SAVING FOR RETIRMENT WHEN THE INFLATION RATE IS UNCERTAIN
Jannett Highfill and Raymond Wojckikewych
This paper constructs a simple "life-cycle hypothesis" explanation of
saving for retirement behavior when the inflation rate and thus the real
interest rate is uncertain. Since this type of uncertainty has the
effect of making lifetime income also uncertain (even if the wage income
is certain), the paper is thus a contribution to the literature on the
effect of income uncertainty on saving. In contrast to the literature,
however, the paper shows that uncertainty does not necessarily increase
savings, and gives an elasticity condition which determines whether savings
will increase or decrease. (D11)
INFLATION, CREDIT CONTROL AND SEIGNIORAGE: THE CASE OF IRAN
Fatholla M. Bagheri
This paper examines the structure, causes and pattern of inflation in
Iran. An econometric model of inflation composed of four simultaneous
equations is developed and estimated for the sample period 1971-1991.
The results suggest that the major causes of inflation in Iran are seigniorage
due to the persistent government budget deficits, lack of fiscal and monetary
disciplines, and adverse supply shocks. The pattern of inflation
in Iran is consistent with the neoclassical theory of money and inflation.
The results also show that the government credit control is neither an
efficient allocative mechanism for financial resources nor an effective
monetary policy instrument. These findings contradict the government's
presumption that, within the present structure of the Islamic banking system,
credit allocation can better help the economy achieve target rates of output,
inflation and employment. (E31, E51)
POOLE'S RULES REVISITED: TARGETING WITH MULTIPLE MONEY AGGREGATES
Richard W. Douglas, Jr.
This paper extends Poole's well known analysis of interest rate and
money targeting to a world in which there are two money aggregates.
First, it develops a model of financial intermediation in which banks are
induced to supply savings (M2) accounts to attract funds in order to purchase
bonds. This allows the development of a supply relationship between
M1 and M2 such that the Fed can target either one but not both aggregates.
Then, using the IS-LM framework, it evaluates the merits of targeting M1,
M2, and the rate of interest. (E51, E52)
ASSESSING INTEREST RATE AND EXCHANGE RATE EFFECTS ON EQUITY MARKET VOLATILITY: THE CASE OF THE US, UK AND GERMANY
Mason Gerety and Lori Leachman
This paper empirically establishes the significance of a limited set
of variables that contribute to the volatility of international equity
markets. A more complete understanding of the empirical relations
between measures of macroeconomic activity and equity market volatility
allows market participants to better anticipate periods of market volatility
and liquidity changes, and this understanding allows policy makers to forecast
the sometimes undesirable consequences of their actions. We produce
evidence which suggests exchange rate movements and relative interest rates
are important determinants of domestic equity market volatility.
SHORT AND LONG-RUN DYNAMICS OF EXPENDITURES AND REVENUES AND THE GOVERNMENT BUDGET CONSTRAINT: FURTHER EVIDENCE
Seid Y. Hassan and Abdul Hamid Sukar
This paper examines the long-run relationship between government expenditures
and receipt (inclusive of the federal and state and local). We include
GDP as a control variable in order to see if the adjustment to long-run
equilibrium takes place between expenditures and revenues or between either
fiscal variable and GDP. We find strong support for the existence
of long-run relationship between expenditures and revenues. The cointegration
and error correction results also reveal that the two fiscal variables
adjust to each other. (H62, E62)
CIVIL RIGHTS, LITIGATION, AND THE LOCATION OF JOBS
Jim F. Couch and Lewis H. Smith
This study attempts to determine if minority population density is a
factor in the decision by firms to locate a new facility. By avoiding
minorities, profit-maximizing firms lessen the probability of expensive
affirmative action legal entanglements. Thus, rather than mitigate
the problems associated with discrimination, affirmative action may instead
worsen the plight of minorities. Our results suggest that this is
indeed the case. (J78, K31)
THE COUNCIL OF ECONOMIC ADVISERS: SELECTED ISSUES IN LABOR ECONOMICS
Robert Stanley Herren
The paper focuses on how various CEAs have dealt with two issues in
labor economics: 1) How changes in marginal tax rates affect aggregate
labor supply; and 2) Economic impact of a minimum wage. It presents
a brief textbook discussion of each issue; it then describes the evolution
of thinking, as represented in CEA reports, concerning each issue.
It points out several differences between analysis of Democratic CEAs from
that of Republican CEAs. Differences have generally concerned differing
interpretations of empirical findings and not differences in underlying
economic theory. (B2, J0)
THE EMPIRICAL RELATIONSHIP BETWEEN REAL OUTPUT, POTENTIAL OUTPUT, AND POLICY VARIABLES
Dennis Andrew Petruska
Economists working at the Federal Reserve Bank of St. Louis have created
an approximation of potential output. This paper studies the relationship
between this proxy for potential output and the value of real output as
well as whether policy variables influence the path of real output.
