A RESPECIFIED TAX-ADJUSTED FISHER RELATION

How much will a 1% increase in expected inflation increase nominal interest rates? Irving Fisher's famous equation implies that nominal interest rates will rise in proportion to an increase in expected inflation. Darby and Feldstein, correcting the Fisher equation for taxation, predict a nominal interest rate increase of [1/(1 - T)]% where T is the marginal tax rate: i.e., if T =3, then a 1 % increase in expected inflation should cause a 1.4 % rise in interest rates. Empirical evidence, however, suggests that the rise in interest rates is much smaller than the Darby/Feldstein prediction. Estimates are around 9, varying mostly between 5 and 1.15, which is much closer to Fisher's original prediction. It is important to know the size of the interest rate response to inflation expectations in a world in which inflation and interest rates are volatile and in which tax laws are designed to influence savings and investment through interest rates. In this paper we attempt to close the gap between theorized and estimated effects of inflation by incorporating into the Fisher equation two important aspects of the U.S. tax code: historic cost depreciation and the lower tax rate on capital gains. Our model shows that the effect of expected inflation on interest rates is dampened by the lower benefits from depreciation deductions arid the capital gains tax. Our corrected Fisher equation predicts a 1.12 % nominal interest rate increase, rather than the 1.4 % increase implied by the Darby/Feldstein model. The, our model closes about 56 % of the gap between theory and empirical evidence. The remainder could be closed by additional refinements in the model or better empirical modeling.     

The Conundrum of Low Saving Rates in Latin America

Despite extensive economic reforms during the late 1980s/early 1990s, Latin America's saving rates remain low. This article examines the saving behaviour of 18 Latin American countries in the 1976‐2000 period and compares it with that of 25 other developing countries. It finds that lower inflation, income growth and increased real interest rates on deposits have not had the expected effects on saving rates in Latin America. Instead, the determinants of saving behaviour appear to differ between the two groups of countries, and saving rates are affected by a degree of inertia. Although more research is needed, this indicates that the focus of the neoliberal economic reforms of the 1980s was misplaced.     

THE FINANCIAL AND TAX EFFECTS OF MONETARY POLICY ON INTEREST RATES

Standard analysis of monetary policy effects on interest rates in terms of liquidity, income, and expectations effects is incomplete. After a change in monetary policy, substitution among securities will increase as time elapses and so reduce or eliminate financial effects caused by short-run financial market segmentation. Also, the standard expectations effect omits the transfer of income tax liability on that part of the interest payment representing a return of real capital. So a 1 percentage point increase in the expected inflation rate should increase the nominal interest rate by 1/(1 —τ) percentage points, τ being the marginal tax rate.     

INTEREST RATE CEILINGS AND THE ROLE OF SECURITY AND COLLECTION REMEDIES IN LOAN CONTRACTS

Collateral or other security for personal loans and restrictions on creditor remedies for the collection of debts have varying effects on the price and quantity of credit which depend in turn on the level of interest rate ceilings. We report here on reduced-form equations of a supply-demand model estimated for five states with different interest rate restrictions. Interest rate ceilings limit how far lenders can raise loan rates to compensate for expected default losses but restrictions on collection remedies are generally associated with a higher interest rate.     

INVESTMENT AND THE NOMINAL INTEREST RATE: THE VARIABLE VELOCITY CASE

Models treating money either as a consumer good or as a producer good are encompassed by a model in which both households and firms use money as a buffer between receipts and expenditures. A rise in nominal interest rates increases resources devoted to intermediation, while discouraging purchases financed from accumulated cash. If investment is financed from contemporaneous earnings, there is a tendency to substitute out of consumption and into investment when interest rates are high. Greater resources devoted to intermediation generate a negative wealth effect. The net impact on investment is ambiguous.     

Unwanted sexual contact on campus: a comparison of women's and men's experiences

While sexual victimization continues to be a problem on college campuses, recent attention has been drawn to understanding gender differences in victimization rates and consequences. To date, these studies remain relatively few in number. The current study surveyed 651 male and female undergraduate students about unwanted sexual experiences during 1 academic year. Comparison of men and women revealed expected differences in incidence rates, with women reporting higher rates of unwanted contact. Within the subsample of reported victims, however, there was gender similarity in terms of the context of unwanted sexual experiences. Analyses also revealed the negative consequences of these experiences for both men and women and low rates of disclosure regardless of gender. Across the full sample of students surveyed, there were interesting gender differences in knowledge of campus support services, with women more likely to have attended a prevention program and to have indicated greater knowledge of rape crisis services.     

