An Analysis of the Impact of Two Fiscal Policies on the Behavior of a Dynamic Asset Market
Gregory W. Huffman
Abstract: A stochastic general equilibrium model is constructed in which an analysis can be conducted into the effects of-various distortional govemment policies on the behavior financial market variables. In particular, a tax on transactions in assets and a capital gains tax are studied separately. The effects of these policies on the equilibrium behavior of capital prices, rates of return, and the level of transaction volume are quantified. Additionally some estimates of the welfare costs of such policies are presented. Although the model is a version of the representative agent framework with time-separable preferences, it is also shown that it can generate an endogenous distribution of wealth.


Energy Security: A Comparison of Protectionist Policies
Mine K. Yücel and Carol Dahl
Published as: Yücel, Mine K. and Carol Dahl (1995), "Protectionist Oil Policies: A Dynamic Comparison for the USA," Energy Policy 23 (7): 599-605.
Abstract: Rising US oil imports have spawned a variety of policies for increasing energy security. We provide a qualitative comparison of policies using a dynamic optimal control model. Thirty-year price and output paths for OPEC and the USA are simulated assuming that US producers are competitive and OPEC is a dominant firm. We find that the policies have quite different effects on imports and welfare. The tariff reduces imports the most, followed by the gasoline tax. A per unit tariff and gasoline tax are costly in terms of US welfare, whereas an ad valorem tariff can both lower imports and enhance US welfare.


Forecasting Turning Points: Is a Two-State Characterization of the Business Cycle Appropriate?
Kenneth M. Emery and Evan F. Koenig
Published as: Emery, Kenneth M. and Evan F. Koenig (1992), "Forecasting Turning Points: Is a Two-State Characterization of the Business Cycle Appropriate?," Economics Letters 39 (4): 431-435.
Abstract: Two-state models of the Commerce Department's leading and coincident indexes appear to be misspecified. Cyclical peaks in these indexes are more rounded than are cyclical troughs. Further, the variability of changes in the indexes is unusually high near cyclical troughs.


Measuring the Value of School Quality
Lori Taylor


The Analysis of Fiscal Policy in Neoclassical Models
Mark Wynne
Abstract: This paper presents an analysis of the effects of changes in government purchases in the context of a simple static neoclassical model. I show why there can never be a multiplier in such a model under standard assumptions about tastes and technology when the capital stock is held fixed. The standard analysis is extended to include an examination of the effects of changes in public sector employment. The introduction of public sector employment means that we must be careful in choosing between alternative empirical measures of the theoretical concept of aggregate output. Under current national income accounting conventions, GNP may in fact fall in response to increased government purchases.


Nominal Feedback Rules for Monetary Policy: Some Comments
Evan F. Koenig


Cointegration and Tests of a Classical Model of Inflation in Argentina, Bolivia, Brazil, Mexico, and Peru
Raul Anibal Feliz and John H. Welch
Published as: Anibal Feliz, Raul and John H. Welch (1997), "Cointegration and Tests of a Classical Model of Inflation in Argentina, Bolivia, Brazil, Mexico, and Peru," Journal of Development Economics 52 (1): 189-219.
Abstract: We develop a classical model of inflation with rational expectations that carries a number of testable implications. First, money growth and inflation are cointegrated. Second, the changes in real money demand — the equilibrium error — anticipate future monetary policy. Third, cointegration between money growth and inflation implies, as Campbell and Shiller (Journal of Political Economy, 1987, 95, 1062–1088, and Journal of Economic Dynamics and Control, 1988, 12, 505–522) show, cross-equation restrictions readily generated from an error-correction representation of the variables. Our results show that the allegedly different inflationary experiences of Argentina, Bolivia, Brazil, Mexico, and Peru are consistent with this classical model of inflation. In all countries, the data fail to reject these three conditions in all but one of the periods studied.


Threshold Cointegration
Nathan S. Balke and Thomas B. Fomby
Published as: Balke, Nathan S. and Thomas B. Fomby (1997), "Threshold Cointegration," International Economic Review 38 (3): 627-645.
Abstract: In this paper, we consider a model in which there is discontinuous adjustment to a long-run equilibrium. Here, the equilibrium error follows a threshold autoregression that is mean-reverting outside a given range and has a unit root inside the range. We suggest a two-step approach for examining threshold cointegration. We find that standard time series methods developed for testing for cointegration in the linear case work reasonably well when threshold cointegration is present. We then consider a 'sup-Wald' test of linearity that takes the double-threshold model as the alternative hypothesis.


