interest rates inflation and the aggregate consumption function this paper reports on an empirical study of the effects of interest rates and inflation on aggregate consumption in the united states empirical evidence based on quarterly u s data from the postwar period is first presented in support of the hypothesis that the real rate of interest varies inversely with the rate of inflation at least in the short run regression estimates of an aggregate consumption function for the united states also based on quarterly data from the postwar period are then presented these estimates indicate that the propensity to consume varies inversely with interest rates and directly with the rate of inflation

short run exchange rate uncertainty in latin america this paper to obtain an ex ante measure of exchange rate uncertainty in 11 latin american countries as a preliminary issue the purchasing power parity ppp condition is tested using engle and granger two step procedure and johansen method the argument is that exchange rate uncertainty could be lower if ppp holds in the long run the expected exchange rate uncertainty is estimated according to an extended version of the autoregressive conditionally heteroscedastic arch model the results show that the arch adjusment produces more efficient estimates in seven countries and that the acceptance of ppp has little effect on exchange rate uncertainty

saving and after tax rates of return in recent years a number of economists have found or taken for granted a substantial positive interest elasticity of private saving and several have concluded that the current taxation of property income has played a major role in depressing saving and investment and therefore economic welfare thus probably the most quoted of these studies by michael boskin 1978 finds that a variety of functional forms estimation methods and definitions of the real after tax rate of return invariably lead to the conclusion of a substantial positive interest elasticity of private saving p 3 as a consequence he states current tax treatment of income from capital significantly retards capital accumulation rough estimates of the lost welfare exceed 50 billion per year the most recent of these studies by lawrence summers 1981 uses the boskin empirical results to check corresponding findings based on assumed values of the relevant parameters in a life cycle model of aggregate saving behavior summers raises the ante in his estimate of the welfare gain associated with the elimination of capital income taxation claiming it would exceed 150 billion annually and noting that this conclusion rests on a high positive interest elasticity of saving p 533 summers notes that his larger interest rate effect reflects his additional allowance for wealth changes since these findings on interest elasticity are inconsistent with earlier studies 2 and have received widespread attention by political activists it is important to determine how much confidence can be placed in the underlying analysis this paper will demonstrate that there is little scientific justification for the recent literature purporting to show a strong positive interest elasticity of saving so that government tax policies predicated on such saving behavior rest on a dubious foundation the evidence to be presented will indicate that at the present stage of knowledge we have no sound basis for alleging either a strong positive or negative after tax rate of return effect on saving the only prior published examination of these recent potentially important findings of a strong positive interest elasticity of private saving has been a brief reference to the boskin results in a paper by howrey and hymans 1978 which was largely devoted to an analysis of what the authors call personal cash or loanable funds rather than private saving these authors report that the significance of boskin s results is sensitive to estimation period inclusion of lagged unemployment and use of alternative interest rate variables they do not report the results of the alternative estimations however nor do they present consistent instrumental variable estimations despite the fact that the latter provide boskin with what he considers to be his best results in this paper in striking contrast to the boskin analysis we show that using the best available proxies for the relevant interest rate variables real expected after tax rates of return estimated both on an ex ante and on an ex post basis the estimated interest elasticity of household and private saving is generally found to be either statistically insignificant or significantly negative and only rarely significantly positive with the result depending on the specific interest rate series period and consumption function used nor is this finding altered when the single equation estimation of this saving or consumption function is replaced by an instrumental variable consistent estimation as a result there does not seem to be much basis to boskin s or summers strong criticism of the earlier literature which generally concluded that there was received for publication may 14 1982 revision accepted for publication november 23 1982 university of pennsylvania see boskin 1978 gylfason 1981 and summers 1981 2 see the consumption function in either the wharton model the wharton mark iv quarterly econometric model philadelphia 1977 and updates or the mps model the quarterly econometric model board of governors of the federal reserve system 1978 and updates

it s not just the thought that counts an experimental study on the hidden cost of giving receiving a gift can create an impulse to reciprocate even when doing so may be inefficient and potentially harmful to a third party this paper provides a theoretical framework for a pure gift effect on reciprocity impulses and experimental evidence that such an effect exists that is a gift receiver will favor an actual gift giver over an intended gift giver even if the intended gift giver incurred the same costs and signaled the same intention to give this result contrasts with the predictions of existing theories on social preferences we also show that the pure gift effect is present even when it leads to a less efficient outcome or when the gift is given without the expectation of future returns our findings suggest that when reciprocating a gift becomes socially inefficient it may be more advantageous to guard against gift receiving or to keep donations secret than to try to control the intent to give

the purchasing power of money and nominal interest rates a re examination while it has been known for some time that under uncertainty the original version of the fisher hypothesis is not precisely correct empirical researchers have largely ignored this fact such an omission has possibly resulted in erroneous conclusions concerning other hypotheses most notably the impact of prices on the real economy this paper clarifies some of the previous interpretations of the existing empirical literature and provides a theoretical version of the relation between prices and interest rates empirical tests based on both the livingston survey data and data from time series forecasting models provide support for the fisher effect and the hypothesis that only covariance risk is priced in the treasury bill market one of the basic hypotheses concerning rationality in financial markets is based on statements generally attributed to fisher 18 fisher argued that the nominal or money rate of return on an asset should compensate an investor for his or her required real rate of return and changes in the purchasing power of money for the uncertainty case fisher replaced known purchasing power changes with the expected inflation rate whereas the fisher relationship under certainty is well defined his basic theorem under uncertainty is not precise as fama 15 has argued it is changes in the purchasing power of money not the inflation rate that should concern investors under uncertainty the expected value of one is not by jensen s inequality the inverse of the expected value of the other moreover fama and farber 16 grauer and litzenberger 20 and benninga and protopapadakis 3 have shown that when investors are risk averse the fisher relationship will generally not hold even after adjustment has been made for the distinction between purchasing power changes and the inflation rate in particular these authors show that an adjustment must be made for the fact that the real rate of return on nominal bonds is random while these issues have been discussed in the theoretical literature they have largely been ignored in the empirical work on this topic given the fact that nominal rates do not seem to adjust as rapidly to price changes as fisher hypothesized numerous empirical researchers have expanded the basic fisher model in an attempt to explain this empirical anomaly these extensions include the incorporation of a inflation rate variability and the growth in real output