Monetary Policy Announcements and Stock Returns: Evidence from the Pakistani Market

Objective of this paper is to analyze the impact of monetary policy announcements on stock returns. Event window of 31 days and an estimation window of 250 days was constructed. ARIMA model is applied to calculate the estimated returns from estimation window (t ? 250). Abnormal returns were calculated by taking the difference between actual and estimated returns. Then abnormal returns were aggregated as cumulative abnormal returns (CAR). CAR at 30% showed an impact of monetary policy announcements on stock returns. Null hypothesis of zero abnormal returns was rejected since the results were found in critical region under normal distribution. Further, we decomposed the interest rate into expected and un-expected to analyze their impact on stock returns. After checking for stationarity, Engle–Granger co-integration test were applied to check long run relationship between interest rates and stock return. A significant effect of interest rates (expected and un-expected) was observed in the short run. These results are in line with Kuttner’s (J Monet Econ 47:523–544, 2001), Bernanke and Kuttner’s (J Financ 60:1221–1257, 2005), Bredin et al.’s (US stock returns the impact of domestic monetary policy shocks, http://www.ucd.ie/t4cms/wp0604.pdf, 2007) and Ehrmann and Fratzscher’s (Equal size, equal role? Interest rate interdependence between the Euro Area and the United States, European Central Bank Working Paper 342, 2004). The study finds evidence of LR relationship between un-expected interest rates and whereas expected interest rates and stock returns have short term relationship.     

CAN MONETARY POLICY INFLUENCE LONG‐TERM INTEREST RATES? IT DEPENDS

Can monetary policy influence long‐term interest rates? Studies that have tackled this question using vector autoregressions (VARs) generally find that monetary policy's influence on long‐term interest rates is small and often statistically insignificant. Other studies, however, using a single‐equation approach, have found a robust relationship. Our study sheds new light on this question by estimating the effect of monetary policy shocks on long‐term interest rates in a VAR with long‐run monetary neutrality restrictions. We find that U.S. monetary policy can strongly influence long‐term interest rates, but only when the Federal Reserve has inflation‐fighting credibility and is able to firmly anchor inflationary expectations. (JEL E43, E51, E52)     

Are the Effects of Monetary Policy Asymmetric?

By building on the Hamilton (1989) Markov switching model, we examine questions like: Does monetary policy have the same effect in expansions and recessions? Given that the economy is currently in a recession, does a fall in interest rates increase the probability of an expansion? Does monetary policy have an incremental effect on the growth rate within a given state, or does it only affect the economy if it is sufficiently strong to induce a state change (e.g., from recession to expansion)? As suggested by models with sticky prices or finance constraints, interest rate changes have larger effects during recessions.     

A MONETARY BUSINESS CYCLE MODEL FOR INDIA

A New Keynesian monetary business cycle model is constructed to study why monetary transmission in India is weak. Our models feature banking and financial sector frictions as well as an informal sector. The predominant channel of monetary transmission is a credit channel. Our main finding is that base money shocks have a larger and more persistent effect on output than an interest rate shock, as in the data. The presence of an informal sector hinders monetary transmission. Contrary to the consensus view, financial repression in the form of a statutory liquidity ratio and administered interest rates, does not weaken monetary transmission. (JEL E31, E32, E44, E52, E63)     

Fertility expectations and ethnic identity among Mexican-American adolescents: an expression of cultural ideals

1980 survey data from 2 secondary schools in Arizona are studied to explain the differences in expected fertility of Mexican American and Anglo adolescents. Mexican Americans have maintained higher fertility rates than the national average, and this study helps clarify how cultural heritage and socioeconomic status relate to family formation patterns. The model, which is based on expected fertility rates of adolescents which parallel those of adults, predicts higher fertility rates for minority group members at every level of socioeconomic status. Male adolescent Anglos expect an average of 2.27 children, whereas female adolescent Anglos expect only 2.11. In both instances for Mexican Americans, the expected number is higher: 2.78 for males, 2.68 for females. Mexican American adolescents who speak Spanish at home are more likely to expect 3, 4, 5, or more children, whereas those who speak English at home are more likely to remain childless or to expect less than 2 children. Similarly, the adolescent with a Mexican born father is more likely to expect more children than the adolescent with a native born father. Tucson residents are less likely to expect 2 or more children, while Nogales (80% Mexican origin) residents are more likely to expect 3, 4, or 5 children. The acculturation factors that help to explain the high birth rate expectations of Mexican Americans are: 1) language, 2) generation, and 3) neighborhood. At every level of expected educational attainment and occupational level, Mexican Americans expect more children than Anglos. Socioeconomic status of the family of origin is the crucial variable linking fertility to socioeconomic status. The actual fertility of minority groups should not be mistaken for the expected fertility of minority groups; both are subject to different influences. However, differences in fertility expectations of Mexican American adolescents and their Anglo counterparts parallel the differences in the actual fertility rates of these groups.     

