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Showing papers by "National Bureau of Economic Research published in 1978"


Journal ArticleDOI
TL;DR: In this article, the authors investigated the methodological problems associated with the use of housing market data to measure the willingness to pay for clean air, using a hedonic housing price model and data for the Boston metropolitan area.

1,700 citations


Posted Content
TL;DR: In this paper, a crucial cause of the failure of share prices to rise during a decade of substantial inflation was discussed, and it was shown that the share value per dollar of pretax earnings actually fell from 10.82 in 1967 to 6.65 in 1976.
Abstract: This paper discusses a crucial cause of the failure of share prices to rise during a decade of substantial inflation. Indeed, the share value per dollar of pretax earnings actually fell from 10.82 in 1967 to 6.65 in 1976. The analysis here indicates that this inverse relation between higher inflation and lower share prices during the past decade was not due to chance or to other unrelated economic events. On the contrary, an important adverse effect of increased inflation on share prices results from basic features of the current U.S. tax laws, particularly historic cost depreciation and the taxation of nominal capital gains.

365 citations


Posted Content
TL;DR: In this article, a multi-equation multivariate analysis of differences in the supply of surgeons and the demand for operations across geographical areas of the United States in 1963 and 1970 is presented.
Abstract: This paper presents a multi-equation multivariate analysis of differences in the supply of surgeons and the demand for operations across geographical areas of the United States in 1963 and 1970. The results provide considerable support for the hypothesis that surgeons shift the demand for operations. Other things equal, a 10 percent increase in the surgeon/population ratio results in about a 3 percent increase in per capita utilization. Moreover, differences in supply seem to have a perverse effect on fees, raising them when the surgeon/population ratio increases. Surgeon supply is in part determined by factors unrelated to demand, especially by the attractiveness of the area as a place to live.

318 citations


ReportDOI
TL;DR: In this paper, some puzzling features of the most conspicuous form of wage bargaining, that done formally by employers and labor unions, deserve further theoretical attention: 1) Collective bargaining agreements are rarely contingent on outside events even though the parties have very imperfect knowledge of prospective economic conditions during the period of the contract.
Abstract: Much recent thought has been devoted to the macroeconomic importance of the existence of wage contracts. Still, some puzzling features of the most conspicuous form of wage bargaining, that done formally by employers and labor unions, deserve further theoretical attention. Among these important features are: 1. Collective bargaining agreements are rarely contingent on outside events even though the parties have very imperfect knowledge of prospective economic conditions during the period of the contract. The only important exception is the indexing of wages to the cost of living. 2. Employers are permitted wide discretion in determining the level of employment when demand shifts unexpectedly. As employment varies, total compensation varies according to a formula established in the agreement. 3. Agreements are not permanent but are renegotiated on a regular cycle. 4. In the process of renegotiation, the current state of demand has little impact on the new wage schedule. On the other hand, current wages in other industries have an important influence. This feature especially has been denied or ignored by economic theorists even though it is a prominent part of the thinking of labor economists on wage determination.

200 citations


ReportDOI
TL;DR: This article showed that labor turnover is a significant factor in understanding wage growth since it affects both wage growth across jobs and wage growth within the job and showed that young men who quit experience significant wage gains compared to stayers and compared to their own wage growth prior to the job change.
Abstract: This paper demonstrates that labor turnover is a significant factor in understanding wage growth since it affects both wage growth across jobs and wage growth within the job. Our analysis shows that young men who quit experience significant wage gains compared to stayers and compared to their own wage growth prior to the job change. Among older men, a quit increases wage growth only if the individual said he changed jobs because he found a better job. Yet in both age groups, individuals who expect to remain on the current job experience steeper wage growth per time period on that job. Thus labor turnover has offsetting effects on wage growth, leading to wage gains across jobs but flatter growth in shorter jobs. Our empirical analysis shows however that total life-cycle wage growth is positively related to current tenure. While early mobility may pay, individuals who are still changing jobs later in life experience lower overall wage growth.

