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Working papers, 2007

0701
Gerry Boyle, Kenneth V. Greene, Phillip J. Nelson and Mario Pagliero
A Comparative Study of Student Demand for Status in Ireland, Italy and the United States

0702
Nicolaus Tideman and Florenz Plassmann
A Pricing Mechanism for CO2 Emissions that Incorporates Future Revisions of Estimates of the Cost of Today's Emissions

0703
Nicolaus Tideman and Florenz Plassmann
Paying the Partners

0704
Susan Wolcott
An Examination of the Supply of Financial Credit to Entrepreneurs in Colonial India

0705
Susan Wolcott
Strikes in Colonial India, 1921-38

0706
Nathan B. Anderson and Andreas D. Pape
An Insurance Model of Property Tax Limitations

0707
Barry Jones and Travis Nesmith
Linear cointegration of nonlinear time series with an application to interest rate dynamics

0708
Barry Jones and Livio Stracca
Are money and consumption additively separable in the euro area? A non-parametric approach

0709
Christopher Hanes
The Appearance of Open-Mouth Operations in the United States

0710
Christopher Hanes
The Rise and Fall of the Sliding Scale or Why Wages Are No Longer Indexed to Product Prices

0711
Wei Xiao and Nazneen Ahmad
End of Double Taxation, Policy Announcement, and Business Cycles

0712
Wei Xiao
Policy Inertia and Equilibrium Determinacy in a New Keynesian Model with Investment

0713
Wei Xiao and John Duffy
Investment and Monetary Policy: Learning and Determinacy of Equilibrium

0714
Martina Vidovic and Neha Khanna
Race, Income Inequality, and Mortality in the United States


Number: 0701

Authors: Gerry Boyle, Kenneth V. Greene, Phillip J. Nelson and Mario Pagliero

Title: A Comparative Study of Student Demand for Status in Ireland, Italy and the United States

Abstract:

No abstract.

File: Working Paper 0701


Number: 0702

Authors: Nicolaus Tideman and Florenz Plassmann

Title: A Pricing Mechanism for CO2 Emissions that Incorporates Future Revisions of Estimates of the Cost of Today's Emissions

Abstract:

The efficiency of mechanisms to control CO2 emissions is limited by disagreement about the harm from these emissions. Thus existing emission control mechanisms require negotiated compromise regarding either the efficient price or the level of emissions to be tolerated. As an alternative to conventional mechanisms, we offer a mechanism in which today's price of emissions is determined by a market-based estimate of future beliefs about the cost of emissions. This reduces the uncertainty about the right price for emissions and makes it likely that emitters will base their emission decisions on more accurate estimates of the harm they cause.

File: Working paper 0702


Number: 0703

Authors: Gerry Boyle, Kenneth V. Greene, Phillip J. Nelson and Mario Pagliero

Title: Paying the Partners

Abstract:

When three or more individuals with disparate talents form a business partnership, they may find it difficult to agree on how their profits will be divided. This paper explores a rule for dividing the profits that depends only on the partners' estimates of the relative contributions of other partners. No partner can affect his own share by the input that he provides. If there is a division that is consistent with the relative contributions suggested by all partners, then the division rule assigns these shares. We provide the intuition for the division rule and investigate several of its properties.

File: Working Paper 0703


Number: 0704

Authors: Susan Wolcott

Title: An Examination of the Supply of Financial Credit to Entrepreneurs in Colonial India

Abstract:

Scholars of Indian history suggest that the main deterrent to entrepreneurial activity in colonial India was the absolute shortage of capital. A large body of theoretical and empirical research suggests that the key to mobilizing capital is a well functioning financial market. Using various bank records of the colonial state, I determine that the credit markets which supported colonial era Indian entrepreneurs were actually efficient, at least relative to the US financial markets of the mid-nineteenth century. This is a relevant comparison as it was then that the US began to grow at modern rates. I explore how India's caste system may have affected credit markets. I argue that caste ties gave Indian financiers a method of contract enforcement which was "extra-legal" and thus led to the continuance of informal credit provision. This can explain the underdevelopment of India's formal credit structures.

File: Working paper 0704


Number: 0705

Authors: Susan Wolcott

Title: Strikes in Colonial India, 1921-38

Abstract:

Newly collected data on India's textile industry over 1921-38 show strike rates far higher than those observed in the British or US industries at a similar stage of development, despite an absence of formal union organization or state support for collective bargaining. Colonial India's high strike frequency is hard to account for in terms of current theories of strikes and collective action in general. These data may point to the important role of social norms of cooperation in sustaining collective action.

File: Working Paper 0705


Number: 0706

Authors: Nathan B. Anderson and Andreas D. Pape

Title: An Insurance Model of Property Tax Limitations

Abstract:

Forty-three states in the United States have legal limits on local property taxation. These limits constrain increases in local government revenues, increases in property values, and the level of tax rates. A large literature cites the desire of taxpaying voters to constrain wasteful local government expenditures as the primary motivation for these limitations. The ability of tax limitations to provide insurance against unexpected increases in individual property tax liability, however, also explains these limitations. The introduction of risk into otherwise standard models of local service provision demonstrates that voters may demand tax limitations in the absence of any perception of wasteful government expenditures.

File: Working paper 0706


Number: 0707

Authors: Barry Jones and Travis Nesmith

Title: Linear cointegration of nonlinear time series with an application to interest rate dynamics

Abstract:

We derive a definition of linear cointegration for nonlinear stochastic processes using a martingale representation theorem. The result shows that stationary linear cointegrations can exhibit nonlinear dynamics, in contrast with the normal assumption of linearity. We propose a sequential nonparametric method to test first for cointegration and second for nonlinear dynamics in the cointegrated system. We apply this method to weekly US interest rates constructed using a multirate filter rather than averaging. The Treasury Bill, Commercial Paper and Federal Funds rates are cointegrated, with two cointegrating vectors. Both cointegrations behave nonlinearly. Consequently, linear models will not fully replicate the dynamics of monetary policy transmission. (A revised version of this paper is forthcoming in Studies in Nonlinear Dynamics and Econometrics.)

