NEW EVIDENCE ON INCOME AND THE VELOCITY OF MONEY

Time series and cross-country empirical results suggest that cash holding as a proportion of income rises, or equivalently that velocity falls, as income increases. Numerous cross sectional findings at many points in time, in several countries conclude oppositely. It is argued here that the former findings suffer from omitted variable bias by ignoring sociodemographic variables affecting the demand for cash balances. When one incorporates such demand shifters into the analysis the time series and cross-country findings are seen as consistent with the critically reexamined cross sectional result that velocity increases with income.     

THE VELOCITY OF MONEY: EVIDENCE FOR THE U.K. 1911–1966

This paper presents secular evidence on the income velocity of money, exploring the issue of the superiority of money balances. Under a variety of specifications and statistical techniques, employed on both traditional and non-traditional variables, the Friedman assertion that money is a superior good is found to lack empirical support. Indeed, income elasticities of demand for M₂ balances of .3 to .45 are observed, elasticities much smaller than previously thought.     

Determinants of International Migration Flows to and from Industrialized Countries: A Panel Data Approach Beyond Gravity1

We quantified determinants of international migratory inflows to 17 Western countries and outflows from 13 of these countries between 1950 and 2007 in 77,658 observations from multiple sources using panel-data analysis techniques. To construct a quantitative model that could be useful for demographic projection, we analyzed the logarithm of the number of migrants (inflows and outflows separately) as dependent variables in relation to demographic, geographic, and social independent variables. The independent variables most influential on log inflows were demographic [log population of origin and destination and log infant mortality rate (IMR) of origin and destination] and geographic (log distance between capitals and log land area of the destination). Social and historical determinants were less influential. For log outflows from the 13 countries, the most influential independent variables were log population of origin and destination, log IMR of destination, and log distance between capitals. A young age structure in the destination was associated with lower inflows while a young age structure in the origin was associated with higher inflows. Urbanization in destination and origin increased international migration. IMR affected inflows and outflows significantly but oppositely. Being landlocked, having a common border, having the same official language, sharing a minority language, and colonial links also had statistically significant but quantitatively smaller effects on international migration. Comparisons of models with different assumed correlation structures of residuals indicated that independence was the best assumption, supporting the use of ordinary-least-squares estimation techniques to obtain point estimates of coefficients.     

UNDERSTANDING THE COSTS OF CONSUMER DURABLE ADJUSTMENTS

This article examines whether adjustment frictions help account for the patterns of household consumption expenditures observed in the Consumer Expenditure Survey, namely, that the variance of log durable expenditure is four times larger than that of log nondurable expenditure for annual data and this gap substantially widens for quarterly data. Estimating a structural model of household consumption with nondurable and durable goods with the simulated method of moments, I find that the fixed costs associated with durable adjustments are important in matching the cross‐sectional moments. Using the estimated model, I also examine the response of nondurable and durable expenditures to income shocks. (JEL D12, D91, E21)     

THE NONMONETARY EFFECTS OF FINANCIAL FACTORS DURING THE INTERWAR PERIOD

This paper employs vector autoregressions to estimate the nonmonetary effects of financial sector shocks on output and prices during the interwar period. Variance decompositions indicate that the nonmonetary financial proxies have significant and important effects. Impulse response functions indicate that most of the significant shocks to our financial crisis proxies have negative effects on output and prices. Focusing on the depressed conditions of the 1930s, historical decompositions indicate that the nonmonetay financial crisis variables are generally more important than the monetary base in explaining macro behavior. Our findings thus support theoretical models emphasizing the important nonmonetay effects of financial variables.     

MORAL MESSAGES: THE RELATIVE INFLUENCE OF DENOMINATION ON THE RELIGIOSITY-ALCOHOL RELATIONSHIP

This article examines the use and misuse of alcohol across religious denominations. After controlling for standard sociodemographic variables, we find that the impact of religiosity on alcohol use is greatest among those denominations taking a strong stand against its consumption, mainly because religion constitutes a significant reference group for members. We also find that religiosity fails to influence misuse, and discuss the possible reasons for this result.     

THE IMPORTANCE OF SECTORAL AND AGGREGATE SHOCKS IN BUSINESS CYCLES

The theoretical literature on business cycles proposes numerous causes for their occurrence. This paper attempts to measure the relative importance of aggregate, whether real or nominal, and sectoral factors in generating real economic fluctuations, as well as to identify economic variables that are correlated with the various factors. Empirical results indicate that both aggregate and industry-level factors are statistically significant in explaining variations in output with the aggregate factor being the most important. Some evidence is presented that links the aggregate factor with monetary variables.     