191 citations


Posted Content
TL;DR: This article studied changes in the cyclical responsiveness of inflation from 1890-1976, and concluded that a given shortfall in production relative to potential now "buys" a smaller reduction in the rate of inflation than in the past.
Abstract: The persistence of inflation during periods of high unemployment poses the central problem for macroeconomic policy in coming years. The extent of success in reducing both inflation and unemployment will depend strongly on the short-run responsiveness of wage inflation to unemployment and excess capacity. This paper studies changes in the cyclical responsiveness of inflation from 1890-1976, and concludes that a given shortfall in production relative to potential now "buys" a smaller reduction in the rate of inflation than in the past. From 1890-1929, a one percent decline in industrial production reduced inflation about .45%; for 1950-1976, the same output decline is estimated to slow inflation only about .l%. The analysis makes use of two methods to study the changing cyclical behavior of inflation. Following an innovative study by Cagan, calculations are made for wage and price inflation before and after eighteen business cycle peaks. While inflation slows in almost every recession, the declines in inflation in recent years are less pronounced than earlier, even when controlling for business cycle severity. In a second section of the study, econometric evidence is provided that also strongly supports the hypothesis of increasing rigidity of wage and price Inflation over the business cycle. In the last section of the paper, some possible reasons are cited for the declining responsiveness of inflation to unemployment. Ironically, successful macroeconomic policy might be in part responsible. To the extent that activist macroeconomic policy breaks the link between current unemployment and expectations of future unemployment, it is argued, unemployment today will not induce wage cuts in contracts for future periods. Also, the tremendous increase in duration and coverage of collective bargaining agreements is suggested as an important force behind the shifting behavior of wages and prices during the period of study.

107 citations


Journal ArticleDOI
TL;DR: In this article, the authors analyzed a new and rich body of data on the elderly to study the supply side of the effect of social security on the early retirement decision, and proposed a new way of estimating retirement behavior.

105 citations


Posted Content
TL;DR: The authors examines the question whether adjudication can be viewed as a private good, i.e., one whose optimal level will be generated in a free market, and concludes that the public courts do not automatically generate efficient rules.
Abstract: This paper examines the question whether adjudication can be viewed as a private good, i.e., one whose optimal level will be generated in a free market. Part I focuses on private courts, noting their limitations as institutions for dispute resolution and rule creation but also stressing the important role that the private court, in its various manifestations, has played both historically and today. Part II discusses a recent literature which has argued that the rules generated in the public court system, in areas of the law where the parties to litigation are private individuals or firms and the rules of law are judge-made, are the efficient products of purely private inputs. Our analysis suggests that this literature has overstated the tendency of a common law system to produce efficient rules, although areas can be identified where such a tendency can indeed be predicted on economic grounds. Viewed as a contribution to the emergent literature on the positive economic theory of law, our finding that the public courts do not automatically generate efficient rules is disappointing, since it leaves unexplained the mechanisms by which such rules emerge as they seem to have done in a number of the areas of Anglo-American judge-made law. However, our other major finding, that the practices and law governing private adjudication appear to be strongly influenced by economic considerations and explicable in economic terms, is evidence that economic theory has a major role to play in explaining fundamental features of the legal system.

105 citations


Posted Content
TL;DR: This article showed that the direction of the portfolio effect of bond issuing on private investment depends on the relative substitutabilities among these three assets in the public's aggregate portfolio, i.e., money, government bonds, and real capital.
Abstract: The prevailing view of the economic consequences of financing government deficits, as reflected in the recent economics literature and in recent public policy debates, reflects serious misunderstandings. Debt-financed deficits need not "crowd out" any private investment, and may even "crowd in" some. Using a model including three assets - money, government bonds, and real capital - the analysis in this paper shows that the direction of the portfolio effect of bond issuing on private investment depends on the relative substitutabilities among these three assets in the public's aggregate portfolio. Since the all-important substitutabilities that make the difference between "crowding out" and "crowding in" are determined in part by the government's choice of debt instrument for financing the deficit, this analysis points to the potential importance of a policy tool that public policy discussion has largely neglected for over a decade - debt management policy. When monetary policy is non-accommodative, within limits debt management policy can take its place in augmenting the potency of fiscal policy, or in improving the trade-off between short-run stimulation and investment for long-run growth.

