1997

9713

Measuring Regional Cost of Living
Jahyeong Koo, Keith Phillips and Fiona Sigalla
Published as: Koo, Jahyeong, Keith R. Phillips and Fiona Sigalla (2000), "Measuring Regional Cost of Living," Journal of Business & Economic Statistics 18 (1): 127-136.
Abstract: The American Chamber of Commerce Research Association (ACCRA) produces the only source of publicly available regional cost of living data which, this paper suggests, may provide misleading information. An evaluation of the quality of the ACCRA indexes concludes that they contain substantial errors and biases, predominantly from the estimated prices, although error also is introduced by the choice of index formula. To evaluate the ACCRA index, this paper uses category indexes produced by BLS researchers, Kokoski, Cardiff and Moulton (KCM 1994) to produce new regional cost-of-living indexes which substantially reduce the errors and biases found in the ACCRA indexes.

9712

Decomposition of Feedback Between Time Series in a Bivariate Error-Correction Model
Jahyeong Koo and Paul A. Johnson
Abstract: This paper adapts Geweke's [1982] method of decomposing the feedback between time series by frequency to the case of 1(1) time series generated by a bivariate error-correction model. The method is applied to long-run data on US and UK price levels with the finding that most of the feedback between the two time series occurs at very low frequencies.

9711

Quasi-Specific Factors: Worker Comparative Advantage in the Two-Sector Production Model
Roy J. Ruffin
Published as: Ruffin, Roy J. (2001),"Quasi-Specific Factors: Worker Comparative Advantage in the Two-Sector Production Model," Journal of International Economics 53 (2): 445-461.
Abstract: This paper integrates the Heckscher–Ohlin, specific factors, and the Ricardian models of production with applications to international trade and labor economics. The model economy exhibits both Heckscher–Ohlin and specific factors properties, but never at the same time. In international trade, the wage skill premium across countries can move in different directions and has natural limits within countries. In labor economics, we show that the earning of economic rents is not inconsistent with competitive markets in general equilibrium and that process and skill-based innovations have contrasting effects on wage inequality.

9710

Real-Time GDP Growth Forecasts
Evan F. Koenig and Sheila Dolmas
Abstract: We forecast current-quarter real GDP growth using monthly data that would have been available to an analyst in real time. We demonstrate that using real-time data is of major importance both when estimating GDP forecasting models and when evaluating their performance. Moreover, we show that the out-of-sample forecasting performance ofour model is comparable orsuperior to that ofthe Blue-Chip consensusforecast provided that more than one month of current-quarter data are available.

9709

Goods-Market Competition and Profit Sharing: A Multisector Macro Approach
John V. Duca and David D. VanHoose
Published as: Duca, John V. and David D. VanHoose (1998), "Goods-Market Competition and Profit Sharing: A Multisector Macro Approach," Journal of Economics and Business 50 (6): 525-534.
Abstract: This paper develops a theoretical model that relates the degree of goods-market competition with the extent of profit sharing. Our multisector framework indicates that increased competition in goods markets leads to an increased weighting on firm profits in an optimally indexed contract. Consequently, our model predicts that a rising extent of profit-sharing arrangements in the United States should accompany an increase in the degree of goods-market competition. Available, but limited, data on profit sharing in the United States are generally consistent with this fundamental implication of the model.

9708

Allocative Inefficiency and School Competition
Shawna Grosskopf, Kathy Hayes, Lori L. Taylor and William L. Weber
Published as: Grosskopf, Shawna, Kathy Hayes, Lori L. Taylor and William L. Webster (1998), "Allocative Inefficiency and School Competition," Proceedings, Annual Conference on Taxation and Minutes of the Annual Meeting of the National Tax Association 91: 282-290.
Abstract: A substantial literature indicates that the public school system in the United States is inefficient. Some have posited that this inefficiency arises from a lack of competition in the education market. On the other hand, the Tiebout hypothesis suggests that public schools may already face significant competition. In this paper, the authors examine the extent to which competition for students influences public school inefficiency in Texas. They use a Shephard input distance function to model educational production and use bootstrapping techniques to examine allocative inefficiencies. Switching regressions estimation suggests that school districts in noncompetitive metropolitan areas are more than twice as allocatively inefficient as school districts in competitive metropolitan areas.

