The welfare cost of macroeconomic uncertainty in the post-war period

With standard assumptions on preferences and a fully-fledged econometric model we computed the welfare costs of macroeconomic uncertainty for post-war U.S. using the BeveridgeNelson decomposition. Welfare costs are about 0.9% per-capita consumption ($175.00) and marginal welfare costs are about twice as large.

The consistency of welfare judgements with a representative consumer

This paper is about economies with a representative consumer. In general a representative consumer need not exist, although there are several well known sets of sufficient conditions under which Qne will. It is common practice, however, to use the representative consumer hypothesis without specifically assuming any of these. We show, firstly, that it is possible for the utility of the representative consumer to increase when every actual consumer is made worse off. This shows a serious shortcoming of welfare judgements based on the representatíve consumer. Secondly, in economies where this does not occur, there exists a social welfare function, which we construct, which is consistent with welfare judgements based on the utility of the representative consumer. Finally we provide a converse to Samuelson' s 1956 representative consumer result, which relates it to Scitovsky's community indifference curves.

An intra-household approach to the welfare costs of inflation

The literature on the welfare costs of in‡ation universally assumes that the many-person household can be treated as a single economic agent. This paper explores what the heterogeneity of the agents in a household might imply for such welfare analyses. First, we show that allowing for a single-unity or for a multi-unity transacting technology impacts the money demand function and, therefore, the welfare costs of in‡ation. Second, we derive su¢cient conditions that make the welfare assessments which depart directly from the knowledge of the money demand function (as in Lucas (2000)) robust under this alternative setting. Third, we compare our general-equilibrium measure with Bailey’s (1956) partial-equilibrium one.

Public expenditures taxation and welfare measurement

this article addresses the welfare and macroeconomics effects of fiscal policy in a frarnework where govemment chooses tax rates and the distribution of revenues between consumption and investment. We construct and simulate a model where public consumption affects individuaIs' utility and public capital is an argument of the production function. The simulations suggest that by simply reallocating expenditures from consumption to investment, the govemment can increase the equilibrium leveIs of capital stock, hours worked, output and labor productivity. Funhennore, we 'show that the magnitude and direction of the long run impact of fiscal policy depends on the size of the elasticity of output to public capital. If this parameter is high enough, it may be the case that capital stock, within limits, increases with tax rates.

Two additions to Lucas's "inflation and welfare"

This work adds to Lucas (2000) by providing analytical solutions to two problems that are solved only numerically by the author. The first part uses a theorem in control theory (Arrow' s sufficiency theorem) to provide sufficiency conditions to characterize the optimum in a shopping-time problem where the value function need not be concave. In the original paper the optimality of the first-order condition is characterized only by means of a numerical analysis. The second part of the paper provides a closed-form solution to the general-equilibrium expression of the welfare costs of inflation when the money demand is double logarithmic. This closed-form solution allows for the precise calculation of the difference between the general-equilibrium and Bailey's partial-equilibrium estimates of the welfare losses due to inflation. Again, in Lucas's original paper, the solution to the general-equilibrium-case underlying nonlinear differential equation is done only numerically, and the posterior assertion that the general-equilibrium welfare figures cannot be distinguished from those derived using Bailey's formula rely only on numerical simulations as well.

An intra-household approach to the welfare costs of inflation (Revised Version, Forthcoming 2006, Estudos Econômicos)

The literature on the welfare costs of ináation universally assumes that the many-person household can be treated as a single economic agent. This paper explores what the heterogeneity of the agents in a household might imply for such welfare analyses. First, we show that allowing for a one-person or for a many-person transacting technology impacts the money demand function and, therefore, the welfare costs of ináation. Second, more importantly, we derive su¢ cient conditions under which welfare assessments which depart directly from the knowledge of the money demand function (as in Lucas (2000)) are robust (invariant) under the number of persons considered in the household. Third, we show that Baileyís (1956) partial-equilibrium measure of the welfare costs of ináation can be obtained as a Örst-order approximation of the general-equilibrium welfare measure derived in this paper using a many-person transacting technology.