misspecification bias in models of the effect of inflation uncertainty abstract in this paper we show that the appropriate measure of inflation uncertainty is relative measure specifically is the standard deviation of inflation relative to the gross expected rate of inflation empirical studies of the effects of inflation uncertainty have misspecified their models by not using the relative measure the bias introduced is equivalent to omitting a relevant variable we derive the asymptotic bias introduced by this error and estimate its magnitude for the united states and eight high inflation countries estimates of the effect of inflation uncertainty from high inflation countries and cross country studies that include them are likely to suffer from a considerable negative bias we conclude that future studies should employ this relative measure

temporary income taxes and consumer spending both economic theory and casual empirical observation of the u s economy suggest that spending propensities from temporary tax changes are smaller than those from permanent ones but neither provides much guidance about the magnitude of this difference this paper offers new empirical estimates of this difference and finds it to be quite substantial the analysis is based on an amendment of the standard distributed lag version of the permanent income hypothesis that distinguishes temporary taxes from other income on the grounds that the former are more transitory this amendment which is broadly consistent with rational expectations leads to a nonlinear consumption function though the standard error is unavoidably large the point estimate suggests that a temporary tax change is treated as a 50 50 blend of a normal income tax change and a pure windfall over a 1 year planning horizon a temporary tax change is estimated to have only a little more than half the impact of a permanent tax change of equ

interest rate volatility and the term structure a two factor general equilibrium model we develop a two factor general equilibrium model of the term structure the factors are the short term interest rate and the volatility of the short term interest rate we derive closed form expressions for discount bonds and study the properties of the term structure implied by the model the dependence of yields on volatility allows the model to capture many observed properties of the term structure we also derive closed form expressions for discount bond options we use hansen s generalized method of moments framework to test the cross sectional restrictions imposed by the model the tests support the two factor model there are essentially two approaches to the modeling of the term structure of interest rates in continuous time the equilibrium approach pioneered by

conditional exchange rate volatility and the volume of foreign trade evidence from seven industrialized countries there has long been a concern over the volatility of exchange rates and their impact on the volume of foreign trade however very little attention has been paid to the choice of an appropriate volatility variable as well as the proper specification of the trade equation the sample standard deviation of the exchange rate has been used as a proxy for exchangerate uncertainty in empirical studies that examine the effects of exchange rate uncertainty on the volume of foreign trade see for example akhtar and hilton 1 and gotur 27 these studies have provided conflicting evidence on this issue it has been argued that use of the sample standard deviation is inappropriate because the empirical distribution of exchange rates is not normal 22 10 in this regard subsequent empirical research 12 36 40 41 11 has employed a moving standard deviation of the rate of change of the exchange rate as a proxy for exchange rate uncertainty chowdhury 11 obtained a clear pattern of results that support the hypothesis that the higher volatility of exchange rates led to a reduction in international trade transactions after the breakdown of the bretton woods system in march 1973 other studies have reported ambiguous results 2 the moving standard deviation used in these studies has been criticized in the literature for a ignoring relevant information on the random process generating exchange rates 18 b underestimating the effect of volatility on decisions 52 c distorting the measurement of the volatility variable by smoothing the series 9 and d injecting an element of arbitrariness into the calculation through decisions about the order m of the moving average 43 3

the inflation output variability tradeoff and monetary policy evidence from a garch model this paper empirically investigates the taylor curve volatility tradeoff in light of the stochastic behavior of the conditional variances of output and inflation stressing structural instability between periods before and after the 1979 1982 monetary policy regime change i implement a bivariate generalized autoregressive conditional heteroskedasticity model to capture the output inflation variability tradeoff and to explore the plausible impact of a change in the federal funds rate on the two conditional volatilities i further evaluate the impacts of anticipated and unanticipated policy actions measured by two alternative policy reaction functions one from a vector autoregression based reduced form equation and another based on the taylor rule in addition to showing a volatility tradeoff relationship the empirical model reveals different magnitudes of policy effects on output and inflation volatility across the two sample periods

gift giving and the evolution of cooperation gift giving is a practice common to many societies in an evolutionary model the social custom of giving gifts at the beginning of a relationship can lead to trust and cooperation the evolutionary approach makes predictions about the character of the goods that can be used as gifts for example gift goods may have little use value even at low levels of consumption although the gifts themselves are useless the institution is not

clashing paradigms total quality financial restructuring and theories of the firm the american corporate sector saw major reform movements during the 1980s despite frequent admixture in practice two key movements can be singled out as analytically distinct financial restructuring generally debt financed often involving mergers and total quality management a particular approach to productive restructuring unfortunately the precepts and practices of these movements often clashed this paper examines these tension and explores them by reference to economic theories of the firm associated with each movement while financial restructuring has been interpreted through the lens of neoclassical agency theory total quality management has strong links with alternative approaches that can be grouped under the heading capabilities theory copyright 1997 by oxford university press

you owe me in many cultures and industries gifts are given in order to influence the recipient often at the expense of a third party examples include business gifts of firms and lobbyists in a series of experiments we show that even without incentive or informational effects small gifts strongly influence the recipient s behavior in favor of the gift giver in particular when a third party bears the cost subjects are well aware that the gift is given to influence their behavior but reciprocate nevertheless withholding the gift triggers a strong negative response these findings are inconsistent with the most prominent models of social preferences we propose an extension of existing theories to capture the observed behavior by endogenizing the reference group to whom social preferences are applied we also show that disclosure and size limits are not effective in reducing the effect of gifts consistent with our model financial incentives ameliorate the effect of the gift but backfire when available but not provided

relative price variability and nonuniform inflationary expectations using a generalization of a rational partial information framework presented fully in cukierman and wachtel 1979 it is shown that there is a positive relationship between the variance of relative price change and the variance of inflationary expectations across markets in the economy this implication is then tested empirically using data on the variance of relative price change and on the variance of directly measured expectations the empirical evidence supports the view that there is a positive relationship between the two variances and that more than one third of this relationship is explainable in terms of the model presented

monetary policy when interest rates are bounded at zero this paper assesses the importance of the zero lower bound on nominal interest rates for the interest rate channel of monetary policy we simulate several interest rate setting policy rules with ei

endogenous risk in a portfolio balance rational expectations model of the deutschemark dollar rate abstract a portfolio balance model of the dm s rate under rational expectations is specified in which systematic risk induced deviations from uncovered interest parity are allowed this leads to a reduced from containing a potentially time varying risk premium which we approximate and estimate using an arch in mean approach the maximum likelihood estimator and a lagrande multiplier test for arch in mean are developed the estimation results indicate a small but non negligible time varying risk premium

