dynamic scoring alternative financing schemes abstract neoclassical growth models predict that reductions in capital or labor income tax rates are expansionary when lump sum transfers are used to balance the government budget this paper explores the consequences of bond financed tax reductions that bring forth a range of possible offsetting policies including future government consumption capital tax rates or labor tax rates through the resulting intertemporal distortions current tax cuts can be expansionary or contractionary the paper also finds that more aggressive responses of offsetting policies to debt engender less debt accumulation and less costly tax cuts

how do fiscal and technology shocks affect real exchange rates new evidence for the united states abstract using vector autoregressions on u s time series relative to an aggregate of industrialized countries this paper provides new evidence on the dynamic effects of government spending and technology shocks on the real exchange rate and the terms of trade to achieve identification we derive robust restrictions on the sign of several impulse responses from a two country general equilibrium model we find that both the real exchange rate and the terms of trade whose responses are left unrestricted depreciate in response to expansionary government spending shocks and appreciate in response to positive technology shocks

uncertainty risk and the financial crisis of 2008 the distinction between uncertainty and risk originally drawn by frank knight and john maynard keynes in the 1920s remains fundamentally important today in the presence of uncertainty market actors and economic policy makers substitute other methods of decision making for rational calculation specifically actors decisions are rooted in social conventions drawing from innovations in financial markets and deliberations among top american monetary authorities in the years before the 2008 crisis we show how economic actors and policy makers live in worlds of risk and uncertainty in that world social conventions deserve much greater attention than conventional ipe analyses accords them such conventions must be part of our toolkit as we seek to understand the preferences and strategies of economic and political actors

policy uncertainty and household savings using german microdata and a quasi natural experiment we provide evidence on how households respond to an increase in uncertainty we find that household saving increases significantly following the increase in political uncertainty observed in the run up to the 1998 german general election we also find evidence of a labor supply response by workers who can use the margin offered by part time employment our results are suggestive of the economic effects of wars of attrition when political disagreement leads to delays in adopting a reform or the possibility that earlier reforms may be revoked the increased uncertainty could slow the economy

are contributions to public pension programmes a tax on employment many studies describe the potentially adverse impact on employment of the payroll costs of financing public pension programmes conventionally empirical studies treat contributions to public pension programmes as a pure tax in for example calculations of the tax wedge by oecd but this approach ignores any future rights to benefits that are perceived by contributors in fact public pension programmes contain both an actuarial and a redistributive component the former closer to saving the latter a tax the paper constructs indicators of the tax component of pension programmes both between and within generations across a range of oecd countries and time periods it uses these measures in a cross country panel analysis of the determinants of age and gender specific economic activity rates the results reveal robust evidence that when public pension programme contributions are broken down into a tax component and a savings component the tax component of the payroll contribution reduces economic activity rates among women while a higher retirement saving component has the opposite effect there is little evidence that average tax rates however constructed have any adverse impact on the economic activity rates of men richard disney

uncovering financial market expectations of inflation this paper seeks to uncover market expectations of inflation from the joint dynamics of nominal interest rates and observed inflation i postulate 1 the existence of a stable vector autoregression in unobserved variables and 2 efficient financial markets the estimation procedure requires no further structural assumptions the econometrician need not observe all the information used by agents in forming forecasts or all the variables that influence real interest rates i find no empirical evidence that economic recessions are correlated with inflation forecast errors however postwar recessions are associated with ex ante real interest rates that are twice the postwar average

pre announcement and timing the effects of a government expenditure shock abstract an econometric strategy to identify a pre announced fiscal policy shock is proposed i show that the reduced form innovations can be recovered by estimating a vector moving average model using the kalman filter the structural effects are identified exploiting the shock s pre announced nature which leads to potentially different signs of the responses of some endogenous variables during the announcement and after the realization of the shock i illustrate my strategy by identifying a pre announced shock to government consumption expenditures i find that the response of private consumption is significantly negative on impact rises and becomes significantly positive two quarters after the realization of the policy shock

social security and retirement decision a positive and normative approach social insurance for the elderly is judged responsible for the widely observed trend towards early retirement in a world of laissez faire or in a first best setting there would be no such trend however when first best instruments are not available because health and productivity are not observable the optimal social insurance policy may imply a distortion on the retirement decision the main point we make is that while there is no doubt that retirement systems induce an excessive bias towards early in many countries a complete elimination of this bias i e a switch to an actuarially fair system is not the right answer this is so and for two reasons first some distortions are secondbest optimal this is the normative argument second and on the positive side the elimination of the bias might be problematic from a political perspective depending on the political process it may either not be feasible or alternatively it may tend to undermine the political support for the pension system itself