90 citations


Posted Content
TL;DR: A structural model of the demand for college attendance is derived from the theory of comparative advantage and recent statistical models of self-selection and unobserved components, which strongly support the theory as mentioned in this paper.
Abstract: A structural model of the demand for college attendance is derived from the theory of comparative advantage and recent statistical models of self-selection and unobserved components. Estimates from NBER-Thorndike data strongly support the theory. First, expected lifetime earnings gains influence the decision to attend college. Second, those who did not attend college would have earned less than measurably similar people who did attend, while those who attended college would have earned less as high school graduates than measurably similar people who stopped after high school. Positive selection in both groups implies no "ability bias in these data.

80 citations


Posted Content
TL;DR: In this paper, the authors present a model of competitive behavior in which firms may choose the durability of their capital goods in the presence of inflation and find that the taxation of corporate profits may influence both the choice of asset life and the market value of equity.
Abstract: Given the current corporate tax structure in the U.S., inflation may have an important impact on the production decisions of firms, notably the choice of capital durability. This paper presents a model of competitive behavior in which firms may choose the durability of their capital goods. We find that in the presence of inflation, the taxation of corporate profits may influence both the choice of asset life and the market value of equity. In particular, the failure to index depreciation allowances depresses share values and biases the choice of asset life toward greater durability. Integrating this analysis with the traditional one-sector monetary growth model, we study the general equilibrium impact of inflation on such long run characteristics of the economy as output per capita and the real rate of return received by investors.

Posted Content
TL;DR: In this article, the authors examined three measures of expectations derived from observed data from the market for foreign exchange and used them to estimate the demand for money during the early 1920's German hyperinflation.
Abstract: Probably no event in monetary history has been more studied than the German hyperinflation of the early 1920's Economists have been attracted to study this episode since it provides an environment that is close to a controlled experiment which is so rare in the study of social sciences This paper provides further evidence on the role of expectations in effecting the demand for money during the German hyperinflation One of the difficulties in studying empirically the role of expectations is the lack of an observable variable measuring expectations This paper examines three measures of expectations that are derived from observed data from the market for foreign exchange The first measure is based on the hypothesis that the forward exchange rate measures the expected future spot exchange rate and thereby provides an observable measure of the market's expectations concerning the depreciation of the currency The other two measures distinguish between the forward exchange rate and the expected exchange rate and are based on the supplementary hypothesis that rational behavior requires expectations to be unbiased Accordingly, the measures of expectations are constructed by using the forward exchange rate along with the information on the systematic relationship between forward and spot exchange rates The various measures are then used in estimating the demand for money The emphasis on measures of expectations that are based on data from the foreign exchange markets reflects the belief that in an inflationary economy with flexible exchange rates one of the relevant substitutes for holding domestic money is foreign exchange

Posted Content
TL;DR: The authors claim that there is more agreement than disagreement once a few reasonable criteria based on recent theoretical work are used to eliminate certain studies from consideration, and once they are careful about posing the question they seek the estimates to address.
Abstract: In recent years, the study of labor supply has occupied the attention of a large number of economists. With the growth in interest in the topic and with the inevitable diversity of economic models and statistical methods proposed by new entrants in the field, the literature has developed its own folklore. The principal legend is that the empirical estimates of the same parameters obtained from the set of available studies display such diversity that they are of little use to policymakers. This paper disputes the folklore. We claim that there is more agreement than disagreement once a few reasonable criteria based on recent theoretical work are used to eliminate certain studies from consideration, and once we are careful about posing the question we seek the estimates to address.