On the Future Erosion of the North American Free Trade Agreement
William C. Gruben


The Effects of Credit Availability, Nonbank Competition, and Tax Reform on Bank Consumer Lending
John V. Duca and Bonnie Garrett
Abstract: This study investigates the slowdown in U.S. bank consumer lending since the mid-1980s. Owing to important data considerations, the focus is on consumer loans rather than on C&I, real estate, or total bank loans. The study finds that nonrate credit conditions, tax reform, and nonbank competition variables, as well as more traditional variables, are significant determinants of consumer lending. Other results indicate that, after adjusting for securitization activity, the slowdown in consumer loan growth at banks since 1989 is largely explained by changes in nonrate credit conditions, the rise in unemployment, and the fall-off in consumer spending.


Budget Constrained Frontier Measures of Fiscal Equality and Efficiency in Schooling
Shawna Grosskopf, Kathy Hayes, Lori L. Taylor, William Weber
Published as: Grosskopf, Shawna, Kathy Hayes, Lori L. Taylor and William L. Webster (1997), "Budget Constrained Frontier Measures of Fiscal Equality and Efficiency in Schooling," Review of Economics and Statistics 79 (1): 116-124.
Abstract: Equality and efficiency are key issues in educational reform. Here the authors analyze the efficiency and equality consequences of various school finance reforms using a cost-indirect output distance function. This function readily models multiple-output production under conditions of budgetary constraint, and provides a natural measure of performance that is closely related to Farrell-type measures of efficiency. The analysis suggests that despite school district inefficiency, finance reforms can affect student achievement. However, any potential gains in output from redistribution are dwarfed by the potential gains from increased efficiency. More strikingly, the analysis demonstrates that budgetary reforms designed to equalize expenditures could actually increase the inequality of student achievement.


Inflation and Its Variability: A Note
Kenneth M. Emery
Published as: Emery, Kenneth M. (1993), "Inflation and Its Variability: An Alternative Specification," Applied Economics 25 (1): 43-46.


Does Aggregate Output Have a Unit Root?
Mark A. Wynne
Published as: Wynne, Mark A. (1992), "Does Aggregate Output Have a Unit Root?" Economics Letters 39 (2): 179-182.
Abstract: Gross National Private Product is a more appropriate empirical counterpart for the theoretical concept of aggregate output than GNP. The two series have different stochastic properties over the past 100 years.


Immigrant Links to the Home Country: Implications for Trade, Welfare and Factor Rewards
David M. Gould
Abstract: In this paper, I examine how ties to immigrants' home countries can influence trade, welfare and factor rewards. Immigrant ties, or links, include knowledge of home-country markets, language, preferences, and personal contacts that have the potential to decrease trading transactions costs. An important implication from the model is that while immigration tends to decrease trade and labor wages, immigration that includes immigrant links can have the opposite effects — increasing trade and wages. Furthermore, the total potential gains from trade may increase through the trade enhancing effects of immigrant links.


The Case of the "Missing M2"
John V. Duca
Abstract: Since the third quarter of 1990, the growth of M2 in the United States has been weaker than econometric models predicted. John V. Duca assesses whether this shortfall in M2 growth is associated with inflows into bond and equity mutual funds or the thrift resolution process. ; Duca finds that while, to some degree, bond funds are good substitutes for M2, bond and equity funds do not account for the shortfall. Most of the missing M2, he concludes, appears to be related to activity of the Resolution Trust Corporation. Duca reasons that resolution procedures can depress M2 in ways not reflected in standard models, such as by forcing an early call of small time deposits and by imparting the risk of prepayment to small time deposits.


Are Deep Recessions Followed by Strong Recoveries?
Mark A. Wynne and Nathan S. Balke
Published as: Wynne, Mark A. and Nathan S. Balke (1992), "Are Deep Recessions Followed by Strong Recoveries?" Economics Letters 39 (2): 183-189.
Abstract: We examine the hypothesis that deep recessions are followed by strong recoveries using a monthly data set for industrial production covering the period 1884–1990. There is a statistically significant relationship between growth in the first twelve months of a recovery and the peak-to-trough decline in industrial activity. This effect is still found when we exclude the Great Depression from our sample. We find no evidence that the length of the recession affects the strength of the subsequent recovery.