emu and labour market reform needs incentives and realisations despite improving labour market conditions in recent years a number of emu countries still suffer from high and persistent unemployment it could therefore be expected that labour market reform would be given a prominent position on the political agenda the new constraints associated with the common monetary policy only increase the pressure for reform relying on the introduction of the single currency as a trigger for labour market reform may be a risky strategy emu generates a complex set of re optimising strategies of the players on the labour market which makes it difficult to get a clear idea what impact it will have on labour market reform evaluation of recent reform measures does not make one confident either the empirical analysis confirms to some extent the idea that countries with higher unemployment rates have carried out more labour market reform this finding holds however only for countries that do not belong to emu emu countries have on average carried out no more reform than countries outside emu and any link between the initial unemployment level and the labour market reform indicators seems to lack it may become apparent that more reform is needed once the macroeconomic environment becomes more unfavourable

learning from prices public communication and welfare we study the effect of releasing public information about productivity or monetary shocks using a micro founded macroeconomic model in which agents learn from the distribution of nominal prices while a public release has the direct beneficial effect of providing new information it also has the indirect adverse effect of reducing the informational efficiency of the price system we show that the negative indirect effect can dominate thus the public information release may increase uncertainty about the monetary shock and reduce welfare we find that the optimal communication policy is always to release either all or none of the information

would you like to shrink the welfare state a survey of european citizens welfare state reform a survey of what europeans want the fundamental problems facing european welfare states high unemployment and unsustainable public pensions plans in particular have been in the political debate for years so why have we seen so little reform to find out we surveyed the opinions of citizens in france germany italy and spain on their welfare states and on various reform options this is what we found first most workers underestimate the costs of public pensions though they are aware of their unsustainability second the status quo is a majoritarian outcome a majority of citizens opposes cuts to social security and welfare spending but also opposes further increases since population ageing without reform implies an automatic expansion our results suggest that most citizens would favour reforms that stabilize but do not shrink the current welfare states third many would welcome changes in the allocation of benefits a large number of workers in italy and germany would be willing to opt out of public pensions and replace them with private pensions though the details of how this scheme is formulated matter for its popularity and many italians and spaniards would welcome an extension of the coverage of unemployment insurance fourth conflicts over the welfare state are mainly shaped by the economic situation of the respondent while political ideology plays a limited role disagreements are found along three dimensions young versus old rich versus poor and outsider versus insider in terms of labour market status from a practical point of view this suggests that there is scope to bundle reforms strategically in order to build a large and mixed coalition of supporters tito boeri axel borsch supan and guido tabellini

output effects of government purchases the theoretical analysis focuses on the distinction between temporary and permanent movements in government purchases under plausible conditions the temporary case involves an output response that is positive less than one to one with the change in government purchases and larger than that generated by an equal sized but permanent shift in purchase the equilibrium real rate of return rise in the temporary case but changes little in the permanent one defense purchases are divided empirically into permanent and temporary components by considering the role of temporary wars no temporary shifts in nondefense purchases were isolated empirical results verify an expansionary output effect for temporary purchases that exceeds that of permanent purchases the results for some other expectational hypotheses are found to be generally supportive of the theory

measuring the impact of fiscal policy in the face of anticipation a structural var approach empirical estimates of the impact of government spending shocks disagree on central issues such as the size of output multipliers and the responses of consumption and the real wage one explanation for the disagreement is that fiscal shocks are often anticipated due to misspecification of the information set anticipation effects may invalidate svar estimates of impulse responses we use economic theory to derive a fiscal svar estimator that is applicable when fiscal shocks are anticipated we study its properties and apply it to us data we fail to find evidence that anticipation effects overturn the existing findings from the fiscal svar literature despite years of intensive research the empirical literature on fiscal policy has yet to reach consensus on the macroeconomic impact of fiscal policy shocks disagreements concern central issues such as the size of output multipliers and the impact of government spending shocks on consumption and the real wage clearly such level of disagreement constrains our ability to give simple guidelines for the operation of one of the most important stabilisation policies a key empirical obstacle is the measurement of innovations to fiscal policy one strand of the literature employs structural vector autoregressive svar methods and achieves identification based on the presence of decision lags or sign restrictions