Mining the Data: Analyzing the Economic Implications of Mining for Nonmetropolitan Regions

Extractive industries such as logging and mining are generally expected to bring significant economic benefits to rural regions, but a growing number of findings have now challenged that common expectation. Still, it is not clear whether the findings of less–than–desirable economic outcomes are isolated or representative. In this article, we assemble literally all of the relevant quantitative findings on mining that we have been able to identify in published and/or technical literature from the United States. In the interest of rigor, we limit the assessment to cases in which strictly nonmetropolitan mining regions are compared against other nonmetropolitan regions and/or against those regions’ own experiences over time. Overall, 301 findings meet the criteria for inclusion. Contrary to the long–established assumptions, but consistent with more recent critiques, roughly half of all published findings indicate negative economic outcomes in mining communities, with the remaining findings being split roughly evenly between favorable and neutral/indeterminate ones. Positive findings are more likely to be associated with incomes than with poverty or (especially) unemployment rates, and they are more likely to come from the western United States, where much of the mining involves relatively large, new coal strip mines. Over half of all positive findings come from the years prior to 1982. In virtually all other categories, the plurality or majority of findings have been negative. When the patterns of findings are subjected to one–sample means tests, the only way to produce a significantly positive outcome is by combining all neutral/indeterminate findings with the positive ones, while focusing exclusively on incomes; by contrast, in the case of poverty or unemployment rates—as well as for the overall body of findings—the results are consistently and significantly negative, whether the neutral/indeterminate findings are combined with negative ones or omitted from the equations altogether. Until or unless future studies produce dramatically different findings, there appears to be no scientific basis for accepting the widespread, “obvious” assumption that mining will lead to economic improvement.     

WHAT MOTIVATES POLITICAL PREFERENCES? SELF‐INTEREST,IDEOLOGY, AND FAIRNESS IN A LABORATORY DEMOCRACY

Substantial prior literature has established that subjects in laboratory experiments are typically willing to sacrifice their own well being to make financial allocations more equal among participants. We test the applicability of this result in an environment that contains some of the key contextual issues that are usually excluded from more abstract games, but which might be important in situations involving income redistribution. Our general finding is that votes for a redistributive tax are almost entirely in accordance with self‐interest: above‐average earners vote for low tax rates and below‐average earners vote for high tax rates. A measure of subjects' preferences for fairness or equality, their self‐reported economic ideology, is not directly related to their voting behavior in this experiment. Because the ideology measure should be correlated with any intrinsic preferences regarding inequality aversion, we conclude that any preferences for fairness or inequality that our subjects possess are not strong enough to overcome self‐interest in this context. We do, however, find evidence for a possible indirect effect of ideology on choice behavior in that more conservative subjects tend to be more responsive to their self‐interest than the more liberal subjects. (JEL C90, D63)     

Social Representational Communities and the Imagined Antebellum South

Tourists come to museums with varied expectations and leave appreciating different aspects of their presentations. Thus, tourists/audiences are primed to see, hear, and experience certain representations and narratives when they enter museums. This is particularly so with plantation museums. Most Americans possess at the very least a vague sense of the antebellum South. They have a vague sense of a time and of a place populated by wealthy and esteemed plantation owners and their Black enslaved labor. We use, as our raw material, visitors’ responses to the question: “What is your level of interest in ...,” ten topics related to plantations’ presentations. This question was asked of visitors returning from tours at three plantation museums. Specifically, all three differ in their presentation of enslavement and as so, have been selected to represent the spectrum of plantation museums in regards to presentation of slavery and enslaved labor. It is expected that the differences in presentations at the three sites reflect differences in plantation audiences. To this effect, plantation audiences are mapped and viewed through the framework of social representation theory in an attempt to discern social representation communities using visitors’ levels of interest in topics/items presented on plantation tours at sites. Disregarding incidental cultural tourists, we found there to be basically two social representations that visitors to these three plantation museums hold: a nostalgic social representation and a Janus social representation.     

