldcs since 1960 in a recent study barth keleher and russek 4 estimated variants of ram s models with data for 30 countries their empirical results largely support a negative relationship between the scale of government and aggregate economic activity furthermore using the hausman procedure they rejected the hypothesis that the independent variables namely real government spending or other measures of the scale of the government depending on the specification in the regression equations are exogenous this strongly suggests that the conclusions reached by

cointegration and tests of purchasing power parity nonstationarity in the levels of spot exchange rates and domestic and foreign price indices makes the use of conventional tests of the absolute version of purchasing power parity ppp inappropriate if ppp is true inter country commodity arbitrage ensures that deviations from a linear combination of spot exchange rates and domestic and foreign price levels should be stationary under these conditions exchange rates and price levels should form a cointegrated system we find the null hypothesis of no cointegration cannot be rejected for all five countries thus violating the long run absolute version of ppp

unemployment market work and household production time diary data from four countries suggest that differences in market time between the unemployed and employed represent additional leisure not increased household production in areas where unemployment is cyclically high however reduced market work is offset by additional home production

new estimates of intertemporal substitution abstract this paper estimates the intertemporal elasticity of substitution for married males taking into account that many individuals are at a corner solution for weeks worked by virtue of working year round the fact that these individuals do not choose to engage in much intertemporal substitution may simply indicate that the corner solution inhibits their ability to do so rather than indicating a low desire to intertemporally substitute our estimates are able to distinguish between these two cases with the results showing much higher intertemporal elasticities of substitution than reported in earlier studies

real interest rates home goods and optimal external borrowing the paper investigates the optimal time path of consumption and external borrowing in the dependent economy model the small country faces given world prices and a given world real interest rate the presence of a home goods sector implies that the relevant real interest rate appropriate to consumption decisions depends on the rate of change of the real price of home goods the paper shows how transitory disturbances in output or in the world real interest rate affect the time profile of consumption and the trade balance in particular it is shown that the presence of a home goods sector dampens the consumption effects of changes in the world interest rate

the emerging u s current account deficit in the 1980s a cointegration analysis this paper seeks to understand the recent history of u s external imbalances by identifying the long run tendency of the u s current account balance and investigating its behavior the procedure that is adopted is to estimate cointegrating regressions between u s exports and imports of goods and services estimates from cointegrating regressions between several measures of u s exports and imports show that up to about the end of 1983 the u s current account tended toward zero since that time there has been an apparent structural shift resulting in a long run tendency for a deficit in excess of 100 billion per year copyright 1992 by mit press

does the exchange rate regime influence the relationship between the output gap and the current account estimates of the output gap are useful for identifying the sustainable level of noninflationary output growth in countries with a flexible exchange rate regime for nations with a fixed exchange rate however domestic prices are inexorably linked to the prices of its main trading partners and are unlikely to bear little relation to the output gap this article uses data on 45 developed and developing countries between 1970 and 2004 to show that a positive output gap in a country with a fixed exchange rate is more liable to be reflected in an imbalance on the external current account

terms of trade factor intensities and the current account in a life cycle model this paper examines the effects of terms of trade changes on the external adjustment of a small open economy where each consumer has a life cycle saving function the supply side of the economy is given by the standard two sector model with two primary factors labour and capital it is shown that when both commodities are produced a terms of trade deterioration leads to a current account deficit surplus if the export import sector is more labour intensive

business expenditures on r d and trade performances in australia is there a link this article empirically examines the dynamic causal link between business research and development r d expenditures and trade performance in australia based on cointegration and error correction modelling granger causality tests variance decomposition and impulse response functions are used for this purpose the results show that a long run relationship exists between the trade variables and r d expenditure and a unidirectional causality run from r d expenditure to exports imports and net exports further the variance decomposition and impulse response functions confirm that a significant portion of fluctuations in the trade variables beyond the sample period is explained by r d expenditure therefore government policies that lift expenditures on business r d are shown to contribute to the narrowing of australia s chronic trade deficits