precautionary savings a panel study theoretical literature shows that income uncertainty boosts saving yet empirical work is incomplete i test for the precautionary motive for saving using panel data knowing this motive s size is important for gauging the responsiveness of saving to government programs that reduce uncertainty and for comparison to other motives such as bequests most empirical studies of precautionary saving use either aggregate time series or cross sectional data which cannot capture the effects of individual income uncertainty i derive measures of total permanent and transitory income uncertainty from panel data the national longitudinal survey and find a strong precautionary motive a doubling of uncertainty increases the ratio of wealth to permanent income by 29

the inflation and output variability tradeoff evidence from a garch model abstract this paper empirically investigates the possibility of a tradeoff between the variability of inflation and output gap over the period 1960 1997 in light of a bivariate garch model there is strong evidence of temporal instability in the garch process and the variability tradeoff is more apparent for the post october 1979 subperiod the slope of the tradeoff nevertheless appears to be considerably flat

household saving out of different types of income revisited the purpose of this paper is to test for two hypotheses about household consumption and saving behaviour namely the substitution hypothesis according to which changes in corporate retained earningshave an offsetting effect on household savingand the hypothesis that consumption and saving out of different types of income vary cross country evidence from 13 oecd countries over the period 1963 80 lies very well in accordance with both of these hypotheses moreover results are robust to alternative specifications of consumption function to additional variables and to estimation methods

income uncertainty and the onset of the great depression income uncertainty and the onset of the great depression income uncertainty contributes substantially to explaining the fall in consumption that marks the onset of the great depression consistent estimates of the variance of income measure income uncertainty from 1921 30 and are produced using a linear moment model this series provides a statistical link between the large erratic swings in income uncertainty after september 1929 and the great crash in the stock market comparison of the behavior of income uncertainty in the 1920s to the pre world war i and post world war ii eras suggests that the experience after the great crash was historically unique i introduction the great depression of 1929 41 can be broken down into several phases i the initial recessionary phase from october 1929 to october 1930 ii the first two waves of bank failures between november 1930 and december 1931 iii the incipient recovery of late 1932 and the impending collapse in march 1933 iv the recovery of the financial system and the economy from the cyclical trough and v the recession of 1937 38 among others many researchers have presented well articulated theories and extensive empirical analyses for each phase of the depression friedman and schwartz 1963 hamilton 1987 gordon and wilcox 1981 and burbidge and harrison 1985 have examined the role of money and monetary policy during the depression brown 1956 examined the stance of fiscal policy during this period bernanke 1983b provided an explanation of the role of the financial crisis in the propagation of the great depression most of this research has focused on the events that turned a recession in 1929 30 that was not historically unprecedented that is it is comparable to the recession of 1920 22 into the deepest slide in the history of the american business cycle explanations of the depression s initial phase from late 1929 to october 1930 however are much less satisfactory meltzer 1976 and mishkin 1978 examined this period and concluded that the fall in output can be attributed largely to the stance of monetary policy and the stock market s impact on the household balance sheet respectively the remainder of the existing literature centers around a debate between temin 1976 1981 and schwartz 1981 that has produced no consensus about the role of monetary and nonmonetary factors in providing the impetus for the great depression hence the period sometimes called the mysterious first year 1 is the least understood of all the phases of the depression we think that recent advances in our understanding of the influence of income uncertainty on consumption expenditures may help explain the onset of the great depression the theoretical work of leland 1968 sandmo 1970 dreze and modigliani 1972 and others has shown that an increase in uncertainty about future income measured as the variance of income results in a reduction in current consumption expenditures under standard assumptions regarding risk preferences recently flacco and parker 1990 included an estimate of the standard deviation of income in a conventional specification of the consumption function from blinder and deaton 1985 and found that this measure of income uncertainty is indeed negatively related to consumption this result estimated using post world war ii data holds up to a number of statistical significance and specification tests romer 1990 examined the relationship between consumer expenditure proxied by various disaggregate spending series and stock market volatility during the first year and a half of the great depression expanding on bernanke s 1983a analysis of investment under uncertainty romer estimates a model of consumer spending on durable goods in the face of temporary uncertainty empirical evidence reveals that inclusion of the volatility of the stock market as a proxy for income uncertainty dramatically reduces forecast errors for consumption of durable goods in 1929 and 1930

bibliography of franco modigliani s publications 1944 1985 ed in the c f a digest the institute of chartered financial analysts vol 11 no 4 fall 1981 pp 15 16 166 financial markets the decades ahead an m i t perspective proceed ings of a symposium for senior executives the industrial liaison program of the massachusetts institute of technology june 1980 167 utility analysis and aggregate consumption functions an attempt at integration with richard brumberg the collected papers of franco modigliani the life cycle hypothesis of saving vol 2 ed a abel m i t press cambridge ma 1980 pp 128 97 168 the trade off between real wages and employment in an open economy belgium with jacques h dreze c o r e universite catholique de louvain discussion paper no 7947 1980 reprinted in european economic review 15 1981 pp 1 40 169 the stucture of financial markets and the monetary mechanism with lucas papademos controlling monetary aggregates iii conference series number 23 federal reserve bank of boston 1980 170 a new look at the monetary mechanism the 1980 w a mackintosh lecture queen s university discussion paper no 447 kingston ontario canada 1981 171 uma nova abordagem do mecanismo monetario e sue relacao com a estrutura financeira the monetary mechanism revisited and its relation with the financial structure revista de econometria sociedade brasileira de econometria 1 1 april 1981 pp 5 30 172 comment on scale of macro econometric models and accuracy of fore casting by g fromm and l r klein in j kmenta and j b ramsey eds large scale macro econometric models north holland 1981 pp 393 4 173 comment on where have all the flowers gone economic growth in the 1960s by robert m solow in j a pechman and n j simler eds economics in the public service papers in honor of walter w heller ww norton co inc 1981 pp 75 83 scand j of economics 1986 this content downloaded from 157 55 39 141 on mon 18 jul 2016 05 30 52 utc all use subject to http about jstor org terms