INSTITUTIONAL CHANGE AND THE VELOCITY OF MONEY: A CENTURY OF EVIDENCE

We study common features in the income velocity of money, income, and interest rates for Canada, the U.S., the U.K., Sweden and Norway using annual data from 1870. The recently developed and refined techniques of testing for cointegration are employed.
The evidence suggests there is a unique long-run relationship in velocity but not in income and interest rates. Moreover, we find that only a model which includes institutional change proxies is properly specified. We argue that the evidence is best interpreted in the context of common historical developments in the respective countries' financial systems.     

MORTGAGE LENDING IN BOSTON: A RECONSIDERATION OF THE EVIDENCE

Is there statistical evidence of racial discrimination in home mortgage markets? The Boston Fed recently addressed this concern head-on, by collecting all available data from loan applications in Boston. They find that the extent of discrimination is reduced after one accounts for all of the confounding variables measured in these applications, but that it remains statistically significant. However, their strong conclusions are unwarranted due to the use of invalid statistical methods. Correctly evaluated, their data provide no significant evidence of racial discrimination in mortgage markets. (JEL K31, J7)     

THE THREAT OF VICTIMIZATION: A THEORETICAL RECONCEPTUALIZATION OF FEAR OF CRIME

Prior analysis in fear of crime research designates fear of crime as the dependent variable and designates independent variables that cause its existence. Two independent variables that are often discussed as causes of fear of crime are perceived risk and constrained behaviors. This paper critiques this conceptualization of fear of crime and argues that the focus of study should not be fear of crime but a larger construct called “the threat of victimization.” The threat of victimization consists of three components; the emotive component (fear of crime), the cognitive component (perceived risk), and the behavioral component (constrained behaviors). Therefore, fear of crime is not a consequence of perceived risk and constrained behaviors, but is instead involved in a complex reciprocal relationship with these two variables. This theoretical argument and its implications will be explored.     

STRUCTURAL UNEMPLOYMENT IN THE UNITED STATES: THE EFFECTS OF INTERINDUSTRY and INTERREGIONAL DISPERSION

The effects of sectoral shifts, measured by dispersion in the growth rates of employment or earning across industries or regions, on unemployment are tested in a specification controlling for the effects of other labor-market variables and shifts in the demographic composition of the labor force. Interindustry and geographical shifts in labor demand have significant unemployment effects, with adult males the group most strongly affected. The estimated equations imply that most of the fluctuation in unemployment over the period 1956-87 was been due to microeconomic causes rather than aggregate demand.     

THE EFFECT OF FEAR OF SEXUAL VICTIMIZATION ON ADOLESCENT FEAR OF CRIME

The author examines the effect of fear of sexual victimization on fear of crime among adolescents. Criminologists have indicated that gender is one of the strongest predictors of fear of crime: Women are more fearful than men. Some authors (Warr 1984, and Ferraro 1995, among others) have suggested that this differential fear among women can mostly be attributed to their inordinate fear of sexual victimization. This relationship, however, has only been examined among adults. Using a sample of 725 adolescents, the effect of fear of sexual victimization and other demographic and contextual variables on fear of criminal victimization is examined. Results indicate that fear of sexual victimization is the best predictor of fear of nonsexual victimization, whereas the effects of other variables are contingent on race and gender. The reasons for this finding, as well as the implications for social policies, are discussed.     

THE POWER OF THE LITTLE BLUE PILL: INNOVATIONS AND IMPLICATIONS OF LIFESTYLE DRUGS IN AN AGING POPULATION

The launch of Viagra in April 1998 led to a historically unprecedented high usage of erectile dysfunction (ED) drugs. We test whether Viagra's introduction significantly influenced outcomes for its target population such as sexually transmitted disease (STD) rates of older men, as well as its nontarget populations, such as divorces, natality, the distribution of the age spread within couples, female STDs, and sexual assault rates. We find causal evidence that Viagra's introduction increased gonorrhea rates in older men by 15%–28%. We find no significant evidence of any effects on other variables. We take this as evidence that this lifestyle drug causes significant changes in choices only which affect short‐term outcomes, while long‐term planned decisions are unaffected. Overall, we find that the welfare impacts of Viagra with respect to our outcomes of interest are positive and large. (JEL I1, J1, O33)     

SWITCHING REGRESSION ESTIMATES OF THE INTERGENERATIONAL PERSISTENCE OF CONSUMPTION

The influential economic theory of intergenerational transfers predicts a negative connection between credit constraints and intergenerational mobility of consumption. Existing work has used bequest receipt to signal a parent's access to credit markets when investing in his children's human capital. However, measurement error in bequest receipt generates misclassification error and, in turn, attenuation bias. Employing switching regressions with imperfect sample separation to deal with this error, we show that the intergenerational persistence of consumption in the United States for credit constrained families is much higher than that for unconstrained families, contrary to what the theory implies. This means that children from constrained families are more likely to have consumption levels similar to those of their parents than children from unconstrained families. Our results are robust to the choice of bequest variables and other predictive variables in the switching equation. (JEL C13, D12, E21, J62)     