Journal ArticleDOI
TL;DR: In this paper, preliminary estimates of the total incomes system of accounts (TISA) for 1959 and 1969 are provided for all consumption services produced by government and households as well as by enterprises, but define household purchases of durable and semi-durable goods as investment.
Abstract: Preliminary estimates of the total incomes system of accounts (TISA) are provided for 1959 and 1969. They extend conventional accounts to include all consumption services produced by government and households as well as by enterprises, but define household purchases of durable and semi-durable goods as investment. Acquisitions of capital throughout the economy, intangible as well as tangible, and not only in the business sector, are included in capital accumulation along with, for tangible capital, net revaluations, that is capital gains net of increases in the general price level. Imputations are offered for non market consumption and capital accumulation, most prominently in unpaid household work and education. Much of government output, particularly police services and defense, is recalculated as intermediate, along with expenses related to work, while media services, treated by the United States Bureau of Economic Analysis (BEA) as business purchases of intermediate product, enter into TISA consumption. Subsidies are included in the value of product, as are services of volunteers and imputations for the underpayment of military conscripts and of jurors. Separate accounts are offered for the national income and product, business, nonprofit institutions, government enterprises, government and households. The ratios of BEA to TISA Net National Product were 81.4 percent and 76.5 percent in 1959 and 1969, respectively. BEA national income was 74.1 percent of the corresponding TISA net national income in 1959 and 69.6 percent in 1969, reflecting a greater per annum rate of growth of TISA net national income, 7.49 percent, as against 6.82 percent for the corresponding BEA national income. BEA gross private domestic investment, restricted to business acquisitions of tangible capital at original cost, was estimated as only approximately 22 percent of comprehensive TISA gross domestic capital formation in 1959 and some 20 percent in 1969. The BEA net private domestic investment growth rate of 7.32 percent per annum from 1959 to 1969 may be compared with a TISA net domestic capital formation growth rate of 9.42 percent.

Posted Content
TL;DR: In this paper, the authors investigate the role of portfolio behavior in the expected price-inflation/nominal interest rate relationship and find that five of the six major categories of investors in the U.S. long-term bond market reduce their demands for bonds in response to an increase in expected inflation.
Abstract: Among the different kinds of economic behavior which may account for the familiar Fisherian relationship between nominal interest rates and expected price inflation, portfolio behavior is the most plausibly flexible in the short run. Since substitution into real assets is not a practical portfolio alternative for many investors, however, it is not obvious a priori how important lenders' portfolio behavior can be in bringing about the adjustment of interest rates which Fisher's theory associates with expected inflation. Given the importance of this adjustment for questions of both monetary theory and monetary policy, the underlying economic behavior merits explicit investigation. The empirical results presented in this paper provide evidence that lenders' portfolio behavior does play an important role in the expected-price-inflation/nominal-interest rate relationship. First, results indicate that five of the six major categories of investors in the U.S. long-term bond market reduce their demands for bonds in response to an increase in expected inflation. Secondly, the results of multi-equation partial-equilibrium experiments indicate that ,with all other things unchanged, this response by investors will raise the equilibrium nominal bond yield by about 2/3% in response to a 1% increase in expected inflation.

Posted Content
TL;DR: In this paper, the authors examine the real effects of anticipated inflation in an economy that has fully adapted to inflation in the sense that public institutions are fully attuned to inflation (or inflation proof), the same is true of private institutions, and current and future inflation is fully reflected in inherited contracts.
Abstract: The organization of the paper is simple. We start by examining the real effects of anticipated inflation in an economy that has fully adapted to inflation. In particular, in this economy: (i) public institutions are fully attuned to inflation (or inflation proof), (ii) the same is true of private institutions, (iii) current and future inflation is fully reflected in inherited contracts, and (iv) future inflation is fully reflected in contracts for the future. After we have discussed the effects of anticipated inflation in this environment, we examine the real effects of inflation that arise as the assumptions (i) to (iv) are dropped one after the other. The effects cumulate in the sense that those present in the economy that has fully adapted to inflation are also present in economies with non-inflation proof institutions, and so on.