the dynamic effects of aggregate demand and supply disturbances we interpret fluctuations in gnp and unemployment as due to two types of disturbances disturbances that have a permanent effect on output and disturbances that do not we interpret the first as supply disturbances the second as demand disturbances demand disturbances have a hump shaped mirror image effect on output and unemployment the effect of supply disturbances on output increases steadily over time peaking after two years and reaching a plateau after five years

forward guidance communication commitment or both abstract forward guidance has been suggested as a form of commitment odyssean by the policymaker or as a way of conveying information delphic i analyze the interaction between households and the central bank as a game in which the central bank sends messages without private information the set of equilibrium payoffs is independent of any announcements pure odyssean forward guidance is redundant with private information communication can have social value forward guidance is well suited to leverage preexisting credibility to communicate a central bank s private information about its own preferences or beliefs

managerial incentive problems a dynamic perspective the paper studies how a person s concern for a future career may influence his or her incentives to put in effort or make decisions on the job in the model the person s productive abilities are revealed over time through observations of performance there are no explicit output contingent contracts but since the wage in each period is based on expected output and expected output depends on assessed ability an implicit contract links today s performance to future wages an incentive problem arises from the person s ability and desire to influence the learning process and therefore the wage process by taking unobserved actions that affect today s performance the fundamental incongruity in preferences is between the individual s concern for human capital returns and the firm s concern for financial returns the two need be only weakly related it is shown that career motives can be beneficial as well as detrimental depending on how well the two kinds of capital returns are aligned it is well understood by now that informational externalities may place special demands on the organization of economic exchange simple price mediated markets will frequently fail in the presence of asymmetric information in that case more elaborate contractual arrangements have to be used as substitutes for the price system lately considerable effort has been devoted to the analysis of contracting under incomplete information with the objective to understand the range of economic institutions that emerge in response to the failure of the price system the analysis of moral hazard has played a prominent role in this development moral hazard problems arise when for some reason or another transacting parties cannot contract contingent on the delivery of the good for instance in buying labour services it may be that the amount of labour supplied is not directly observable precluding a simple exchange of wage for labour as a partial remedy to this problem an imperfect mutually observed signal about the supply of labour can be used as a proxy in the contract frequently output is taken as such a proxy the drawback is that output is often influenced by other factors than labour input which induce undesirable risk into the contract one is therefore faced with a tradeoff between allocating risk associated with incomplete observability and providing incentives for a proper supply of labour gaining insight into this tradeoff is important not only for understanding contracting in the small e g managerial incentive schemes but also because it is closely related to the fundamental tension between equity and efficiency in the society as a whole while our understanding of moral hazard has advanced a lot in past years it is clear that much work remains an important question that has received little attention until

persuasion by cheap talk we consider the credibility persuasiveness and informativ eness of multidimensional cheap talk by an expert to a decision maker we find that an expert with state independent preferences can always make credible comparative statements that trade off the expert s incentive to exaggerate on each dimension such communication benefits the expert cheap talk is persuasive if her preferences are quasiconvex communication benefits a decision maker by allowing for a more informed decision but strategic interactions between multiple decision makers can reverse this gain we apply these results to topics including product recommendations voting auction disclosure and advertising jel d44 d72 d82 d83 m37

the public as thermostat dynamics of preferences for spending theory democratic accountability requires that the public be reasonably well informed about what policymakers actually do such a public would adjust its preferences for more or less policy in response to policy outputs themselves in effect the public would behave like a thermostat when the actual policy temperature differs from the preferred policy temperature the public would send a signal to adjust policy accordingly and once sufficiently adjusted the signal would stop hypotheses in domains where policy is clearly defined and salient to the public changes in the public s preferences for more policy activity are negatively related to changes in policy methods a thermostatic model of american public preferences for spending on defense and a set of five social programs is developed and then tested using time series regression analysis results changes in public preferences for more spending reflect changes in both the preferred levels of spending and spending decisions themselves most importantly changes in preferences are negatively related to spending decisions whereby the public adjusts its preferences for more spending downward upward when appropriations increase decrease thus consistent with the eastonian model policy outputs do feed back on public inputs at least in the defense spending domain and across a set of social spending domains