TOWARD A REVISED FRAMEWORK FOR EXAMINING BELIEFS ABOUT THE CAUSES OF POVERTY

This study uses survey data from Baltimore, Maryland to assess predictions from the dominant ideology thesis and the public arenas theory concerning causal beliefs about three specific types of poverty—welfare dependency, homelessness and impoverished migrant laborers. Findings indicate that the incidence and determinants of causal beliefs are more complex than has been reached in prior "generic' poverty research and the findings provide greater support for the public arenas theory. Three findings are of particular note: (1) sample respondents have distinctive causal beliefs for different types of poverty: for welfare dependency, individualistic beliefs are dominant; for homelessness, structural causes are emphasized; a causal "middle ground' is most popular for impoverished migrant laborers (2) status characteristics do not operate as determinants of causal beliefs in a straightfor-ward fashion for any of the three poverty types and, (3) variables that measure types of exposure to, and perceived racial composition of, the poor are also significant determinants of causal beliefs. The effects of variables that measure perceived racial composition are particularly strong and the pattern of "color coding' suggests that racial prejudice shapes causal beliefs about the plight of the poor. The implications of the findings for the mobility opportunities of the three impoverished groups are discussed.     

THE CONSEQUENCES OF COSTLY DEFAULT

This paper investigates the consequences of assuming that default on loans or corporate debt is costly; that is, the act of default imposes a deadweight cost on the economy. The analysis deals with two simple capital market models. Conditions for capital market equilibrium nominal interest rates and probability of default to exist are given and the comparative statics of these equilibrium variables with respect to changes in expectations, productivity of investment, cost of default and riskless interest rates are examined. In many cases these comparative static results are unambiguous in sign.     

EXCHANGE RATE VOLATILITY: THE ROLE OF REAL SHOCKS AND THE VELOCITY OF MONEY

The effects of stochastic output shocks on the behavior of ex-change rates and nominal price levels is studied within the context of a two-country, cash-in-advance model. The analysis of this model, in contrast to the existing cash-in-advance literature, demonstrates that exchange rates can be more volatile than price levels even though agents' elasticity of substitution between foreign and domestic goods is greater than one-half. This possibility arises when output shocks are autocorrelated and are due to revisions in expectations that affect the terms of trade and/or the velocity of money.     

THE PREDICTABILITY OF COLLEGE FINANCIAL AID OFFERS: EVIDENCE FROM THE CLASS OF 1972

Two aid predictor models (binomial logit/regression and Tobit) were fitted to the subset of aid applicants from the National Longitudinal Survey of the High School Class of 1972 who had been accepted for admission by at least one college. Although undergraduate financial aid programs are designed to compensate for financial need, variables related to financial need were found to be relatively poor predictors of college aid offers and the inclusion of "non-need" variables did not measurably improve the predictive power of the model. These results suggest that disbursement of financial aid funds through college aid offices in 1972 was both inefficient and inequitable.     

INTERMARRIAGE AND THE LABOR MARKET OUTCOMES OF ASIAN WOMEN

The impact of intermarriage with natives, on labor market outcomes of immigrants, is not homogeneous across ethnic groups. Wages of Asian women are compared with non‐Asians. Both ordinary least squares and instrumental variables estimates of the effects of intermarriage on the wages of Asian women are negative and significant. Non‐Asian women earn a wage premium that becomes insignificant when controls for selection into marriage are introduced. One possible explanation for the intermarriage penalty for Asians is an income effect of having a high‐earning native husband. Intermarriage penalties rise with husband's education. Assimilation patterns of intermarried Asians indicate that they have lower initial wages, market hours, and employment, but exhibit faster rates of growth over their years of stay. The results are robust across Asian subgroups and husband's ethnicity. (JEL J16, J12, J31, J61)     

THE LONG RUN BEHAVIOR OF THE INCOME VELOCITY OF MONEY IN FIVE ADVANCED COUNTRIES, 1870–1975: AN INSTITUTIONAL APPROACH

The income velocity of money in Canada, the United States, Great Britain, Norway and Sweden displays a U-shaped pattern over the last one hundred years. This paper presents and tests empirically an explanation for this secular pattern emphasizing the influence on velocity of institutional changes. The inclusion into a simple velocity function of institutional developments such as the process of monetization, the spread of commercial banking, financial development and the growth of economic stability improves the explanation of long-run movements in velocity provided by a regression of velocity on real permanent income per head and the interest rate.