Modern theoretical models suggest that there is a direct relationship between
the level of potential output and the level of real production; therefore,
recent innovations in time-series methods will be used to study the relationship
between this proxy of potential output and the level of real output.
The results of these tests indicate there is a long-run relationship between
this proxy for potential output and real output, but that no relationship
exists between the value of the policy variables and the value of real
output. These results support the real business cycle theory. (E1,
E32)
AN HEDONIC PRICE INDEX FOR PREMIUM CIGARS
Mark Edward Stover
Despite concerns over the adverse health effects of smoking, sales of
premium cigars have increased greatly in the U.S. in recent years.
This paper presents a hedonic price index for premium cigars. The
data set consists of the characteristics of 380 cigars. Using ordinarly
least squares regression, price is regressed on length, thickness, quality,
and dummy variables for country of origin. In general, cigars that
are longer, thicker, of higher quality, and made in Cuba cost more.
Ratios between predicted and actual prices reveal cigars that are of relatively
good and poor values.
A CROSS-SECTIONAL STUDY OF HOUSEHOLD INCOME AS A DETERMINANT OF NATURAL GAS CONSUMPTION
Philip B. Thompson
The contention that low income consumers are harmed by natural gas
rates that include high fixed monthly charges and low consumption charges
assumes that household gas consumption is a monotonically increasing function
of income. This notion is tested using data on household gas consumption,
housing characteristics, and demographics, for St. Louis, Missouri.
The results indicate that the income elasticity is negative at low income
levels, becoming positive at an annual household income of approximately
$35,000. House size, age, and the number of occupants are positively
related to gas consumption, while owning (rather than renting) the home
is negatively related. (K23, L95, Q41)
BUSINESS ETHICS IN MICROECONOMICS: A TEACHING APPLICATION
Charles C. Fischer
Today, under the leadership of the American Assembly of Collegiate
Schools of Business, there is growing interest in integrating ethical decision
making into the existing business school curriculum. This study presents
one approach for doing this utilizing standard economic analysis of the
firm. Drawing upon instrumentalism, business ethics is incorporated
into the economic investment model. The theory of the firm is used
to expand this model to managerial decision making. The aim is to
demonstrate the relevance of microeconomics to this important social issue,
and to reinforce students' understanding of the theory of the firm. (M13,
J24, B20)
THE EFFECTS OF MARRIAGE AND DIVORCE ON THE POVERTY STATUS OF YOUNG ADULTS
M. C. Seeborg
The National Longitudinal Survey of Youth data base is used to explore
the effects of marital decisions on the current poverty status of a sample
of young adults who experienced poverty as youth. Logit analysis
indicates that marital status is an important determinant of poverty for
this sample. The results support three general conclusions: married
men and women have a much lower likelihood of being poor in comparison
to unmarried men and women; divorce is a significant determinant of poverty
for both men and women; and, women are affected much more adversely by
divorce or never having been married than are men. (J12, J16, I32)
WHEN TECHNOLOGY AND PREFERENCES DIFFER IN HOTELLING'S COMPETITION
John F. R. Harter
Hotelling's competition is examined when consumers' preferences and
technology do not coincide. It is found that, if the technology is
very broad, duopolists will not maximally differentiate over the technology,
but will more than maximally differentiate over the consumers' preferences.
(L13, D43)
THE U.S. TEXTILE MILL PRODUCTION CYCLE
Paul McGrath and Tanya Domina
This paper updates research on the production cycle of the textile
mill industry, last studied in the mid 1970s. It is demonstrated
that since the mid 1970s, both phases of cycles in textile mill production
are becoming shorter in duration. Also, while the expansion phase
has become more pronounced, the contraction phase has become less so.
Finally, evidence is reported indicating that the textile mill production
cycle leads the general business cycle implying that decision-makers in
the textile industry must anticipate, rather than react to, changes in
overall business activity.
SPREADSHEETS IN THE ECONOMICS CLASSROOM
Mostafa Moini
The use of personal computers in general, and the electronic spreadsheet
in particular, in economic education has spread rather slowly, hardly commensurate
with its significance as a major new device in the economist's tool box.
From the very beginning of the science the spreadsheet, in the form of
simple arithmetic table, has served the economist as means for formulating
and analyzing theoretical concepts. "Electronization" of the spreadsheet
has transformed it into an enormously powerful engine of analysis.
This paper examines some of the advantages of using the spreadsheet in
economics, and notes some of the factors that have hampered a more rapid
development of interest in this area.
DETERMINANTS OF SUCCESS ON THE OHIO NINTH GRADE PROFICIENCY TEST
Jennifer K. Ransom and Peter G. VanderHart
This paper uses data from Ohio school districts to determine the effects
of various inputs on the performance of students on a ninth grade proficiency
test. Our approach holds advantages over previous studies because
our measure of performance is not subject to sample selection and incentive
biases, and because we have disaggregated measures of school inputs.
We find that a school district's background characteristics (median income,
level of education, urbanicity, etc.) are generally more important than
the inputs controlled by the school (number and salary of teachers, principals,
administrators and other employees). (I21)