Working Papers
2001
August 1, 2001
Has Inventory Investment Been Liquidity-Constrained? Evidence From U.S. Panel Data
Description: Based on an analysis of high-frequency panel data for U.S. firms, this paper finds that inventory investment has been liquidity-constrained in most periods during 1975-97, but less so, or not at all, during recessions. This result can be justified on the grounds that inventory fluctuations are largely attributable to unexpected sales shocks, and that firms increase liquid assets before recessions. Moreover, this results holds irrespective of whether the firm has a bond rating, contrary to the finding of Kashyap, Lamont, and Stein (1994) that inventory investment is liquidity-constrained during recessions only for firms without bond ratings.
August 1, 2001
Agents’ Preferences, the Equity Premium, and the Consumption-Saving Trade-Off: An Application to French Data
Description: This paper aims to measure the risk premium on French equities during 1960-92 and to evaluate how well theoretical models based on various representations of agents' preferences can explain it. Aside from the standard, time-additive utility function with constant relative risk aversion, three other utility functions are reviewed: a recursive utility function, a habit formation utility function, and a utility function that accounts for the interdependence of preferences. Both calibration and econometric estimations show that none of the studied marginal changes in the representation of agents' preferences are sufficient to solve both the equity premium puzzle and the risk-free rate puzzle.
August 1, 2001
Who Can Explain The Mauritian Miracle: Meade, Romer, Sachs or Rodrik?
Description: This paper examines different explanations-initial conditions, openness to trade and FDI, and institutions-of the Mauritian growth experience since the mid-1970s. We show that arguments based on openness to trade and FDI are either misleading or incomplete, and the transmission mechanism insufficiently identified. However, even when correctly articulated, openness appears to be a proximate rather than an underlying explanation for the Mauritian experience. The institution-based explanation offers greater promise. Ultimately, however, the econometric results indicate that existing explanations may be incomplete. Some idiosyncratic factors, particularly Mauritian diversity and the responses to managing it, may provide the missing pieces in the story of Mauritius's success.
August 1, 2001
The New Basel Capital Accord: The Devil Is in the (Calibration) Details
Description: This paper considers characteristics of the capital requirements proposed in The New Basel Capital Accord (2001). Formal analysis identifies calibration features that could give rise to unintended consequences that may include: concentration of credit risk in institutions that are less well equipped to measure and manage risks; an overabundance of thinly capitalized high quality long-maturity credits in foundation Internal Ratings-Based (IRB) banks; distortions in the secondary market for discount or premium credits; an increase in the difficulty of resolving distressed financial institutions; and incentives to distort the accuracy of loan loss provisions.
August 1, 2001
Short-Term Forecasting: Projecting Italian GDPone Quarter to Two Years Ahead
Description: This paper presents a "bridge model" for short-run (one or two quarters ahead) forecasting of Italian GDP, relying on industrial production and survey indicators as key variables that can help in providing a real-time first GDP estimate. For a one- to two-year horizon, it formulates and estimates a Bayesian VAR (BVAR) model of the Italian economy. Both the "bridge" and the BVAR model can be of great help in supplementing traditional judgmental or structural econometric forecasts. Given their simplicity and their good forecasting power, the framework may be usefully extended to other variables as well as to other countries
August 1, 2001
The Imf and the Ruble Area, 1991-1993
Description: This paper summarizes the IMF advice on the ruble area as it was presented to the national authorities in Russia, the Baltic countries, and other states of the former Soviet Union in 1991-93. In the course of doing so, the paper corrects some misperceptions that have arisen about the IMF's role. The evidence presented in the paper suggests that (i) the balance of arguments on the ruble area (and national currencies) changed over time, and hence so did the IMF's advice, and (ii) from the beginning, the IMF staff concentrated on pointing out the pros and cons of alternative monetary arrangements, without strongly advocating a particular one, emphasizing that it was the authorities' decision to stay in or leave the ruble area. Fund advice on how to introduce national currencies was made readily available to the various national authorities as early as January 1992.
August 1, 2001
The Two Monetary Approaches to the Balance of Payments: Keynesian and Johnsonian
Description: This paper emphasizes the distinction between two ‘monetary approaches to the balance of payments’, one developed in the IMF, the other under the leadership of Harry Johnson in Chicago. The IMF approach is presented as an evolutionary development of the Kahn/Keynes multiplier model in an open economy. Johnson’s approach is anti-Keynesian and self-proclaimed revolutionary. It posits the ‘essentially monetary character’ of the balance of payments. The IMF model tests satisfactorily as an explanation of income and imports over time. The long-run equilibrium approach of the Chicago model precludes statistical testing, and its short-run tests prove statistically meaningless.
August 1, 2001
Can Inheritances Alleviate the Demographic Burden?
Description: With pay-as-you-go schemes in place, population aging will impose a heavy fiscal burden on young and future cohorts. However, these cohorts may also profit from larger inheritances as the number of heirs declines. The aim of this paper is to explore the compensating potential of private intergenerational transfers. A dynamic, computable general equilibrium model is employed allowing for a pay-as-you-go scheme, various bequest motives, and an endogenous labor supply. The findings are twofold. First, the increase in future generations' inheritances is insufficient to make up for the demographic burden. Second, increasing the inheritance tax during the demographic transition may alleviate the fiscal burden of future generations by improving overall efficiency.
August 1, 2001
Districting and Government Overspending
Description: The common-pool problem is a central issue in the relationship between the political structure of jurisdictions and the size of public spending. Models predict that, other things being equal, greater political districting of a jurisdiction raises the scale of government. This paper presents new evidence on this and related predictions from a cross-section of city governments in the United States. The main finding is that one additional legislator is associated, on average, with 3 percent larger expenditures per capita. Evidence also suggests that forms of government with strong executives, particularly those with veto powers, break the link between districting and government size.
August 1, 2001
The Gender Gap in Education in Eritrea in 1991-1998: A Missed Opportunity?
Description: This paper shows that during the 1990s, and before the 1998-2000 border war with Eritrea, the gender gap in education in Eritrea has widened on the national level, and large regional disparities have persisted. The gender gap appears to be linked to lower female teacher participation and limited employment opportunities. The widening of the gender gap is likely to have a long-term negative impact on both economic growth and poverty reduction.