ReportDOI
TL;DR: In this article, the authors investigated whether multinational firms adapt to labor cost differences by using more labor-intensive methods of production in low-wage countries than in developed countries and did multinational firms' affiliates in LDC's use more capitalintensive methods than locally-owned firms.
Abstract: It has been alleged that multinational firms fail to adapt their methods of production to take advantage of the abundance and low price of labor in less developed countries and therefore contribute to the unemployment problems of these countries. This paper asks two questions: do multi-national firms adapt to labor cost differences by using more labor-intensive methods of production in LDC's than in developed countries and do multinational firms' affiliates in LDC's use more capital-intensive methods than locally-owned firms? We concluded that both U.S.-based and Swedish-based firms do adapt to differences in labor cost, using the most capital-intensive methods of production at home and the least capital-intensive methods in low-wage countries. Among host countries, the higher the labor cost, the higher the capital intensity of production for manufacturing as a whole, within individual industries, and within individual companies. When we attempted to separate the capital-intensity differences into choice of technology and method of operation within a technology we found that firms appeared to choose capital-intensive technologies in LDC's but then responded to low wage levels there by substituting labor for capital within the technology. Similarly, U.S. affiliates appeared to use technologies similar to those of locally-owned firms but to operate in a more capital-intensive manner mainly because they faced higher labor costs.

Posted Content
TL;DR: In this paper, the authors examine ways of increasing capital intensity without raising the rate of inflation and show why a higher rate of price inflation may not succeed in increasing investors' willingness to hold real capital.
Abstract: Three ways of averting "excess saving" have been emphasized in both theory and practice. The thrust of the Keynesian prescription was to increase the government deficit to provide demand for the resources that would not otherwise be used for either consumption or investment. In this way, aggregate demand would be maintained by substituting public consumption for private consumption. A second alternative prescription was to reduce the private saving rate. Early Keynesians like Seymour Harris saw the new Social Security program as an effective way to reduce aggregate saving. The third type of policy, developed by JamesTobin, relies on increasing the rate of inflation and making money less attractive relative to real capital. In Tobin's analysis, the resulting increase in capital intensity offsets the higher saving rate and therefore maintains aggregate demand. This paper will examine ways of increasing capital intensity without raising the rate of inflation. The analysis will also show why, contrary to Tobin's conclusion, a higher rate of inflation may not succeed in increasing investors' willingness to hold real capital.

ReportDOI
TL;DR: In this article, a new option pricing model for speculative assets whose log price relative is a symmetric stable Paretian random variable was used to evaluate the probability of failure and fair value of deposit insurance as a function of capital-asset ratio for a bank with demand liabilities and longer term, default-risk-free, perfectly marketable assets.
Abstract: Traditionally, banks and financial intermediaries borrow short and lend long. This causes a risk of negative net worth (and failure, under simplifying assumptions), because the present discounted value of the assets is more volatile than that of the liabilities. This paper utilizes a new option pricing model for speculative assets whose log price relative is a symmetric stable Paretian random variable. This model is used to empirically evaluate the probability of failure and fair value of deposit insurance as a function of capital-asset ratio for a bank with demand liabilities and longer term, default-risk-free, perfectly marketable assets. The maturities used for the assets range from three months to 30 years (in order to incorporate thrift institutions). Implications for reserve requirement policy and for liability management are discussed.

Journal ArticleDOI
TL;DR: In this article, the two-part tariff is discussed, and the specific functions and simulation are discussed, as well as the connection and disconnection of the two parts of the tariff.
Abstract: I. Introduction, 571. — II. The two-part tariff, 573. — III. Disconnection, 575. — IV. Specific functions and simulation, 577. — V. Conclusion, 583. — Appendix A, 584. — Appendix B, 585.

ReportDOI
TL;DR: In this article, the authors contribute to the measurement and analysis of errors in economists' predictions of changes in aggregate income, output, and the price level by compiling consistent forecast records extending over longer periods of time.
Abstract: The aim of this study is to contribute to the measurement and analysis of errors in economists' predictions of changes in aggregate income, output, and the price level. Small sample studies of forecasts can be instructive, but their limitations must be recognized. Compilation of consistent forecast records extending over longer periods of tine is necessary to establish a reasonably reliable base for assessments of forecasting behavior and. performance. Thus the historical record of post-World War II forecasts assembled in the 1960's by the NBER is here extended and updated.