9707

Business Cycles Under Monetary Union: EU and US Business Cycles Compared
Mark A. Wynne and Jahyeong Koo
Published as: Wynne, Mark A. and Jahyeong Koo (2000),"Business Cycles under Monetary Union: A Comparison of the EU and US," Economica 67 (267): 347-374.
Abstract: This paper documents business cycle similarities and differences among the 12 Federal Reserve districts in the USA and the 15 countries that make up the EU. The comparison is suggestive of what might be expected to emerge in the way of business cycle synchronization from a monetary union between the member states of the EU.

9706

On the Political Economy of Immigration
Jim Dolmas and Gregory W. Huffman
Abstract: This paper explores the interactions between immigration, inequality and redistributive fiscal policy in a dynamic general equilibrium model in which government policies are endogenously determined through voting. A model is constructed in which agents vote on the level of immigration into the economy. It is shown that agents' preferences over the level of immigration are influenced by the effects of immigration on factor prices. Agents' preferences over immigration are shown to depend non-trivially on the characteristics of immigrants and whether they will receive the franchise to vote in the future. It is shown that subtle changes in the distribution of wealth among existing citizens can have a dramatic impact on the equilibrium behavior of the economy.

9705

Inequality, Inflation, and Central Bank Independence
Jim Dolmas, Gregory W. Huffman, and Mark A. Wynne
Published as: Dolmas, Jim, Gregory W. Huffman and Mark A. Wynne (2000), "Inequality, Inflation, and Central Bank Independence," Canadian Journal of Economics 33 (1): 271-287.
Abstract: What can account for the different contemporaneous inflation experiences of various countries, and of the same country over time? We present an analysis of the determination of inflation from a political economy perspective. We document a positive correlation between income inequality and inflation and then present a theory of the determination of inflation outcomes in democratic societies that illustrates how greater inequality leads to greater inflation, owing to a desire by voters for wealth redistribution. We conclude by showing that democracies with more independent central banks tend to have better inflation outcomes for a given degree of inequality.

9704

The Political Economy of Endogenous Taxation and Redistribution
Jim Dolmas and Gregory W. Huffman
Published as: Dolmas, Jim and Gregory W. Huffman (1997), "The Political Economy of Endogenous Taxation and Redistribution," Economics Letters 56 (2): 223-227.
Abstract: This paper examines a simple dynamic model in which agents vote over capital income taxation and redistributive transfers. We show that in equilibrium the typical agent's preferences over the tax rate are single-peaked and derive a closed-form solution for the majority-rule tax rate. We also show that high levels of initial wealth inequality can place the economy on the 'wrong side of the Laffer curve'.

9703

Specialization and the Effects of Transactions Costs on Equilibrium Exchange
James Dolmas and Joseph H. Haslag
Abstract: In this paper, we examine economies in which there are fixed costs associated with executing trades of differentiated goods. When traders exchange units of the home goods for another household's consumption good, the results uphold the conventional wisdom — it does not matter who pays the transactions cost. However, when we introduce fiat money into the environment, the results demonstrate that it does matter who pays. Our results demonstrate that when members of the household specialize, bearing the transaction cost can yield different equilibrium outcomes.

9702

More on Optimal Denominations for Coins and Currency
Mark A. Wynne
Published as: Wynne, Mark A. (1997), "More on Optimal Denominations for Coins and Currency," Economic Letters 55 (2): 221-225.
Abstract: Telser [Telser, L.B., 1995. Optimal denominations for coins and currency. Economics Letters 49, 425–427.] has shown that the problem of Bâchet helps answer the question of the optimal denominational structure of currency in the U.S. and U.K. This note provides further evidence to support this claim using cross-country data.

9701

Nonlinear Dynamics and Covered Interest Rate Parity
Nathan S. Balke and Mark E. Wohar
Published as: Balke, Nathan S. and Mark E. Wohar (1998), "Nonlinear Dynamics and Covered Interest Rate Parity," Empirical Economica 23 (4): 535-559.
Abstract: This paper examines the dynamics of deviations from covered interest parity using daily data on the UK/US spot, forward exchange rates and interest rates over the period January 1974 to September 1993. Like other studies we find a substantial number of instances during the sample in which the covered interest parity condition exceeds the transaction costs band, implying arbitrage profit opportunities. While most of these implied profit opportunities are relatively small, there is also evidence of some very large deviations from covered interest parity in the sample. In order to examine the persistence of these deviations, we estimated a threshold autoregression in which the dynamics behavior of deviations from covered interest parity is different outside the transaction costs band than inside them. We find that while the impulse response functions when inside the transaction costs band are nearly symmetric, those for the outside the bands are asymmetric-suggesting less persistence outside of the transaction costs band than inside the band.