File: Working Paper 0707 - currently unavailable


Number: 0708

Authors: Barry Jones and Livio Stracca

Title: Are money and consumption additively separable in the euro area? A non-parametric approach

Abstract:

We propose a numerical test of the non-parametric conditions for additive separability between consumption and real money balances, building on Varian (1983). If additive separability is rejected, then real balances enter into the theoretical IS curve. We test whether or not monetary assets and consumption are additively separable for the euro area using quarterly data from 1991 to 2005. Previous results using a parametric approach suggest that real balances can be excluded from the IS curve. We find that additive separability is violated over this sample period. After 1992, however, violations involve only a few observations and are in some instances related to measurement problems in the data. Overall, our results tend to support the claim that perfect non-separability between consumption and real balances is implausible, but that non-separabilities may not be very important empirically. At the same time, we reject additive separability throughout if we extend the sample period back to the 1980s, a period characterized by higher volatility in inflation and money growth.

File: Working paper 0708 - currently unavailable


Number: 0709

Authors: Christopher Hanes

Title: The Appearance of Open-Mouth Operations in the United States/p>

Abstract:

In the late 1980s, before the FOMC began to announce whether or not it had changed its target fed funds rate, it became apparent that changes in the FOMC’s target fed funds rate could be effected through "open mouth operations" alone - that is, without adjustments to reserve supply or the discount rate, not only within the earlier days of a maintenance period but for the maintenance period as a whole. This phenomenon represented a contrast from the Fed’s experience with interest-rate targeting in the 1970s, when reserve-supply adjustments were needed to effect changes in the target rate. I explain the appearance of open-mouth operations as a consequence of the Federal Reserve’s longstanding discount-window lending practices together with a decrease after the 1970s in the relative importance of discount borrowing by small banks. Data on discount borrowing by large versus small banks in the 1980s-1990s and the 1970s are clearly consistent with my explanation.

File: Working Paper 0709


Number: 0710

Authors: Christopher Hanes

Title: The Rise and Fall of the Sliding Scale or Why Wages Are No Longer Indexed to Product Prices

Abstract:

There were many employment agreements linking wage rates to product prices, known as sliding scales, in Britain and the United States from the 1860s through the 1930s. They disappeared after the 1930s, despite the spread of long-term union contracts in the United States and the introduction of published wholesale price indices that gave workers new information about product price and materials cost. This paper explains why sliding scales disappeared after the 1930s, and examines what historical experiments with sliding scales reveal about the fundamental constraints on wage indexation.

File: Working paper 0710


Number: 0711

Authors: Wei Xiao and Nazneen Ahmad

Title: End of Double Taxation, Policy Announcement, and Business Cycles

Abstract:

This paper examines the effectiveness of the "end of double taxation" (on dividends) policy in stabilizing the economy. Both announced and unannounced policies are considered. A reduction in double taxation stimulates investment and improves welfare, but its impact on output is moderate and it has a negative effect on work hours. Temporary tax cuts serve as a double-edged sword that creates an investment boom but also generates an investment slump when the tax cut expires. Announcements of future tax cuts may have important effect on output dynamics. Agents respond to the tax policy even before it is implemented. If the tax cut is announced to be temporary, its impact on output can be greatly reduced.

File: Working Paper 0711


Number: 0712

Authors: Wei Xiao

Title: Policy Inertia and Equilibrium Determinacy in a New Keynesian Model with Investment

Abstract:

Carlstrom and Fuerst (2005) demonstrate that when investment is added to a new Keynesian model, forward-looking interest rate rules almost always lead to equilibrium indeterminacy, even when the central bank responds strongly to expected in.ation. In this paper, we show that equilibrium determinacy can be retained with forward-looking rules, as long as there is policy inertia. Strong response to expected in.ation is still essential in guaranteeing macroeconomic stability.

File: Working paper 0712


Number: 0713

Authors: Wei Xiao and John Duffy

Title: Investment and Monetary Policy: Learning and Determinacy of Equilibrium

Abstract:

We examine determinancy and expectational stability (learnability) of rational expectations equilibrium (REE) in sticky price "New Keynesian" (NK) models of the monetary transmission mechanism. We consider three different New Keynesian models: a labor-only model and two models that add capital -- one where capital is allocated in an economy-wide rental market and another that supposes that the demand for capital is firm-specific. We find that Bullard and Mitra's (2002, 2006) findings on determinacy and learnability of REE under various interest rate rules in the labor-only NK model do not always extend to models with capital. In particular, the Taylor principle, that the response of interest rates should be more than proportionate to changes in inflation, will not generally suffice to guarantee determinate and/or learnable equilibria in NK models with capital.

File: Working Paper 0713


Number: 0714

Authors: Martina Vidovic and Neha Khanna

Title: Race, Income Inequality, and Mortality in the United States

Abstract:

We analyze the association between mortality, income inequality and race in the United States using recent data from 3102 counties.  We find that income inequality has an independent association with mortality and this is not driven primarily by inequality between races. Per capita income, socio-economic and demographic factors, access to healthcare, social capital and exposure to pollution, while important in explaining mortality, are not sufficient to explain the statistical association between inequality and mortality.  When examined separately, black and white mortalities seem to be associated with fundamentally different factors. Overall whites tend to gain from income inequality whereas blacks stand to lose from it.

File: Working paper 0714


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Last Updated: 6/1/12