Posted Content
TL;DR: This paper showed that individuals paid nearly $500 million of extra tax on corporate stock capital gains because of the distorting effect of inflation, and that the distortion was greatest for middle income sellers of corporate stock.
Abstract: The present study shows that in 1973 individuals paid nearly $500 million of extra tax on corporate stock capital gains because of the distorting effect of inflation. A detailed analysis shows that the distortion was greatest for middle income sellers of corporate stock. In 1973, individuals paid capital gains tax on more than $4.5 billion of nominal capital gains on corporate stock. If the costs of these shares are adjusted for the increases in the consumer price level since they were purchased, the $4.5 billion nominal gain becomes a real capital loss of nearly $1 billion. As a result of this incorrect measurement of capital gains, individuals with similar real capital gains were subject to very different total tax liabilities. These findings are based on a new body of official tax return data on individual sales of corporate stock.

Posted Content
TL;DR: In this article, the authors focus on the question of how the investment tax credit and the associated rules for calculating depreciation allowances for tax purposes should be structured to assure the "appropriate" relationship between the subsidy granted to long-lived assets and that to shortlived assets.
Abstract: This paper concerns the question of how the rules for calculating the investment tax credit and the associated rules for calculating depreciation allowances for tax purposes should be structured to assure the "appropriate" relationship between the subsidy granted to long-lived assets and that to short-lived assets. The increasing rate of tax subsidy under the investment credit favors long-lived assets by comparison with a flat-rate credit, while the neglect of the credit in calculating depreciation allowances favors short-lived assets (for which the depreciation allowance is a more important element in the cash flow). In reviewing the literature on this issue, Emil Sunley focused on the question of whether the investment credit should vary with the durability of the asset purchased. He concluded that neutrality requires a subsidy rate increasing with the useful life of the asset in a way qualitatively similar to that prescribed in present U.S. law. This paper develops Sunley's discussion through the use of simple formal models of the yield from investment.

Posted Content
TL;DR: In this paper, the authors re-examine the evidence from the perspective of the recently revived monetary approach (or more generally, asset-market approach) to the exchange rate and show that the results are consistent with the efficient market hypothesis.
Abstract: Current views about flexible exchange rate systems are based, to a large extent, on the lessons from the period of the 1920's during which many exchange rates were flexible. This paper re-examines the evidence from the perspective of the recently revived monetary approach (or more generally, asset-market approach) to the exchange rate. The analysis starts by developing a simple monetary model of exchange rate determination. The key characteristic of the model lies in the notion that, being a relative price of two monies, the equilibrium exchange rate is attained when the existing stocks of the two monies are willingly held. The equilibrium exchange rate is shown to depend on both real and monetary factors which operate through their influence on the relative demands and supplies of monies. The analysis then proceeds to examine the relationship between spot and forward rates for the Franc/Pound, Dollar/Pound and Franc/Dollar exchange rates and the results are shown to be consistent with the efficient market hypothesis. The monetary model is then estimated using monthly data and using the forward premium on foreign exchange as a measure of expectations. In addition to the single-equation ordinary-least-squares estimates, the various exchange rates are also estimated as a system using the mixed-estimation procedure which combines the sample information with prior information which derives from the homogeneity postulate and from known properties of the demand for money. The various results are shown to be consistent with the predictions of the monetary model.

ReportDOI
TL;DR: In this paper, the authors found that the composite index of leading indicators is a valuable tool for predicting not only the direction but also the size of near-term changes in aggregate economic activity.
Abstract: The composite index of leading indicators is found to be a valuable tool for predicting not only the direction but also the size of near- term changes in aggregate economic activity. This conclusion is based on assessments of the leading index as a predictor of (1) business cycle turning points as dated by the National Bureau of Economic Research and (2) quantitative changes in real GNP and the composite index of coincident indicators. Specific smoothing rules are identified which reduce the frequency of false signals but still provide adequate early warning of cyclical turning points. Simple regression models based on first differences in the logarithms produce a comparatively good record of forecasts one and two quarters ahead. The best results are obtained by using predictive chains whereby, e.g., quarterly changes in the lagging index (inverted) for Q[sub t] are used to forecast changes in the leading index in quarter Q which in turn are used to forecast changes in real GNP (or the coincident index) in Q[sub t+2].

