2006

0606

Argentina's Unimpressive Recovery: Insights from a Real Business Cycle Approach
Carlos E. J. M. Zarazaga
Abstract: Argentina's GDP increased 30% between 2002 and 2005, prompting optimistic assessments that the country had finally left behind its secular stagnation. However, this strong performance followed a sharp decline in economic activity and therefore could be the manifestation of a bounce-back effect with no lasting impact on Argentina's mediocre long-run growth rates. The paper examines this conjecture with the quantitative discipline imposed by a Real Business-Cycle methodology and concludes that the 2002-05 expansion was not only a rebound, but also considerably weaker than the model predicts, a finding not consistent with upbeat views about the country's long-run prospects.

0605

The Role of Total Factor Productivity in "Phoenix Miracles": Insights from an Emerging Market Crisis
Carlos E. J. M. Zarazaga
Abstract: Key macroeconomic variables such as GDP and investment typically display a V-shaped pattern during major emerging market crises. A notable exception to that pattern is intermediated credit, which follows an L-shaped trajectory instead: it declines at first in lockstep with economic activity, but later on it fails to recover while output does. From the vantage point of "credit crunch" theories of crises, it is as if output almost literally "rises from its ashes," prompting the metaphoric characterization of emerging markets post-collapse recoveries as Phoenix Miracles.
This paper reorganizes the evidence for a particular emerging market crisis, the one that Argentina experienced in 2000-01, under the guide of the neoclassical growth model. Under that lens, there is nothing special about the V-shaped trajectory that GDP, investment, and labor input followed during the crisis and its aftermath. That is exactly the pattern, and in the same orders of magnitude, that a neoclassical growth model with TFP taken as exogenous would predict. Furthermore, from the vantage point of that model, there is no Phoenix Miracle: the post-collapse recovery of TFP and GDP was about as strong as the model would have predicted.

0604

Expectations and Exchange Rate Dynamics: A State-Dependent Pricing Approach
Anthony E. Landry
Published as: Landry, Anthony (2009), "Expectations and Exchange Rate Dynamics: A State-Dependent Pricing Approach," Journal of International Economics 78 (1): 60-71.
Abstract: We introduce elements of state-dependent pricing and strategic complementarity into an otherwise standard New Open Economy Macroeconomics (NOEM) model. Relative to previous NOEM works, there are new implications for the dynamics of real and nominal economic activity: complementarity in the timing of price adjustment alters an open economy's response to monetary disturbances. Using a two-country Producer-Currency-Pricing environment, our framework replicates key international features following a domestic monetary expansion: (i) a delayed surge in inflation across countries, (ii) a delayed overshooting of exchange rates, (iii) a J-curve dynamic in the domestic trade balance, and (iv) a high international output correlation relative to consumption correlation. Overall, the model is consistent with many empirical aspects of international economic fluctuations, while stressing pricing behavior and exchange rate effects highlighted in traditional Keynesian works.

0603

An Economic Interpretation of Suicide Cycles in Japan
Jahyeong Koo and W. Michael Cox
Published as: Koo, Jahyeong and W. Michael Cox (2008), "An Economic Interpretation of Suicide Cycles in Japan," Contemporary Economic Policy 26 (1): 162-174.
Abstract: Suicide rates in Japan have increased dramatically in recent years, making. Japan's male rate the highest among developed economies. This study revises the standard economic model of suicide to accommodate Japan's experience, focusing on the change in human capital for the unemployed. We then use the new model and de-trended data to empirically investigate the relationship between the suicide cycle and the unemployment cycle. Unlike previous aggregate time series studies, we find that the relationship between the suicide rate and the unemployment rate is significantly and robustly positive for both males and females even after controlling for several social variables.

0602

The Welfare Effects of Pay-as-You-Go Retirement Programs: The Role of Tax and Benefit Timing
Alan D.Viard
Published as: Viard, Alan D. (2007), "The Welfare Effects of Pay-as-You-Go Retirement Programs: The Role of Tax and Benefit Timing," Contemporary Economic Policy 25 (2): 282-292.
Abstract: It is well known that pay-as-you-go retirement programs reduce steady-state welfare and the capital stock in dynamically efficient OLG economies. The common two-period OLG model obscures, however, the dependence of these effects on the ages at which taxes are paid and benefits are received. Program changes that shift taxes to older workers or benefits to younger retirees have effects similar to reductions in program size, yielding steady-state welfare gains and increases in capital accumulation while imposing transition costs on current generations. This analysis has policy implications for both tax and benefit timing.

0601

Employer Matching and 401(k) Participation: Evidence from the Health and Retirement Study
Gary V. Engelhardt and Anil Kumar
Published as: Engelhardt, Gary V. and Anil Kumar (2007), "Employer Matching and 401(k) Participation: Evidence from the Health and Retirement Study," Journal of Public Economics 91 (10): 1920-1943.
Abstract: Employer matching of employee 401(k) contributions can provide a powerful incentive to save for retirement and is a key component in pension-plan design in the United States. Using detailed administrative contribution, earnings, and pension-plan data from the Health and Retirement Study, this analysis formulates a life-cycle-consistent discrete choice regression model of 401(k) participation and estimates the determinants of participation accounting for non-linearities in the household budget set induced by matching. The estimates indicate that an increase in the match rate by 25 cents per dollar of employee contribution raises 401(k) participation by 3.75 to 6 percentage points, and the estimated elasticity of participation with respect to matching ranges from 0.02-0.07. The estimated elasticity of intertemporal substitution is 0.74-0.83. Overall, the analysis reveals that matching is a rather poor instrument with which to raise retirement saving.