on the sources of business cycles in the g 7 abstract this paper examines sources of cyclical movements in output inflation and the term structure of interest rates in the g 7 it employs a novel identification approach which uses the sign of the theoretical cross correlation function in response to shocks to catalog orthogonal disturbances we find that demand shocks are the dominant source of output and inflation fluctuations in several of the g 7 countries the proportion of term structure variability explained by different structural sources does not depend on the horizon apart from the us and canada structural shocks are nearly uncorrelated across countries

a little fairness may induce a lot of redistribution in democracy we use a model of self centered inequality aversion suggested by fehr and schmidt 1999 to study voting on redistribution we theoretically identify two classes of conditions when an empirically plausible amount of fairness preferences induces redistribution through referenda we test the predictions of the adapted inequality aversion model in a simple redistribution experiment and flnd that it predicts voting outcomes far better than the standard model of voting assuming rationality and strict self interest

monetary fiscal policy interactions and fiscal stimulus abstract increases in government spending trigger substitution effects both inter and intra temporal and a wealth effect the ultimate impacts on the economy hinge on current and expected monetary and fiscal policy behavior studies that impose active monetary policy and passive fiscal policy typically find that government consumption crowds out private consumption higher future taxes create a strong negative wealth effect while the active monetary response increases the real interest rate this paper estimates markov switching policy rules for the united states and finds that monetary and fiscal policies fluctuate between active and passive behavior when the estimated joint policy process is imposed on a conventional new keynesian model government spending generates positive consumption multipliers in some policy regimes and in simulated data in which all policy regimes are realized the paper reports the model s predictions of the macroeconomic impacts of the american recovery and reinvestment act s implied path for government spending under alternative monetary fiscal policy combinations

the general equilibrium effects of fiscal policy estimates for the euro area abstract this paper describes a dynamic stochastic general equilibrium model featuring a fraction of non ricardian agents in order to estimate the effects of fiscal policy in the euro area the model takes into account distortionary taxation on labor and capital income and on consumption while expenditures are broken down into purchases of goods and services compensation of public employees and transfers to households a newly computed quarterly data set of fiscal variables is used our results point to the prevalence of mild keynesian effects of public expenditures in particular although innovations in fiscal policy variables tend to be rather persistent government purchases of goods and services and compensations for public employees have small and short lived expansionary effects on private consumption while innovations in transfers to households show a slightly more sizeable and lasting effect the effects are more significant on the revenue side decreases in labor income and consumption tax rates have sizeable effects on consumption and output while a reduction in capital income tax favors investment and output in the medium run finally our estimates suggest that fiscal policy variables contribute little to the cyclical variability of the main macro variables

using stock returns to identify government spending shocks this article explores a new approach to identifying government spending shocks which avoids many of the shortcomings of existing approaches the new approach is to identify government spending shocks with statistical innovations to the accumulated excess returns of large us military contractors this strategy is used to estimate the dynamic responses of output hours consumption and real wages to a government spending shock we find that positive government spending shocks are associated with increases in output hours and consumption real wages initially decline after a government spending shock and then rise after a year we estimate the government spending multiplier associated with increases in military spending to be about 1 5 over a horizon of 5 years

quantifying tax effects under policy foresight abstract studies of tax effects make the conventional information assumption that changes in period t taxes become known at t legislative lags however imply that news arrives before tax changes take place under policy foreknowledge the conventional information structure is therefore misspecified simulations of a standard neoclassical growth model suggest that foresight of only one quarter can distort substantially the estimates of tax effects obtained under the no foresight assumption also it is crucial to model capital and labor taxes separately anticipated changes in these two tax policies have opposite effects on consumption investment labor and output before policy realization

dangerous flexibility retirement reforms reconsidered flexible retirement is supposed to increase labor supply of older workers without touching the third rail of pension politics the highly unpopular increase of the retirement age while this may have intuitive appeal this paper shows that it might be wishful thinking economic theory tells us that flexible retirement policies can have a zero or positive effect on labor force participation while the effect on hours worked can be positive or negative depending on the distribution of leisure preferences thus the overall effect is ex ante unclear empirical results from nine oecd countries show that the effect on labor force participation is ex post small and positive while the effect on hours worked is negative overall there is no evidence of the desired positive effect on total labor supply rather we see evidence of a dangerous decline in total labor supply we conclude that the flexibility reforms enacted so far have failed to increase old age labor supply and delineate several alternative options to achieve this aim