POLITICAL OPPORTUNISM AND COUNTERCYCLICAL FISCAL POLICY IN ELECTION‐YEAR RECESSIONS

Political budget cycles (PBCs) have been well documented in the literature, albeit not for all circumstances. Similarly, there is clear evidence on the positive effect of economic growth on electoral success. However, no work has been done on the impact of economic growth on the magnitude of PBCs. The theoretical model argues that a government has an incentive to increase fiscal manipulations when a recession is expected to hit and curtail reelection chances; this amounts to countercyclical policy for opportunistic rather than Keynesian motives. Very robust evidence for this behavior is found in Portuguese municipalities; in election years, budget deficits go up even more and significantly so, when a recession is expected. (JEL D72, E62, H62)     

Juvenile imprisonment and human capital investment

This paper analyzes the effect of juvenile imprisonment on educational investment incentives. The model shows that if some adolescents are likely to be in trouble with law, their chances to complete education and thus the expected value of investment in their human capital are negatively affected. As a consequence, their parents not only optimally invest less in the offspring’s education but also give birth to more children. The analysis helps to understand why some minority groups who for exogenous reasons are more likely to be convicted of crime exhibit higher reproduction rates and lower levels of education. It also demonstrates that prison education may have unintended adverse consequences.     

Comparing the New Zealand and Swedish National Surveys of Gambling and Problem Gambling

National surveys of gambling and problem gambling have recently been completed in New Zealand and Sweden. These studies are unique in that data collection was undertaken by official government statistical agencies, involved large, nationally representative samples, and attained high response rates. Comparison of the findings is facilitated by the use of similar procedures and instrumentation and is of interest in that both countries have similar per capita gambling expenditure and welfare states that have recently undergone major economic and social restructuring. Data on gambling participation, problem gambling prevalence and risk factors for problem gambling are presented and discussed. While there are a number of similarities and differences, the Swedish findings are more similar to those of an earlier national survey conducted in New Zealand during 1991. This suggests that risk factors are changing over time in relation to evolving patterns of gambling participation and attitudes towards gambling, a finding that has implications for future patterns of gambling and problem gambling in these and other countries.     

A consumer theory with competitive markets for work in marriage

The theory presented here aims at explaining individual consumer behavior inside marriage and prior to marriage. It is a New Home Economics (NHE) model in the sense that it assumes the existence of household production. It is an intra-household bargaining model in the sense that it assumes that husbands and wives typically have different economic interests with respect to marriage, and they try to negotiate arrangements that suit them best. The more resources they have, the more they may obtain results that favor them rather than their spouse. It is a market theory similar to standard labor market theory. This theory throws light on gender differences in demand for commercial goods that have home-produced substitutes. This theory leads to an explanation why women are charged more for dry-cleaning. The theory can also explain differences in demand for different products. Predictions include that of a sex ratio effect on consumption. For example, it is predicted that in countries with more emigration of men than women, women will be expected to make higher contributions to newly weds’ costs of housing. It is also predicted that there will be compensating differentials in marriage. For instance, women married to considerably older men are expected to have relatively more control over the use the couple’s income than women married to men who are close to their own age. In contrast to bargaining theory, the insights presented here apply to both married individuals and to those who anticipate being married in the future.     

ESTIMATING THE FISHER EFFECT AND THE STOCHASTIC MONEY GROWTH PROCESS

This paper demonstrates that a change in the stochastic process generating money can alter the relationships between money and inflation and between inflation and interest rates. The extent to which inflation is forecastable is shown to depend significantly on the extent to which money is forecastable. Thus, the greater the persistence and forecastability of money, the greater the likelihood of observing a statistically significant Fisher effect.
US. data over the 1953–86 period are used to demonstrate that instability in the Fisher effect coincides with changes in the stochastic process generating money. There is a significantly stronger Fisher effect during a subsample in which money—and hence inflation—are more predictable.     

The time-varying performance of the long-run demand for money in the United States

This article investigates the issues of the stability and predictability and interest-sensitivity of money demand over 1870–1997. Two different estimation methodologies are used - random coefficient (RC) modeling and vector error correction (VEC) modeling. The former procedure allows the profiles of the coefficients to be traced over time and relaxes several restrictions routinely imposed in applied work. The results indicate that different estimation methodologies using different data periods and frequencies yield estimates of some of the coefficients of the long-run demand for money that fall within a fairly narrow range. The results also suggest that specification errors have had an important influence on the time profile of the interest elasticity of money demand and that there is a tendency for the interest elasticity to decline in absolute value as interest rates decline.