2005

0511

Mutual Funds and the Evolving Long-Run Effects of Stock Wealth on U.S. Consumption
John V. Duca
Published as: Duca, John V. (2006), "Mutual Funds and the Evolving Long-Run Effects of Stock Wealth on U.S. Consumption," Journal of Economics and Business 58 (3): 202-221.
Abstract: Lower mutual fund loads have plausibly boosted the stock wealth elasticity of U.S. consumption by enhancing stock liquidity and arguably by inducing stock ownership among middle-income families, consistent with theory and cross-section data (Guiso, Haliassios, and Jappelli (2003), Haliassios (2002), Heaton and Lucas (1996, 2000), and Vissing-Jorgensen (2002)). In load-modified models, the stock wealth elasticity is declining in loads and more stable long-run wealth and income coefficients arise, especially controlling for mortgage refinancing and equity withdrawal activity. Modified models imply that the stock wealth elasticity has risen, while conventional models overestimate the wealth and underestimate the income elasticities of consumption.

0510

Ireland's Great Depression
Alan Ahearne, Finn Kydland and Mark A. Wynne
Published as: Ahearne, Alan, Finn Kydland and Mark A. Wynne (2006), "Ireland's Great Depression," The Economic and Social Review 37 (2): 215-243.
Abstract: We argue that Ireland experienced a great depression in the 1980s comparable in severity to the better known and more studied depression episodes of the interwar period. Using the business cycle accounting framework of Chari, Kehoe and McGrattan (2005), we examine the factors that lead to the depression and the subsequent recovery in the 1990s. We calculate efficiency, labor, investment and government wedges, and evaluate the contribution of each to the downturn and subsequent recovery. We find that the efficiency wedge on its own can account for a significant portion of the downturn, but predicts a stronger recovery in output. The labor wedge also helps account for what happened during the depression episode. We also find that the investment wedge played no role in the depression.

0509

An Estimate of the Measurement Bias in the HICP
Mark A. Wynne
Abstract: This paper provides an estimate of the measurement bias in the Harmonised Index of Consumer Prices (HICP) that the European Central Bank uses to define price stability in the euro area. The estimate is based on a comparison of the rate of increase in consumer prices as measured by the HICP and the responses to a question about recent changes in the cost of living on the European Commission's monthly Harmonised Consumer Survey (HCS). I find that the HICP may overstate the true rate of inflation by about 1.0 to 1.5 percentage points a year.

0508

Did 9/11 Worsen the Job Prospects of Hispanic Immigrants?
Pia M. Orrenius and Madeline Zavodny
Published as: Orrenius, Pia M. and Madeline Zavodny (2009), "The Effects of Tougher Enforcement on the Job Prospects of Recent Latin American Immigrants," Journal of Policy Analysis and Management 28 (2): 239-257.
Abstract: This paper examines whether the economic aftermath of 9/11 had an adverse impact on the labor market outcomes of male immigrants from Latin America, who compose the bulk of undocumented foreign-born workers in the U.S. The crackdown on use of fraudulent Social Security numbers, increased requirements for government-issued identification, and other changes associated with greater focus on national security likely lowered the demand for foreign-born workers—particularly the undocumented—relative to natives after 9/11. The relative decline in demand for such workers could have negatively affected employment, hours worked, and earnings. Using Current Population Survey data and a difference-in-difference estimation technique, we find a negative impact after 9/11 on earnings and hours worked among recent male Hispanic immigrants vis-a-vis natives and a negative effect on employment, hours worked, and earnings vis-a-vis Hispanic immigrants who had been in the U.S. longer.

0507

Is It Is or Is It Ain't My Obligation? Regional Debt in a Fiscal Federation
Russell Cooper, Hubert Kempf, and Dan Peled
Published as: Cooper, Russell, Hubert Kempf and Dan Peled (2008), "Is It Is or Is It Ain't My Obligation? Regional Debt in a Fiscal Federation," International Economic Review 49 (4): 1469-1504.
Abstract: This paper studies the repayment of regional debt in a multiregion economy with a central authority: Who pays the obligation issued by a region? With commitment, a central government will use its taxation power to smooth distortionary taxes across regions. Absent commitment, the central government may be induced to bail out the regional government in order to smooth consumption and distortionary taxes across the regions. We characterize the conditions under which bailouts occur and their welfare implications. The gains to creating a federation are higher when the (government spending) shocks across regions are negatively correlated and volatile. We use these insights to comment on actual fiscal relations in three quite different federations: the U.S., the European Union and Argentina.

0506

Trimmed Mean PCE Inflation
Jim Dolmas
Abstract: Research over the past decade has led to improved measures of core inflation in the Consumer Price Index, or CPI. This paper discusses the application of some of the insights and techniques of that line of research to the Federal Reserve Bard of Governors' preferred inflation gauge, the price index for Personal Consumption Expenditures (PCE). The result is a new measure of core PCE inflation—the trimmed mean PCE—and a somewhat different characterization of the economy's recent inflation experience.
Compared to the story told by the usual "excluding food and energy" measure, the trimmed mean PCE tells us that the lows reached in 2003 weren't quite so low and that the highs reached in mid-2004 were really a bit higher. On a 12-month basis, the new measure suggests that core PCE inflation is currently about half a percentage point higher than what is being indicated by the "excluding food and energy" inflation rate.