federal reserve information and the behavior of interest rates this paper tests for the existence of asymmetric information between the federal reserve and the public by examining federal reserve and commercial inflation forecasts it demonstrates that the federal reserve has considerable information about inflation beyond what is known to commercial forecasters it also shows that monetary policy actions provide signals of the federal reserve s information and that commercial forecasters modify their forecasts in response to those signals these findings may explain why long term interest rates typically rise in response to shifts to tighter monetary policy jel e52 e43 d82 asymmetric information between the federal reserve and the public is a phenomenon that is often posited but rarely tested numerous models of central bank behavior for example show that the existence of asymmetric information has important implications for the effectiveness of policy and the consequences of dynamic inconsistency yet there

competence implies credibility the credibility of monetary policy under discretion has been traditionally linked to the central bank s conservatism we show that another trait of the central bank cb her competence at doing her job or reputation thereof can be just as important to make her policy credible and transparent we analyze a static barro and gordon 1983 s game where the effects of monetary policy depend on an unknown state of the economy the cb forms her own private and imprecise view of this state that she may announce to p in a cheap talk game to explain and motivate her policy intentions the precision of the noise in the cb s view measures her competence the more accurate her assessment the clearer an idea she has about what to do the fineness of the equilibrium message space measures monetary policy s transparency in any equilibrium of the cheap talk game the cb credibly announces one of finite inflation targets that differ by at least a multiple of the inflation bias competence ratio if this ratio is too large the cb can credibly communicate only the direction of monetary policy as the cb s competence rises and this ratio falls p knows that the cb puts increasing weight on pursuing her objective targets relative to surprising expectations to stimulate output therefore the equilibrium message space becomes finer a more competent cb is also less likely to erroneously observe extreme realizations of the shocks so she is more able tofine tune expectations at times of business as usual

grey power and the economy aging and inflation across advanced economies what explains the cross national variation in inflation rates across countries in contrast to most literature which emphasizes the role of ideas and institutions this article focuses on electoral politics and argues that aging leads to lower inflation rates countries with a larger share of elderly exhibit lower inflation because older people are both more inflation averse and politically powerful forcing parties seeking their votes to pursue lower inflation logistic regression analysis of survey data confirms that older people are more inflation averse and more likely to punish incumbents at the ballot box for inflation panel data regression analysis shows that social democratic parties have more economically orthodox manifestos in european countries with more elderly people and that the share of elderly is negatively correlated with inflation in both a sample of 21 advanced economies and a larger sample of 175 countries aging therefore pushes governments to pursue lower inflation

government spending interest rates prices and budget deficits in the united kingdom 1701 1918 abstract the british data from the early 1700s through wwi provide an unmatched opportunity for studying temporary changes in government purchases temporary increases which appeared mainly as wartime spending raised long term interest rates but significantly increased the growth rates of money and prices only during suspensions of the gold standard 1797 1821 and 1914 1918 temporary changes in military spending accounted for the bulk of budget deficits over the sample of more than 200 years i found only two major non war deficits one associated with compensation payments to slaveowners in 1835 1936 and the other with a dispute over the income tax in 1909 1910 interest rates did not react much to these exogenous deficits

always the third rail pension income and policy preferences in european democracies social transfer programs are thought to generate beneficiary groups who will act politically to defend their programs from retrenchment but little empirical research has been conducted to either verify or disconfirm the micro foundations of this hypothesis which lies at the heart of the new social risks thesis as well as many economic analyses of welfare state politics this article tests empirically whether benefiting from public pensions leads individuals to greater support of the pension system status quo net of other factors it uses cross data set imputation to combine cross nationally comparable individual level data on income from public pensions with political attitudes toward proposed pension reforms the hypothesis that public pension systems create policy feedbacks of self interested beneficiaries supporting further pension spending is not supported in any of 11 european countries in either 1992 or 2001

public attitudes toward government spending this study examines the nature sources and consequences of citizens attitudes toward government spending data from the 1984 cps national election study are used to perform a scaling analysis of mass spending preferences across a set of 10 public policies the empirical results indicate that there is a coherent structure underlying citizens attitudes toward social welfare spending in contrast spending preferences for nonwelfare programs are separate and largely unrelated concerns i argue that this distinction is essential for understanding public opinion on government spending and further analyses incorporating the difference between welfare and nonwelfare spending preferences provide important theoretically relevant insights about the relationship between citizens in the mass public and stimuli in the political world