where did all the saving go a look at the recent decline in the personal saving rate the inadequacy of aggregate saving is often cited as an explanation of the low levels of capital accumulation and productivity growth in the united states aggregate saving is low in large part because of the steep decline in the personal saving rate that has occurred since 1975 this paper uses a modified life cycle model to analyze the determinants of this recent decline in the personal saving rate the empirical results do not support the hypothesis that the decline in the saving rate was the result of a reduction in the real rate of return the reduction in the rate of growth of income and the changing demographic profile of the labor force are the most important factors in accounting for the fall in the personal saving rate

sensitivity of the bank stock returns distribution to changes in the level and volatility of interest rate a garch m model abstract the objective of this paper is to employ the generalized autoregressive conditionally heteroskedastic in the mean garch m methodology to investigate the effect of interest rate and its volatility on the bank stock return generation process this framework discards the restrictive assumptions of linearity independence and constant conditional variance in modeling bank stock returns the model presented here allows for shifts in the volatility equation in response to the changes in monetary policy regime in 1979 and 1982 to be estimated arch garch and volatility feed back effects are found to be significant interest rate and interest rate volatility are found to directly impact the first and the second moments of the bank stock returns distribution respectively the latter also affects the risk premia indirectly the degree of persistence in shocks is substantial for all the three bank portfolios and sensitive to the nature of the bank portfolio and the prevailing monetary policy regime

a quantile framework for analysing the links between inflation uncertainty and inflation dynamics across countries in contrast to the conventional conditional mean approaches this study uses quantile regression techniques to present some new statistical evidence on the links between inflation uncertainty and the level of inflation with cross sectional data from 90 countries during the period 1961 to 2006 the results suggest that positive inflation shocks have stronger impact on inflation uncertainty which varies across the quantiles furthermore popular time series models are evaluated for their ability to reproduce measures of uncertainty and indicate similar results regarding the relationships between inflation and inflation uncertainty

rational expectations and the effects of government debt abstract this paper incorporates the effects of government debt into a standard rational expectations macroeconomic model due to limited current information even when the most extreme propositions about fiscal neutrality are true there are output and interest rate effects of unanticipated changes in government debt therefore the observation of a positive correlation between government deficits and output or interest rates does not imply that government bonds are net wealth

a portfolio model of korean household saving behavior 1962 1976 in his recent paper on korea s saving and capital accumulation experience over the 1962 76 period williamson challenges development economists to improve on the simplistic models of saving behavior that have come to characterize studies of surplus mobilization in less developed countries he warns that we can no longer be satisfied with single equation ordinary least squares estimated models that ignore the simultaneous nature of the saving investment decision he further suggests that saving studies have been overly concerned with modeling total domestic saving flows and have consequently bypassed important issues relating to changes in sectoral saving patterns and within sectors changes in the composition of saving others have had similar criticisms mikesell and zinser and leff and sato complain that the specifications of total and sectoral saving functions in ldc macro studies have been unimaginative and not well grounded in theory 2 they acknowledge those household saving studies that have utilized theoretically appealing specifications based on wealth stock adjustment and life cycle saving models but they suggest that many studies have been ad hoc in nature and have tended to place excessive emphasis on current disposable income nia definition as the leading and in some cases the only explanatory variable preoccupation with simplistic keynesian saving models that emphasize current nia income is unfortunate since from a purely theoretical standpoint permanent and or capital gains adjusted income measures would be more appropriate explanatory variables to use along with expected real rate of return variables in household wealth accumulation studies indeed studies that have used permanent income and life cycle variables have yielded interesting results 3 mikesell and zinser and williamson point out that measuring the effect on saving of changes in interest rates has been handled in a

effects of legislation events on us gaming stock returns and market turnings abstract the deregulation of casino gaming has becomea new trend across the us since the beginning of this decade but from the mid 1990s on the voice of tightened regulation is lifted up by the public while the cyber casino online gambling business is also developing its own customer base this study examines various federal and state legislation events regarding casino gaming regulation and deregulation and finds that the announcement effects on stock portfolio returns vary across different types of gaming companies on average gaming equipment suppliers and small casino operators are found to react to legislation events more significantly compared with those large casino firms furthermore since the casino gaming business is believed to be highly sensitive to the economic upturns and downturns this paper also investigates the impacts on the risk adjusted return alpha and the systematic risk beta of gaming stocks across bull up and bear down market situations the results indicate that between july 1993 and december 1997 gaming stocks on average yield a significantly lower return and a significantly greater systematic risk against the us stock market after changes in stock market conditions are controlled the systematic risk is still considerably above the market average but the excess return turns out insignificant

asian crisis and the future of the japanese model asia s version of capitalism emphasising not markets but government planning and long term relationships is now widely regarded as a problem rather than a solution 1 gone are all the self confident claims about the superiority of asian values 2 and asian gloom is matched by american triumphalism markets win goethe was right america has it better

measuring vote selling field evidence from the philippines abstract using data from an anti vote buying field experiment we conducted in the philippines we report and validate a proxy measure for vote selling we demonstrate that our proxy measure vote switching changes as expected with voter preferences and monetary offers from candidates voters are less likely to vote for someone different than their initial preference the larger the favorability rating difference between the preferred and alternative candidates similarly vote switching increases the more money the alternative candidate offers compared to the preferred candidates we also describe the effects of the promise based interventions on vote switching reported in full in a companion paper

inflation risk and the speed of adjustment in short run money demand functions abstract after 1973 money demand functions show a slow speed of adjustment including inflation risk does not help this the ser shows multiple minima as a function of the estimated rho in the error with higher speeds and rhos associated

the japanese economy and corporate reform what path to sustainable prosperity in the 1980s as japan reaped the rewards of its extraordinary economic development of the post world war ii decades companies around the world sought to learn from japanese managerial practices even as in the united states financial interests including a growing number of corporate ceos were more aggressively advocating maximization of shareholder value as a managerial ideology within american industrial corporations slogans such as total quality management also vied for attention goldstein 1997 but the collapse of japan s bubble economy in 1990 and the persistence of recessionary conditions during the 1990s have raised doubts about the viability of the japanese model particularly in the west but increasingly in japan as well japan s negative rates of economic growth in 1997 and 1998 have prompted calls for japanese corporations to embrace the corporate governance principle of maximizing shareholder value

saving out of different income categories in greece abstract the aim of the present paper is to investigate whether in the case of greece and within the framework of the existing national accounting system significantly different marginal propensities to save are attached to different income categories we establish that the marginal propensity to save out of property income is significantly higher in fact double than the marginal propensity to save out of agricultural income and income from wages and salaries of the other sectors of the economy