0505

Nonparametric Estimation of the Impact of Taxes on Female Labor Supply
Anil Kumar
Published as: Kumar, Anil (2012), "Nonparametric Estimation of the Impact of Taxes on Female Labor Supply," Journal of Applied Econometrics 27 (3): 415-439.
Abstract: Econometric models with nonlinear budgets sets frequently arise in the study of impact of taxation on labor supply. Blomquist and Newey (2002) have suggested a nonparametric method to estimate the uncompensated wage and income effects when the budget set is nonlinear. This paper extends their nonparametric estimation method to censored dependent variables. The modified method is applied to estimate female wage and income elasticities using the 1985 and 1989 waves of PSID exploiting the drastic change in the complete budget set caused by TRA 1986 as a source of identification. I find evidence of downward bias in estimated elasticities if the nonlinearity in the budget set is ignored. The estimated wage elasticities range from 0.6 to 0.74 for total hours and from 0.26 to 0.29 on the intensive margin. The income elasticity estimates range from -0.4 to -0.67 overall and from -0.12 to -0.15 on the intensive margin.

0504

Lifecycle-Consistent Female Labor Supply with Nonlinear Taxes: Evidence from Unobserved Effects Panel Data Models with Censoring, Selection and Endogeneity
Anil Kumar
Published as: Kumar, Anil (2016), "Lifecycle-Consistent Female Labor Supply with Nonlinear Taxes: Evidence from Unobserved Effects Panel Data Models with Censoring, Selection and Endogeneity," Review of Economics of the Household 14 (1): 207-229.
Abstract:This paper uses the PSID from 1979–2007 to estimate lifecycle-consistent labor supply elasticities of U.S. females with nonlinear taxes, in a two-stage budgeting framework. The paper is the first to estimate U.S. female labor supply models using semiparametric unobserved effects panel data methods with censoring, selection and endogeneity. The paper finds that female labor supply elasticities, particularly on the intensive margin, are sensitive to both the method used to account for unobserved effects and to economic assumptions regarding lifecycle behavior. The estimated lifecycle-consistent uncompensated wage elasticity for U.S. females from the correlated random effects model with instrumental variables is 0.56 on the extensive margin and 0.31 on the intensive margin, implying an overall wage elasticity of 0.87. In comparison, fixed effects models yield an overall wage elasticity of 0.77, substantially smaller than pooled panel models.

0503

Industrial Structure and Economic Complementarities in City Pairs on the Texas-Mexico Border
Robert W. Gilmer and Jesus Cañas
Abstract: The U.S.–Mexico border provides a number of examples of pairs of neighboring cities, one in the U.S. and the other in Mexico. The advent of the North American Industrial Classification System provides a new opportunity to look at these cities using a common industrial classification system. Using U.S. data from the Bureau of Labor Statistics and Bureau of Economic Analysis, and comparable information from the 1999 Mexican economic census, we were able to compare employment by industry sector in city pairs that are located along the Texas–Mexico border: El Paso–Juarez, Laredo–Nuevo Laredo, Brownsville–Matamoros, and McAllen-Reynosa.
This paper focuses on the distribution of employment in border city pairs. It is primarily descriptive in nature, but looks at industrial structure from several perspectives. First, we look at each city as part of its own national economy, then as part of the combined U.S.–Mexico economy. Second, we demonstrate that each city-pair has a distribution of employment by industry that complements the sister city. Different wage levels, distinct legal and regulatory systems and unlike stages of development provide each city with unique opportunities to specialize in the local marketplace. Finally, we interpret the role of these cities as part of a combined US-Mexico economy. The chief economic role played by all city-pairs is that of a manufacturing center, driven largely by maquiladora activity and its support industries.

0502

Business Cycle Coordination Along the Texas-Mexico Border
Keith R. Phillips and Jesus Cañas
Abstract: In this paper we use a dynamic single-factor model originally due to Stock and Watson [18, 19] to measure the business cycle in four Texas border Metropolitan Statistical Areas (MSAs) and Mexico. We then measure the degree of economic integration between border cities, the US, Texas, and Mexican economies using correlation, spectral and cluster analysis. Results suggest border MSAs are significantly integrated with the broader economies and that major changes have occurred in these relationships since 1994, the year in which NATFA was enacted and the time maquiladora industry began to accelerate.

0501

VAR Estimation and Forecasting When Data Are Subject to Revision
N. Kundan Kishor and Evan F. Koenig
Published as: Kishor, N. Kundan and Evan F. Koenig (2012), "VAR Estimation and Forecasting When Data Are Subject to Revision," Journal of Business and Economic Statistics 30 (2): 181-190.
Abstract: Conventional VAR estimation and forecasting ignores the fact that economic data are often subject to revision many months or years after their initial release. This paper shows how VAR analysis can be modified to account for such revisions. The proposed approach assumes that government statistical releases are efficient with a finite lag. It takes no stand on whether earlier revisions are "noise" or "news." The technique is illustrated using data on employment and the unemployment rate, real GDP and the unemployment rate, and real GDP and the GDP/consumption ratio. In each case, the proposed procedure outperforms conventional VAR analysis and the more-restrictive methods for handling the data-revision problem that are found in the existing literature.