international real business cycles we ask whether a two country real business cycle model can account simultaneously for domestic and international aspects of business cycles with this question in mind we document a number of discrepancies between theory and data the most striking discrepancy concerns the correlations of consumption and output across countries in the data outputs are generally more highly correlated across countries than consumptions in the model we see the opposite

homework in labor economics household production and intertemporal substitution abstract we argue that estimates of intertemporal substitution elasticities obtained from standard life cycle models are subject to a downward bias because they neglect changes in work done at home over the life cycle we extend the standard life cycle model to include home production and estimate it using data from three time use surveys we find that the downward bias is large

rethinking the role of information in chemicals policy implications for tsca and reach this article analyses the role of different kinds of information for minimizing or eliminating the risks due to the production use and disposal of chemical substances and contrasts it with present and planned informational regulation in the united states and the european union respectively some commentators who are disillusioned with regulatory approaches have argued that informational tools should supplant mandatory regulatory measures unflatteringly described as command and control critics of this reformist view are concerned with the lack of technology innovation forcing that results from informational policies alone we argue that informational tools can be made more technology inducing e and thus more oriented towards environmental innovations e than they are under current practices with or without complementary regulatory mechanisms although a combination of approaches may yield the best results the conventional approach to chemicals policy envisions a sequential process that includes three steps of 1 producing or collecting risk relevant information 2 performing a risk assessment or characterization followed by 3 risk management practices often driven by regulation we argue that such a sequential process is too static or linear and spends too many resources on searching for or generating information about present hazards in comparison to searching for and generating information related to safer alternatives which include input substitution final product reformulation and or process changes these pollution prevention or cleaner technology approaches are generally acknowledged to be superior to pollution control we argue that the production of risk information necessary for risk assessment on the one hand and the search for safer alternatives on the other hand should be approached simultaneously in two parallel quests overcoming deficits in hazard related information and knowledge about risk reduction alternatives must take place in a more synchronized manner than is currently being practiced this parallel approach blurs the alleged bright line between risk assessment and risk management but reflects more closely how regulatory agencies actually approach the regulation of chemicals these theoretical considerations are interpreted in the context of existing and planned informational tools in the united states and the european union respectively the current political debate in the european union concerned with reforming chemicals policy and implementing the reach registration evaluation and authorization of chemicals system is focused on improving the production and assessment of risk information with regard to existing chemicals although it also contains some interesting risk management elements to some extent reach mirrors the approach taken in the united states under the toxics substances control act tsca of 1976 tsca turned out not to be effectively implemented and provides lessons that should be relevant to reach in this context we discuss the opportunities and limits of existing and planned informational tools for achieving risk reduction 2005 elsevier ltd all rights reserved

some further evidence on the law of one price the law of one price still holds international trade models often postulate the existence of a representative price i e the price which prevails at all markets this is known as the law of one price in this paper the law of one price is tested for seven commodities among four countries by explicitly considering transaction costs the empirical evidence suggests that in most cases the law of one price cannot be rejected asa maintained hypothesis furthermore for the remaining cases transaction costs seem to cause the failure

impact of bt cotton on pesticide poisoning in smallholder agriculture a panel data analysis while substantial research on the productivity and profit effects of bt cotton has been carried out recently the economic evaluation of positive and negative externalities has received much less attention here we focus on farmer health impacts resulting from bt related changes in chemical pesticide use previous studies have documented that bt cotton has reduced the problem of pesticide poisoning in developing countries but they have failed to account for unobserved heterogeneity between technology adopters and non adopters we use unique panel survey data from india to estimate unbiased effects and their developments over time bt cotton has reduced pesticide applications by 50 with the largest reductions of 70 occurring in the most toxic types of chemicals results of fixed effects poisson models confirm that bt has notably reduced the incidence of acute pesticide poisoning among cotton growers these effects have become more pronounced with increasing technology adoption rates bt cotton now helps to avoid several million cases of pesticide poisoning in india every year which also entails sizeable health cost savings