the propensities to consume labour and property incomes in the commonwealth caribbean this article outlines theoretically the aggregate savings implications of differences in business and personal savings propensities time series empirical tests for two developing economies generate the conclusion that the marginal business savings rate is much higher than the marginal personal savings rate for double log consumption functions differences in the personal propensity to consume labour and property incomes are substantial and statistically significant

effects of growth volatility on economic performance empirical evidence from turkey this paper examines the relationship between growth and growth volatility for a small open economy with high growth volatility turkey quarterly data for the period from 1987q1 to 2007q3 suggests that growth volatility reduces growth and that this result is robust under different specifications this paper contributes to the literature by focusing on how growth volatility affects a set of variables that are crucial for growth empirical evidence from turkey suggests that higher growth volatility reduces total factor productivity investment and the foreign currency value of local currency depreciation moreover it increases employment though the evidence for this is not statistically significant

fisher phillips friedman and the measured impact of inflation on interest a reply the purpose of this paper is to demonstrate that empirical findings which persistently appear to contradict the fisher hypothesis that the nominal rate of interest should rise by the full amount of an increase in anticipated inflation are due basically to a failure to control for changes in the real rate of interest that are associated with changes in anticipated inflation we are guided in our search for proper specification of a fisher equation by a simple general equilibrium model which is employed to derive the impact of a change in anticipated inflation upon nominal interest given the requirement that commodity money and labor markets remain in equilibrium in effect we depart from the empirical tradition which has grown up around testing of the fisher hypothesis that takes the real interest rate to be independent of anticipated inflation and argues that for anticipated inflation properly measured the data ought to support the fisher hypothesis 1

an experimental study of asymmetric reciprocity abstract when deviating from best responses do people have a stronger propensity to increase or decrease other people s payoffs offerman 2002 finds that negative intentions are more likely to induce payoff decreases than positive intentions are to induce payoff increases using the falk and fischbacher 2006 model we approach the same question as offerman but from a structural angle this requires measuring what a subject predicts that other subjects predict that he will do known as a subject s second order expectations this permits us to interpret any asymmetry in the propensities to increase and decrease payoffs in terms of the determinants of payoff increases and decreases our results are largely consonant with offerman 2002 we also find that in situations with exogenously created inequity rather than inequity that is the result of an intentional action by an actor payoff increase is more likely to be used to diminish the inequity than is payoff decrease our results exhibit some sensitivity to whether we obtain second order expectations by eliciting them directly from the subject making the payoff increase decrease decision or by inducing them by reporting to the decider the expectations of the target of the payoff increase decrease

the effect of money shocks on interest rates in the presence of conditional heteroskedasticity most current empirical work finds no evidence that money shocks lower interest rates we show that these nonresults are mainly due to a failure to model the conditional heteroskedasticity of interest rates autoregressive conditional heteroskedasticity arch models find a significant liquidity effect where ordinary least squares ols models do not the existence of a liquidity effect is found using different models and sample periods when arch models are used in estimation but never when ols is employed

discovering the link between inflation rates and inflation uncertainty a new time series model is used to reassess the strength of the link between inflation uncertainty and the level of inflation in the united states the model provides several statistical measures that can be used to examine different aspects of uncertainty the main finding is that uncertainty about the long rather than short term prospects for inflation moved strongly with the rate of inflation since the early 1970s copyright 1991 by ohio state university press

value for money vote buying and politician accountability abstract the prevalence of vote buying is widely identified as a cause of poor governance in the developing world potential mechanisms for this relationship include the selection of lower quality politicians and the reduced accountability experienced by politicians once elected in this paper we present the first experimental evidence in support of the second channel of reduced accountability using data from laboratory experiments conducted in the u s and kenya we find that vote payments reduce voters willingness to hold politicians accountable holding fixed politician identity voters who receive payments are less willing to punish the politician for rent seeking and this reduction in punishment is larger in magnitude when payments are widely targeted unsurprisingly the politician then engages in a higher level of rent seeking a simple model of multi faceted social preferences encompassing reciprocity and inequality aversion is consistent with these findings

optimal saving interest rates and endogenous growth the main point of this paper is that the apparent failure of economists thus far to establish a positive empirical link between interest rates and saving does not by itself discredit the hypothesis of a direct structural relationship between the two ceteris paribus because this structural relationship may be shifting about in response to changes in exogenous variables such as tastes and technology in a way that is consistent with any type of reduced form correlation between interest rates and saving in the data this point is demonstrated within a simple model of optimal saving interest rates and economic growth the different implications of endogenous versus exogenous growth are explored in this context

survey expectations in the time series consumption function this paper introduces survey based measures of expectations and uncertainties about income and real interest rates into an otherwise conventional consumption function the survey dat a contribute more than conventional variables to the explanation of changes in consumption the hypothesis that consumption follows a random walk is rejected in favor of a model in which consumption responds with a lag to changes in expected income growth the significance of inflation in earlier estimates of the u s consumpti on function is shown to be spurious and due to a strong negative correlation between expected inflation and expected income growth copyright 1992 by mit press

are empirical measures of macroeconomic uncertainty alike there is a plethora of time series measures of uncertainty for inflation and real output growth in empirical studies but little is known whether they are comparable to the uncertainty measure reported by individual forecasters in the survey of professional forecasters are these two measures of uncertainty inherently distinct this paper shows that compared with many uncertainty proxies produced by time series models the use of real time data with fixed sample recursive estimation of an asymmetric bivariate generalized autoregressive conditional heteroskedasticity model yields inflation uncertainty estimates which resemble the survey measure there is however overwhelming evidence that many of the time series measures of growth uncertainty exceed the level of uncertainty obtained from survey measure our results highlight the relative merits of using different methods in modelling macroeconomic uncertainty which are useful for empirical researchers

arch models properties estimation and testing abstract the aim of this survey paper is to provide an account of some of the important developments in the autoregressive conditional heteroskedasticity arch model since its inception in a seminal paper by engle 1982 this model takes account of many observed properties of asset prices and therefore various interpretations can be attributed to it we start with the basic arch models and discuss their different interpretations arch models have been generalized in different directions to accommodate more and more features of the real world we provide a comprehensive treatment of many of the extensions of the original arch model next we discuss estimation and testing for arch models and note that these models lead to some interesting and unique problems there have been numerous applications and we mention some of these as we present different models the paper includes a glossary of the acronyms for the models we describe