Posted Content
TL;DR: In this article, the authors present time-series evidence indicating that capital gains taxation reduces the realization of capital gains and the "lock-in" effect is detectable once they divide individuals into categories on the basis of how much recent capital gains tax in- creases have affected them.
Abstract: This study presents time-series evidence indicating that capital gains taxation reduces the realization of capital gains. The "lock-in" effect is detectable once we divide individuals into categories on the basis of how much recent capital gains tax in- creases have affected them. Since the tax law changes, those individeals who are affected have realized significantly ldss capital gains relative to those not affected. This analysis, in `ddition to evidence fpom cross-sectional research reported in Feldstein and Yitzhaki (1978) and Feldstein, Slemrod and Qitzhaki (1978),indicates that estimates of the tax revenue change resulting from a reduction in capital gains taxation based on the assumption of unchanged realized gains may be misleading.

ReportDOI
TL;DR: In this paper, a more realistic model of life cycle savings is presented, and it is shown that savings are very interest elastic, which implies that shifting away from capital income taxation would significantly increase capital formation, making possible long-run increases in consumption.
Abstract: This study departs from earlier analyses of the effects of taxes on capital income in several respects. Probably the most important difference between this treatment and most preceding ones lies in the assumptions about the interest elasticity of saving. It is shown below that the common two-period formulation of saving decisions yields quite misleading results. A more realistic model of life cycle savings demonstrates that, for a wide variety of plausible parameter values, savings are very interest elastic. This implies that shifting away from capital income taxation would significantly increase capital formation, making possible long-run increases in consumption.

ReportDOI
TL;DR: In this article, the authors used the COMPUSTAT data base to establish the determinants of banks' exposure to risk and with predicting risk in banking, and developed prediction rules for two aspects of risk: systematic risk (risk that is related to covariance with the market portfolio) and residual risk (the aggregate of specific risk and extra market covariance).
Abstract: This study is concerned with establishing the determinants of banks' exposure to risk and with predicting risk in banking. Using the COMPUSTAT data base, prediction rules have been developed for two aspects of risk: systematic risk (risk that is related to covariance with the market portfolio) and residual risk (the aggregate of specific risk and extra-market covariance). For each type of risk, several models have bean estimated: one model employs only measures of the asset and liability characteristics of the bank; a second employs these characteristics and other data taken from annual reports; a third model adds the history of the behavior of the price at the bank's common stock. The central conclusion of the study is that systematic and residual risk in banks can be predicted from predetermined data. Prediction rules estimated in this way can serve a useful function in monitoring bank risk. Further, the predictive significance of each variable serves as a measure of the appropriateness of that variable as an indicator of risk, and hence as a target for regulation.

ReportDOI
TL;DR: This paper found that the vast majority of those newly employed come not from unemployment but from outside the labor force and that most spells of employment end with labor force withdrawal rather than unemployment, and that many re-entrants would almost certainly be better classified as job losers and leavers completing long spells of unemployment rather than as entrants starting a new spell of unemployment.
Abstract: This paper challenges conventional views of unemployment. Its results suggest that failure to examine closely labor force transitions has led to a misleading picture of unemployment and the way the labor market functions in general. There are four main conclusions. First, labor force transitions are the principal determinant of fluctuations in employment and unemployment. We find that the vast majority of those newly employed come not from unemployment but from outside the labor force. Likewise, most spells of employment end with labor force withdrawal rather than unemployment. Second, traditional estimates of the duration of unemployment and the ease of job finding are seriously flawed by failure to take account of the 45 percent of all unemployment spells which end in labor force withdrawal. Third, re-entrant unemployment is to a large extent the result of job-ending followed by a brief spell outside the labor force. Many re-entrants would almost certainly be better classified as job losers and leavers completing long spells of unemployment rather than as entrants starting a new spell of unemployment. Fourth, it appears that many of those counted as out of the labor force are functionally indistinguishable from the unemployed.

Journal ArticleDOI
TL;DR: In this article, the validity of using local market data to measure the benefits associated with policies adopted in an urban area is investigated, and it is shown that the rest of the world is affected by taxing decisions undertaken in a single urban area, so that local data cannot perfectly measure the welfare effects of a policy change.