explaining social policy preferences evidence from the great recession to what extent do personal circumstances as compared to ideological dispositions drive voters preferences on welfare policy addressing this question is difficult because a person s ideological position can be an outcome of material interest rather than an independent source of preferences the article deals with this empirical challenge using an original panel study carried out over four years tracking the labor market experiences and the political attitudes of a national sample of americans before and after the eruption of the financial crisis the analysis shows that the personal experience of economic hardship particularly the loss of a job had a major effect on increasing support for welfare spending this effect was appreciably larger among republicans than among democrats a result that was not simply due to a ceiling effect however the large attitudinal shift was short lived dissipating as individuals employment situations improved the results indicate that the personal experience of an economic shock has a sizable yet overall transient effect on voters social policy preferences

cheap talk and the fed a theory of imprecise policy announcments this paper examines the problem faced by the federal reserve in announcing its private information about its future policies because it would like to manipulate expectations and pursue a time inconsistent policy the fed cannot reveal its policy objectives precisely and credibly it can however communicate some information about its goals through the cheap talk mechanism of vincent crawford and joel sobel making announcements that are imprecise and only giving ranges within which these goals may lie copyright 1989 by american economic association

central bank credibility why do we care how do we build it central bank credibility plays a pivotal role in much of the modern literature on monetary policy yet it is difficult to measure or even assess objectively a survey of central bankers was conducted to determine their attitudes on two important issues why credibility matters and how credibility can be built the central bankers answers are compared with the responses of nber affiliated macro and monetary economists the two groups agree much more than they disagree they are particularly united in their evaluations of ways to make a central bank credible assigning high ratings to the central bank s track record and low ratings to theoretical ideas like precommitment and incentive compatible contracts this abstract was borrowed from another version of this item

preferences in context micro preferences macro contexts and the demand for social policy political economists have increasingly looked to understand social welfare policy as a product of individual level demand for social spending this work hypothesizes that individuals with riskier j

what are the effects of fiscal policy shocks we propose and apply a new approach for analyzing the effects of fiscal policy using vector autoregressions specifically we use sign restrictions to identify a government revenue shock as well as a government spending shock while controlling for a generic business cycle shock and a monetary policy shock we explicitly allow for the possibility of announcement effects i e that a current fiscal policy shock changes fiscal policy variables in the future but not at present we construct the impulse responses to three linear combinations of these fiscal shocks corresponding to the three scenarios of deficit spending deficit financed tax cuts and a balanced budget spending expansion we apply the method to us quarterly data from 1955 to 2000 we find that deficit financed tax cuts work best among these three scenarios to improve gdp with a maximal present value multiplier of five dollars of total additional gdp per each dollar of the total cut in government revenue 5 years after the shock copyright 2009 john wiley sons ltd

why do firms offer employment protection this paper derives optimal employment contracts when workers are risk averse and there are employment and unemployment risks without income insurance consumption rises during employment and falls during unemployment optimal employment contracts offer severance compensation and sometimes give notice before dismissal severance compensation smooths consumption during employment and dismissal delays insure partially against the unemployment risk because of moral hazard during the delay consumption falls to give incentives to the worker to search for another job no dismissal delays are optimal if exogenous unemployment compensation is sufficiently generous

what drives public acceptance of reforms longitudinal evidence from a dutch pension reform governments often find it hard to pursue economic reforms even if they eventually will benefit a majority of voters the literature remains inconclusive about the reasons for this some scholars on the one hand stress the role of distributional conflicts between different classes for instance dividing the young and the old in the case of pay as you go pensions others have highlighted that resistance to reform is rather broad based owing to the public s poor understanding of the need for reform this paper attempts to disentangle the drivers of public acceptance of reform by means of a case study the 2012 increase of the dutch statutory retirement age from 65 to 67 we exploit a unique longitudinal dataset on the attitudes of dutch households respecting pension reform in the 2003 2013 period our findings offer various new insights first we find that education occupational status and psychological traits were the most systematic drivers of reform preferences while age had a limited impact second and significantly we find that the year fixed effects were the main drivers of respondents acceptance of reform we interpret the pattern of the year coefficients as evidence of a collective learning process whereby households gradually updated their expectations and reform preferences in light of new information

technology shocks and robust sign restrictions in a euro area svar we use a model based identification strategy to estimate the impact of technology shocks on hours worked and employment in the euro area the sign restrictions applied in the vector autoregression var analysis are consistent with a large class of dynamic stochastic general equilibrium dsge models and are robust to parameter uncertainty the results are in line with the conventional real business cycle rbc interpretation that hours worked rise as a result of a positive technology shock by comparing the sign restrictions method to the long run restriction approach of gali quaterly journal of economics 1992 709 38 we show that the results do not depend on the stochastic specification of the hours worked series or the data sample but only on the identification scheme