Internacionalização, democracia e gasto social na América Latina, 1980-1999

Neste trabalho examinamos o impacto da globalização sobre os gastos sociais nos países da América Latina. Para medir o nível de internacionalização das economias latino-americanas, construímos um novo indicador de abertura financeira baseada na codificação proposta por Dennis Quinn (1997). Nossos resultados apontam para duas lógicas sobre a qual os efeitos da globalização se fazem sentir. A abertura comercial tem um impacto negativo sobre o gasto social, enquanto a abertura financeira se relaciona positivamente com o mesmo tipo de gasto. Além disso, governos democráticos tendem a gastar mais em programas sociais. De modo geral, nossa pesquisa conclui que a globalização é um fenômeno complexo, apresentando simultaneamente conseqüências positivas e negativas para o financiamento dos programas sociais na América Latina.

Distributive politics in Latin América: the impact of democracy, eletions and globalization on the welfare state

A tese busca examinar dois desenvolvimentos de grandes conseqüências na América Latina nas últimas três décadas do século XX. Ela procura testar as teorias sobre políticas distributivas examinando os efeitos da democracia e da globalização no estado de bem-estar na América Latina utilizando dados de séries temporais para 15 países entre 1973 e 2000.

The missing link: using the NBER recession indicator to construct coincident and leading indices economic activity

We use the information content in the decisions of the NBER Business Cycle Dating Committee to construct coincident and leading indices of economic activity for the United States. We identify the coincident index by assuming that the coincident variables have a common cycle with the unobserved state of the economy, and that the NBER business cycle dates signify the turning points in the unobserved state. This model allows us to estimate our coincident index as a linear combination of the coincident series. We establish that our index performs better than other currently popular coincident indices of economic activity.

The missing link: using the NBER recession indicator to construct coincident and leading indices economic activity

We use the information content in the decisions of the NBER Business Cycle Dating Committee to construct coincident and leading indices of economic activity for the United States. We identify the coincident index by assuming that the coincident variables have a common cycle with the unobserved state of the economy, and that the NBER business cycle dates signify the turning points in the unobserved state. This model allows us to estimate our coincident index as a linear combination of the coincident series. We establish that our index performs better than other currently popular coincident indices of economic activity.

Inflation, welfare and public expenditures

This paper studies welfare effects of monetary policy in an overlapping generations model with capital and no form of taxation other than inflation. Public expenditures have a positive effect on labor productivity. The main result of the paper is that an expansive monetary policy can be welfare improving, at least for ìsmall enoughî inflation rates, and that there is an optimal inflation rate. Growth maximization, however, is never optimal. Steady-state capital and output increase with inflation, reproducing the so-called Tobin effect. For large inflation rates, however, the government authorities cannot affect real variables and there are only nominal effects.

Bailey's rule for the welfare of inflation: a theoretical foundation

This paper demonstrates that for a very general class of monetary models (the Sidrauski type models and the cash-in-advance models), Bailey’s rule to evaluate the welfare efect of infation is in deed accurate. The result applies for any technology or preference, if the long-run capital stock does not depend on the ination rate. In general, a dynamic version of Bailey’s rule is established. In particular, the result extends to models in which there is a banking sector that supplies money substitutes services. A dditionally, it is argued that the relevant money demand concept for this issue- the impact of in ination under welfare- is the monetary base.

Welfare costs of inflation when interest-bearing deposits are disregarded: a calculation of the bias

Most estimates of the welfare costs of in ation are devised considering only noninterest- bearing assets, ignoring that since the 80s technological innovations and new regulations have increased the liquidity of interest-bearing deposits. We investigate the resulting bias. Suscient and necessary conditions on its sign are presented, along with closed-form expressions for its magnitude. Two examples dealing with bidimensional bilogarithmic money demands show that disregarding interest-bearing monies may lead to a non-negligible overestimation of the welfare costs of in ation. An intuitive explanation is that such assets may partially make up for the decreased demand of noninterest-bearing assets due to higher in ation.

Welfare characterization of monetary-applied models and three implications

This paper demonstrates that the applied monetary models - the Sidrauski-type models and the cash-in-advance models, augmented with a banking sector that supplies money substitutes services - imply trajectories which are Pareto-Optimum restricted to a given path of the real quantity of money. As a consequence, three results follow: First, Bailey’s formula to evaluate the welfare cost of inflation is indeed accurate, if the longrun capital stock does not depend on the inflation rate and if the compensate demand is considered. Second, the relevant money demand concept for this issue - the impact of inflation on welfare - is the monetary base. Third, if the long-run capital stock depends on the inflation rate, this dependence has a second-order impact on welfare, and, conceptually, it is not a distortion from the social point of view. These three implications moderate some evaluations of the welfare cost of the perfect predicted inflation.