the relationship between inflation and inflation uncertainty in the uk 1885 1998 abstract using a long series of uk inflation data i have provided strong evidence in favour of the hypothesis that inflationary periods are associated with high inflation uncertainty this result supports the friedman ball hypothesis and has important implications for the inflation output relationship provided that more inflation uncertainty leads to lower output

price risk in supply equations an application of garch time series models to the u s broiler market that risk considerations figure prominently into agents decisions is now widely recognized by both theoretical and applied economists for example much research has focused on extending neoclassical production theory to include agents that maximize expected utility of returns under price and or output uncertainty 37 4 25 35 12 31 concurrent with this theoretical research on risk has been a growing literature on the empirical effects of risk on economic decisions examples include the studies on the role of risk in aggregate agricultural production and

a theory based state dependent phillips curve and its estimation to explain the existing empirical irregularity about the slope of a phillips curve this article provides a model of imperfect competition to short that the slope of a phillips curve is shock dependent we empirically apply a state space markov switching model to examine the impact of inflation surprise on the unemployment gap resulting in the state dependent phillips curve fitting quite well our empirical evidence indicates that an unexpected monetary expansion does produce effects in reducing unemployment rates and that supply shocks should not be ignored in estimating the phillips curve because they dominate demand shocks in several nonoil shock periods jel c51 e24 e52 i introduction it is well known that a downward sloping short run phillips curve implies a trade off between the inflation rate and unemployment rate however empirical findings point out that the slope of the phillips curve depends on the selected sample periods 1 does any theoretical model explain the changes in the slope of a short run phillips curve as displayed in the data can we find empirical support for our model that implies a slope changeable phillips curve to answer these questions this article provides a theoretical model implying that the slope of the phillips curve is shock dependent we then apply a state space markov switching model to investigate the empirical support of the theoretical model although a stable negative short run phillips curve is crucial for producing inflation forecasts in policy making institutions there is no general consensus about the negative slope of the phillips curve in empirical literature 2 one of the explanations to the previous empirical irregularity as suggested by king and watson 1994 is that the relationship between unemployment and inflation is shock dependent which means that the slope of a phillips curve relies on the dominance of the demand or supply shocks therefore the conventional single equation regression based on the state independent framework is not appropriate apart from neglecting the state dependent characteristic of the phillips curve there are several other drawbacks for conventional empirical studies when investigating the phillips curve first many articles assume that forecast errors of inflation are homoscedastic which is challenged in the literature the homoscedastic assumption is debatable because several studies such as engle 1983 jansen 1989 evans 1991 and brunner and hess 1993 point out significant heteroscedasticity in the u s inflation rate arch or garch type models provide estimates of how the conditional variance of inflation varies over time within a given structure and therefore they ignore the possibility of structural changes caused by changing regimes a markov switching heteroscedasticity model is an alternative that allows regime changes in the variance structure instead of applying arch type models to estimate the time varying conditional variance of inflation within a given structure this article takes into account the influence of regime changes on inflation s variance we apply the state dependent conditional heteroscedasticity approach provided by brunner and hess 1993 and evans and wachtel 1993 to estimate the forecasting errors of inflation the second drawback is a constant natural rate assumption the unemployment gap is the difference between the unemployment rate and the natural rate conventional literature assumes a constant natural rate which is challenged theoretically and empirically as stated by gordon 1997 the existence of unionization unemployment insurance programs and labor force demographics leads to a highly persistent unemployment rate we therefore assume that the unobservable natural rate is time varying and behaves in accordance with the hysteresis of unemployment rates 3 recent empirical works of a regime switching approach on the phillips curve have focused on whether the relationship between inflation and unemployment rates is nonlinear as in ferri et al

does market oriented institutional change in an emerging economy make business group affiliated multinationals perform better an institution based view viewing market oriented institutional change as a two staged process we propose that the effects of market oriented institutional change on two organizational forms business group affiliated and independent firms are different depending on the stage of institutional change specifically we examine how the two distinct periods of market oriented institutional change that is institutional friction and institutional convergence affect business group affiliated firms and independent firms in their abilities to profit from international diversification using data on 140 korean manufacturing multinational firms from 1993 to 2003 we find that emerging economy firms face an international diversification discount a negative relationship between international diversification and firm performance we also find that business group affiliation affects the international diversification discount differently during the two periods of market oriented institutional change particularly when firm performance is measured by the market to book value mbv the moderating effect of business group affiliation on the relationship between international diversification and mbv is negative during the institutional frictions period but becomes positive during the institutional convergence period in the later stage of institutional change our findings warn against viewing market oriented institutional change as a discrete event highlighting the importance of recognizing the qualitatively distinctive nature of different periods of market oriented institutional change in future research

the econometric analysis of models with risk terms summary in this paper we have attempted to provide an integrated approach to the estimation of models with risk terms it was argued that there exist orthogonality conditions between variables in the information set and higher order moments of the unanticipated variable density these could be exploited to provide consistent estimators of the parameters associated with the risk term specifically it was recommended that an iv estimator should be applied with instruments constructed from the information set four existing methods commonly used to estimate models with risk terms are examined and applications of the techniques are made to the estimation of the risk term in the us c exchange market and the effects of price uncertainty upon production

fashioning a new korean model out of the crisis the rebuilding of institutional capabilities the financial meltdown in east asia in 1997 8 had dramatic effects not only on the countries of the region itself but on the scholarly debates over the sources and limits of the east asian miracle model of development as well 1 the achievements of the fast growing east asian economies are not in question as joseph stiglitz put it the east asian miracle was real 2 but the methods used by the east asians in constructing this miracle were cast in a pitiless spotlight through the financial chain reactions of 1997 and in many cases were found wanting positions adopted before the crisis have thus had to be revised

uncertainty and labor contract durations this paper provides an empirical investigation into the relationship between ex ante u s labor contract durations and uncertainty over the period 1970 to 1995 we construct measures of inflation uncertainty as well as aggregate nominal and real uncertainty the results not only corroborate previous findings of an inverse relationship between contract durations and inflation uncertainty but also document that this relationship extends to both measures of aggregate uncertainty we also explore the robustness of this relationship to various measures of inflation uncertainty that have appeared in the literature