voters commitment problem and reforms in welfare programs when will a vote seeking government pursue unpopular welfare reforms that are likely to cost it votes using a game theoretical model we show that a government enacts reforms that are unpopular with the median voter during bad economic times but not during good ones the key reason is that voters cannot commit to re elect a government that does not reform during bad times this voters commitment problem stems from economic voting i e voters tendency to punish the government for a poorly performing economy the voter commitment problem provides an explanation for the empirical puzzle that governments sometimes enact reforms that voters oppose

fiscal policy in general equilibrium this paper studies four classic fiscal policy experiments within a quantitatively restricted neoclassical model the authors main findings are as follows 1 permanent changes in government purchases can lead to short run and long run output multipliers that exceed one 2 permanent changes in government purchases induce larger effects than temporary changes 3 the financing decision is quantitatively more important than the resource cost of changes in government purchases and 4 public investment has dramatic effects on private output and investment these findings stem from important dynamic interactions of capital and labor absent in earlier equilibrium analyses of fiscal policy copyright 1993 by american economic association

identifying vars based on high frequency futures data abstract using the prices of federal funds futures contracts we measure the impact of the surprise component of federal reserve policy decisions on the expected future trajectory of interest rates we show how this information can be used to identify the effects of a monetary policy shock in a standard var this alternative approach to identification is quite different and we argue more plausible than the conventional identifying restrictions we find that a usual recursive identification of the model is rejected as is any identification that insists on a monetary policy shock having an exactly zero effect on prices contemporaneously we nevertheless agree with the conclusion of much of the var literature that only a small fraction of the variance of output can be attributed to monetary policy shocks

the role of freedom growth and religion in the taste for revolution a fundamental question about the determinants of civil conflict is the relative importance of political freedoms versus economic development this paper takes a new approach to provide an answer by using micro data based on surveys of revolutionary tastes of 130 000 people living in 61 nations between 1981 and 1997 controlling for personal characteristics country and year fixed effects more freedom and economic growth both reduce revolutionary support losing one level of freedom equivalent to a shift from the us to turkey increases support for revolt by 4 percentage points to reduce support by the same amount requires adding 14 percentage points onto the gdp growth rate being muslim in a free country has no effect on the probability of supporting revolt compared to a non religious person however being muslim in a country that is not free increases it by 13 percentage points being christian in a free country decreases the chance of supporting revolt by 4 percentage points compared to a non religious person and in a not free country by 1 percentage point

a leaky bucket in the real world estimating inequality aversion using survey data existing evidence of inequality aversion relies on data from class room experiments where subjects face hypothetical questions this paper estimates the magnitude of inequality aversion using representative survey data with questions related to the real economy situations the respondents face the results reveal that inequality aversion can be measured in a meaningful way using survey data but the magnitudes of the estimates depend dramatically on how inequality aversion is measured no matter how measured the revealed inequality aversion predicts opinions on a wide range of questions related to the welfare state such as the level of taxation tax progressivity and the structure of unemployment benefits

fiscal shocks and their consequences this paper investigates the response of hours worked and real wages to fiscal policy shocks in the post world war ii us we identify these shocks with exogenous changes in military purchases and argue that they lead to a persistent increase in government purchases and tax rates on capital and labor income and a persistent rise in aggregate hours worked as well as declines in real wages the shocks are also associated with short lived rises in aggregate investment and small movements in private consumption we describe and implement a methodology for assessing whether standard neoclassical models can account for the consequences of a fiscal policy shock simple versions of the neoclassical model can account for the qualitative effects of a fiscal shock once we allow for habit formation and investment adjustment costs the model can also account reasonably well for the quantitative effects of a fiscal shock

what is wrong with taylor rules using judgment in monetary policy through targeting rules it is argued that inflation targeting is best understood as a commitment to a targeting rule rather than an instrument rule e ither ageneral targeting rule explicit objectives for monetary policy or a specific targeting rule a criterion for the forecasts of the target variables to be fulfilled essentially the equality of the marginal rates of transformation and substitution between the target variables targeting rules allow the use of judgment and extramodel information are more robust and easier to verify than optimal instrument rules and they can nevertheless bring the economy close to the socially optimal equilibrium

retirement expectations pension reforms and their impact on private wealth accumulation abstract we estimate the effect of pension reforms on households expectations of retirement outcomes and private wealth accumulation decisions exploiting a decade of intense italian pension reforms as a source of exogenous variation in expected pension wealth the survey of household income and wealth a large random sample of the italian population elicits expectations of the age at which workers expect to retire and of the ratio of pension benefits to pre retirement income between 1989 and 2002 we find that workers have revised expectations in the direction suggested by the reform and that there is substantial offset between private wealth and perceived pension wealth particularly by workers that are better informed about their pension wealth

are government employees more likely to vote an analysis of turnout in the 1996 u s national election in this paper we develop and test a model of voter turnoutthat permits us to differentiate turnout rates for governmentemployees and other citizens controlling for the effects of awide range of other variables relating to turnout using 1996anes data we find that there is a significant difference inturnout rates for bureaucrats and nonbureaucrats both insimple bivariate analyses and in a full multivariate model the magnitude and significance of the coefficient forgovernment employment even in the face of controls suggeststhere is something about government employment per sethat has an effect on turnout

estimating fiscal multipliers news from a non linear world we estimate non linear vars to assess to what extent fiscal spending multipliers are countercyclical in the us we deal with the issue of non fundamentalness due to fiscal foresight by appealing to sums of revisions of expectations of fiscal expenditures this measure of anticipated fiscal shocks is shown to carry valuable information about future dynamics of public spending results based on generalised impulse responses suggest that fiscal spending multipliers in recessions are greater than one but not statistically larger than those in expansions however non linearities arise when focusing on extreme events that is deep recessions versus strong expansionary periods

ambiguity and underwriter decision processes this paper provides empirical evidence that risk and ambiguity affect underwriters decisions on pricing insurance a field study of primary insurance underwriters in a random sample of commercial property and casualty insurance companies reveals that premiums are significantly higher for risks when there is either ambiguity regarding the probability of a particular event occurring and or uncertainty about the magnitude of the resulting loss the paper suggests economic and organizational rationales for this behaviour and offers several explanations as to why insurers in a competitive market can charge higher prices for ambiguous risks which promise to yield excess profits in the long run

news shocks or parametric indeterminacy an observational equivalence result in linear rational expectations models abstract this paper studies identification in linear rational expectations models with news shocks we show that news driven models and indeterminate equilibrium economies with i i d fundamentals are observationally equivalent this finding calls for carefully designing empirical investigations of news shocks in estimated dsge models

the signaling effect of raising inflation abstract this paper argues that central bankers should temporarily raise inflation when anticipating liquidity traps to ensure the credibility of otherwise time inconsistent forward guidance policies as stable inflation in normal times either stems from central bankers desire to maintain credibility or from aversion to inflation the private sector is unable to infer the central banker s willingness to follow through on promises from observing stable inflation jeopardizing the efficiency of forward guidance policy we show that this signaling motive can justify temporary deviations of inflation from target well above 2 but also that the low inflation volatility during the great moderation was insufficient to ensure fully efficient forward guidance when needed

using privileged information to manipulate markets insiders gurus and credibility access to private information is shown to generate both the incentives and the ability to manipulate asset markets through strategically distorted announcements the fact that privileged information is noisy interferes with the public s attempts to learn whether such announcements are honest it allows opportunistic individuals to manipulate prices repeatedly without ever being fully found out this leads us to extend sobel s 1985 model of strategic communication to the case of noisy private signals our results show that when truthfulness is not easily verifiable restrictions on trading by insiders may be needed to preserve the integrity of information embodied in prices

the effects of recent spanish pension reforms on sustainability and pension adequacy the spanish pension system has been recently reformed as a response to the demographic challenge and with the objective of ensuring the sustainability of the pension system in the long term the ov

trust coordination and the industrial organization of political activism we study political activism by several interest groups with private signals when their ideological distance to the policymaker is small a low trust regime prevails agents frequently lobby even when it is unwarranted taking advantage of the cone rmation provided by others activism conversely the policymaker responds only to generalized pressure when ideological distance is large a high trust regime prevails lobbying behavior is disciplined by the potential contradiction from abstainers and the policymaker s response threshold is correspondingly lower within some intermediate range both equilibria coexist we then study the optimal organization of ine uence activities contrasting welfare levels when interest groups act independently and when they coordinate jel d72 d78 d82