the relationship between forecast dispersion and forecast uncertainty evidence from a survey data arch model this paper examines empirically the relationship between measures of forecast dispersion and forecast uncertainty from data on inflation expectations from the livingston survey series and the survey research center src survey series because the survey series do not provide probabilistic forecasts of inflation we derive measures of inflation uncertainty by modelling the conditional variance of the inflation forecast errors from the survey series as an autoregressive conditional heteroscedastic arch process the analysis is complicated by the fact that the overlap of forecast horizons for the survey series does not preclude the model s disturbance terms from displaying autocorrelation and also places a restriction on the specification for the arch measures of inflation uncertainty we estimate the model using hansen s 1982 generalized method of moments gmm procedure to account for the presence of serial correlation and conditional heteroscedasticity in the disturbance terms the results generally support the hypothesis that the measures of forecast dispersion across survey respondents are positively and statistically significantly associated with the measures of inflation uncertainty however the appropriateness of using forecast dispersion measures as proxies for inflation uncertainty is sensitive to the choice of the survey series

saving and inflation some international evidence abstract this note contains empirical results for the disequilibrium saving function specification in which uncertainty about relative prices in a cross section sense plays a major role quarterly time series evidence from several oecd countries over the period 1967 ii 1980 iii lies in striking conformity with the view suggested particularly by deaton that there is a positive relationship between unanticipated inflation and the saving ratio

hysteresis and instability in the natural rate of unemployment in this paper it is pointed out that the long run phillips curve genus contains upward and downward sloping species as well as the vertical species two models are used in one the rate of inflation helps determine the natural rate of unemployment as proposed by friedman in the other the process of moving from one inflation rate to another helps shape the natural rate according to the hysteresis effect proposed by phelps in both cases the resulting models are unstable implying that a vertical long run phillips curve will not be regained if disturbed

does devaluation improve the current account this paper incorporates the link between devaluation foreign interest payments and the current acccount into a fairly general macroeconomic model in which exchange rate changes influence aggregate demand through exports imports and expenditures as well as aggregate supply via the cost of imported factors of production on the basis of avaliable statistical estimates of the behavioral and structural parameters of the model an attempt is mafe to assess the empirical importance of this link among others in a group of highly indebted industrial and developing countries by and large the empirical results indicate that high foreign debt and interest payments tend to reduce the short to medium run effect of devaluation on national income expecially in the ldcs but make little difference to its generally positive effect on the current account

policy implications in an adaptive financial economy abstract this paper investigates the policy implications of a discrete time flex price financial economy with micro agents optimizing decisions under uncertainty government policies are most effective with constrained households money demand monetary and government spending policies are more potent in changing real debt than output but vice versa for income tax policy an income tax cut does not necessarily lead to an inflation reduction unlike what the supply siders conceived an inviable crisis can occur when assets returns are correlated this leads to the disruption of the self adjusting mechanism to equilibrium in addition a fisherian like equation is produced showing positive correlation between inflation and nominal interest rates

causality between inflation and real growth abstract the paper investigates inflation growth causality over 1947 2005 with varma ml asymmetric vgarch the results imply that one uncertainty affects positively its level and much less negatively the other level whereas one level influences positively both uncertainties friedman s hypothesis was not strongly rejected

declining us output volatility and its effect on labour flow volatility an mgarch analysis this article analyses flow rates of us workers between employment and unemployment using new quarterly data for the period 1967 to 2002 multivariate garch models are used to investigate links between flow rate volatilities the results suggest that links changed substantially in the mid 1980s coinciding with the documented decline in output volatility these changes in adjustment dynamics are consistent with a move to greater use of hours rather than worker adjustment

does devaluation cause stagflation the traditional view that devaluation tends to increase domestic real income and output has been challenged in recent years on the grounds that trade flows including factor imports are relatively insensitive to exchange rate changes especially in developing countries this paper presents a simple macro economic model in which devaluation influences real income and output both through the cost of imported inputs on the supply side of the economy and through exports imports and expenditures on the demand side statistical estimates of the structural parameters of the model for a group of ten industrial and developing countries are used to show that the demand effects dominate the cost effects in most cases thus supporting the traditional view that devaluation has positive real effects in these countries in the short to medium run est ce que la devaluation engendre la stagflation le point de vue conventionnel veut que la devaluation tende a accroitre le niveau du revenu et de la production domestiques c est un point de vue qui a ete remis en question ces dernieres annees parce que dit on les flux de commerce international y compris les flux d importation de facteurs de production semblent relativement insensibles aux changements dans le taux de change ce memoire developpe un modele macro economique simple dans lequel la devaluation influence le niveau de revenu et de production en termes reels via le co ut des facteurs de production importes du cote de l offre et via les exportations les importations et les niveaux de depenses du c6te de la demande les auteurs utilisent la calibration statistique des parametres structurels du modele pour un groupe de dix pays industrialises et en voie de developpement pour montrer que les effets du cot6 de la demande dominent les effets de cofuts dans la plupart des cas voila qui supporte le point de vue traditionnel qui veut que la devaluation ait un impact positif reel dans les pays devaluateurs a court et a moyen tenne

asymmetry and uncertainty in capital formation an application to oil investment theories of irreversible investment suggest a negative relation between investment and uncertainty and nonlinear adjustment costs open for asymmetries in the adjustment of fixed capital we propose an econometric modelling approach to estimate and test the key predictions of modern investment theory including asymmetric dynamics and various uncertainty indicators our application on a data set from the oil industry offers empirical support for both asymmetric dynamics and uncertainty in oil and gas investment

replication in empirical economics the journal of money credit and banking project this paper examines the role of replication in empirical economic research it presents the findings of a two year study that collected programs and data from authors and attempted to replicate their published results the research provides new and important information about the extent and causes of failures to replicate published results in economics the findings suggest that inadvertent errors in published empirical articles are a commonplace rather than a rare occurence copyright 1986 by american economic association

the international linkage of real interest rates the european us connection abstract in this paper we present evidence on several questions regarding the movement in short term real interest rates in eight countries have ex ante real estates in the united states and europe been high during recent years has there been a link between us real rates and those in other countries can this link be quantified the basic finding in this paper is that real rates have climbed dramatically from the 1970s to the 1980s in both the european countries and the united states there is also strong evidence that there is a positive association between movements in us real rates and those in europe however european real rates typically do not move one for one with us real rates still leaving open the possibility that european monetary policy can influence domestic economic activity

high and variable inflation further evidence on the friedman hypothesis abstract this study employing a garch model finds a positive and significant relationship between the level and variability of inflation this provides evidence in support of friedman s friedman 1977 view that high inflation leads to more variable inflation

the effects of real and nominal uncertainty on inflation and output growth some garch m evidence in this paper we use garch m methods to test four hypotheses about the effects of real and nominal uncertainty on average inflation and output growth in the united states from 1948 to 1996 we find no evidence that higher inflation uncertainty or higher output growth uncertainty raises the average inflation rate we also find no support for the idea that more risky output growth is associated with a higher average real growth rate our key result is that in a variety of models and sample periods inflation uncertainty significantly lowers real output growth copyright 2000 john wiley sons ltd

does inflation uncertainty increase with the level of inflation abstract this paper presents evidence that if agents forecast inflation rationally using an estimate of the reduced form equation which generated the data then the size of their forecast errors is positively correlated with the level of inflation forecast errors are measured first as the residuals from a full sample ols regression and secondly from one period ahead outside sample forecasts using a regression estimated from only data available at the time of the forecast thus agents who form rational expectations about the variance as well as the mean of inflation should form conditional variances dependent on the level of inflation at the date of the forecast

estimates of the variance of u s inflation based upon the arch model it is generally agreed that the unpredictability of future inflation is a major component of the welfare loss associated with inflation perfectly predicted inflation might induce some costs through institutional rigidities governmental interference and transaction costs but in the long run these should be rather minimal as these institutions adopt various forms of indexing when inflation is unpredictable risk averse economic agents will incur a loss even if prices and quantities are perfectly flexible in all markets inflation is a measure of the relative price of goods today and goods tomorrow thus uncertainty in tomorrow s price impairs the efficiency of today s allocation decisions friedman in his nobel lecture 8 argues convincingly that higher variability of inflation would lead to decreased output ceteris paribus he then conjectures that higher rates of inflation are generally associated with higher variability of inflation and presumably greater uncertainty about future rates if this is true then higher rates of inflation would also be associated with low levels of output which implies a positively sloped phillips curve this paper uses a new statistical technique arch to estimate the conditional mean and variance of inflation from u s time series data the main finding is that the variance of inflation in the seventies was only slightly greater than in the sixties

the chandlerian corporation and the theory of innovative enterprise through the synthesis of business history into a coherent and powerful analytical framework alfred chandler made an enduring intellectual contribution to the social sciences this essay outlines the implications of chandler s perspective for the theory of innovative enterprise embeds that theory in the social conditions of innovative enterprise analytical framework demonstrates the illogic of the neoclassical monopoly model and contends that the analysis of the dynamics and performance of industrial capitalism requires a methodology that integrates theory and history

corruption and culture an experimental analysis article i nfo article history why do some people choose corruption over honesty and others not do the social norms and values prevailing in the societies in which they grew up affect their decisions in 2005 we conducted a bribery experiment and found that among undergraduates we could predict who would act corruptly with reference to the level of corruption in their home country among graduate students we could not in 2007 we replicated our result and also found that time spent in the uk was associated with a decline in the propensity to bribe although this does not explain our inability to predict graduate behaviour we conclude that while corruption may in part be a cultural phenomenon individuals should not be prejudged with reference to their country of origin

generalized instrumental variables estimation of autoregressive conditional heteroskedastic models abstract this paper considers an alternative to maximum likelihood ml estimation of the autoregressive conditional heteroskedastic arch model introduced in engle 1982 specifically the analysis demonstrates that hansen s 1982 generalized method of moments gmm procedure can be applied for estimation of arch models as an illustration we compare the results from ml estimation and gmm estimation of engle and kraft s 1983 arch model of u s inflation

on inflation and inflation uncertainty in the g7 countries abstract the relationship between inflation and inflation uncertainty is investigated in the g7 countries from 1948 to 1993 garch models are used to generate a measure of inflation uncertainty and then granger methods are employed to test the causality between average inflation and inflation uncertainty in all g7 countries inflation significantly raises inflation uncertainty as predicted by friedman and ball weaker evidence is found that inflation uncertainty granger causes inflation in three countries us uk and germany increased inflation uncertainty lowers inflation while in two countries japan and france increased inflation uncertainty raises inflation

modelling consumers expenditure the purpose of this paper is to model the dynamics of consumers response to changes in the relevant variables wealth and inflation effects on aggregate consumption expenditure are investigated real capital losses or gains due to inflation are accounted for in providing a more appropriate definition of income in a situation of rising prices empirical results for italy show that once the dynamic structure of the model is carefully specified consumption expenditure can be explained in terms of a limited number of variables income and wealth some evidence is found moreover in favour of redefining income while additional inflation effects appear to be not significant

aggregate uncertainty investment and asymmetric adjustment in the uk manufacturing sector theory suggests that the level of uncertainty facing firms should affect both the rate of adjustment to and the steady state level of investment although there is ambiguity about the sign of the effect a non linear model of investment behaviour incorporating time varying adjustment speeds with threshold effects is estimated for the uk manufacturing sector the most general non linear specification is found to be most congruent with the data uncertainty has a large and significant effect on both levels and rates of adjustment

interest rate effects and intertemporal consumption abstract a small but growing body of literature has examined the intertemporal relationship between consumption saving and the rate of interest unfortunately a survey of the empirical evidence reveals inconsistencies associated with the estimated sign of the interest rate given the current controversy surrounding the effects of the rate of interest on consumption saving the present paper attempts to reconcile as well as to extend out empirical knowledge

inflation and uncertainty tests for temporal ordering for the postwar united states increases in the rate of inflation tend to precede increases in the level of inflation uncertainty the finding suggests that higher inflation uncertainty is part of the welfare cost of inflation possible explanations are 1 a high rate of inflation increases uncertainty about future monetary policy and 2 there is uncertainty about the persistence of inflation copyright 1995 by ohio state university press

savings in new zealand during inflationary times measurement determinants and implications real rates of return predominantly as a result of in model of saving behavior is constructed to test the role creased price inflation and slow rates of economic growth for instance deane 1980 stated that inflation taxation and interest rate variables play in determining saving the estimation results are then the behaviour ofsaven in times of inflation is still one of the unsolved used to identify the implications for future economic mysteries of economics to the surprise of economists in the early growth in new zealand in terms of saving assuming 1970s when inflation was accelerating sharply in most western nations consumers saved a higher than expected percentage of the stressed in the literature their income p 377 that of releasing factors for capital formation