This paper summarizes five facts that have emerged from the recent literature on consumption behavior during retirement. Collectively, the recent literature has shown that there is no puzzle with respect to the spending patterns of most households as they transition into retirement. In particular, the literature has shown that there is substantial heterogeneity in spending changes at retirement across consumption categories. The declines in spending during retirement for the average household are limited to the categories of food and work related expenses. Spending in nearly all other categories of non-durable expenditure remains constant or increases. Moreover, even though food spending declines during retirement, actual food intake remains constant. The literature also shows that there is substantial heterogeneity across households in the change in expenditure associated with retirement. Much of this heterogeneity, however, can be explained by households involuntarily retiring due to deteriorating health. Overall, the literature shows that the standard model of lifecycle consumption augmented with home production and uncertain health shocks does well in explaining the consumption patterns of most households as they transition into retirement.
{"title":"The Retirement of a Consumption Puzzle","authors":"Erik Hurst","doi":"10.3386/W13789","DOIUrl":"https://doi.org/10.3386/W13789","url":null,"abstract":"This paper summarizes five facts that have emerged from the recent literature on consumption behavior during retirement. Collectively, the recent literature has shown that there is no puzzle with respect to the spending patterns of most households as they transition into retirement. In particular, the literature has shown that there is substantial heterogeneity in spending changes at retirement across consumption categories. The declines in spending during retirement for the average household are limited to the categories of food and work related expenses. Spending in nearly all other categories of non-durable expenditure remains constant or increases. Moreover, even though food spending declines during retirement, actual food intake remains constant. The literature also shows that there is substantial heterogeneity across households in the change in expenditure associated with retirement. Much of this heterogeneity, however, can be explained by households involuntarily retiring due to deteriorating health. Overall, the literature shows that the standard model of lifecycle consumption augmented with home production and uncertain health shocks does well in explaining the consumption patterns of most households as they transition into retirement.","PeriodicalId":170505,"journal":{"name":"Macroeconomics eJournal","volume":"1 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2008-02-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"130557092","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
We examine empirically how the maturity structure of government debt affects bond yields and excess returns. Our analysis is based on a theoretical model of preferred habitat in which clienteles with strong preferences for specific maturities trade with arbitrageurs. Consistent with the model, we find that (i) the supply of long- relative to short-term bonds is positively related to the term spread, (ii) supply predicts positively long-term bonds' excess returns even after controlling for the term spread and the Cochrane-Piazzesi factor, (iii) the effects of supply are stronger for longer maturities, and (iv) following periods when arbitrageurs have lost money, both supply and the term spread are stronger predictors of excess returns.
{"title":"Bond Supply and Excess Bond Returns","authors":"R. Greenwood, Dimitri Vayanos","doi":"10.2139/ssrn.1012607","DOIUrl":"https://doi.org/10.2139/ssrn.1012607","url":null,"abstract":"We examine empirically how the maturity structure of government debt affects bond yields and excess returns. Our analysis is based on a theoretical model of preferred habitat in which clienteles with strong preferences for specific maturities trade with arbitrageurs. Consistent with the model, we find that (i) the supply of long- relative to short-term bonds is positively related to the term spread, (ii) supply predicts positively long-term bonds' excess returns even after controlling for the term spread and the Cochrane-Piazzesi factor, (iii) the effects of supply are stronger for longer maturities, and (iv) following periods when arbitrageurs have lost money, both supply and the term spread are stronger predictors of excess returns.","PeriodicalId":170505,"journal":{"name":"Macroeconomics eJournal","volume":"11 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2008-02-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"126770222","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2008-02-01DOI: 10.5089/9781451869125.001.A001
S. Roache
The economies of Central America share a close relationship with the United States, with considerable comovement of GDP growth over a long period of time. Trade, the financial sector, and remittance flows are all potential channels through which the U.S. cycle could affect the region. But just how dependent is growth in the region on the U.S.? Using the common cycles method of Vahid and Engle (1993), this paper suggests that the business cycle is dominated by the U.S.; region-specific growth drivers tend to be long-lasting shocks, rather than temporary fluctuations. The most cyclically sensitive countries include Costa Rica, El Salvador, and Honduras.
{"title":"Central America's Regional Trends and U.S. Cycles","authors":"S. Roache","doi":"10.5089/9781451869125.001.A001","DOIUrl":"https://doi.org/10.5089/9781451869125.001.A001","url":null,"abstract":"The economies of Central America share a close relationship with the United States, with considerable comovement of GDP growth over a long period of time. Trade, the financial sector, and remittance flows are all potential channels through which the U.S. cycle could affect the region. But just how dependent is growth in the region on the U.S.? Using the common cycles method of Vahid and Engle (1993), this paper suggests that the business cycle is dominated by the U.S.; region-specific growth drivers tend to be long-lasting shocks, rather than temporary fluctuations. The most cyclically sensitive countries include Costa Rica, El Salvador, and Honduras.","PeriodicalId":170505,"journal":{"name":"Macroeconomics eJournal","volume":"29 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2008-02-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"121688641","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
We test for the occurrence of extreme-value dependence between equity returns of European insurance companies. The results show that this form of dependence is evident among insurance companies, in particular among the larger composite insurers. Looking at which factors drive the occurrence of extreme-value dependence, we find that both exposure to extreme financial market events and non-life underwriting are important drivers of extreme-value dependence between insurance companies.
{"title":"Assessing Systematic Risk in the Insurance Sector","authors":"I. Alves, Steven C. J. Simon","doi":"10.2139/ssrn.1101458","DOIUrl":"https://doi.org/10.2139/ssrn.1101458","url":null,"abstract":"We test for the occurrence of extreme-value dependence between equity returns of European insurance companies. The results show that this form of dependence is evident among insurance companies, in particular among the larger composite insurers. Looking at which factors drive the occurrence of extreme-value dependence, we find that both exposure to extreme financial market events and non-life underwriting are important drivers of extreme-value dependence between insurance companies.","PeriodicalId":170505,"journal":{"name":"Macroeconomics eJournal","volume":"75 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2008-02-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"124249920","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2008-02-01DOI: 10.5089/9781451869026.001
D. Gray, Cheng Hoon Lim, Elena Loukoianova, Samuel W. Malone
This paper proposes a new framework for the analysis of public sector debt sustainability. The framework uses concepts and methods from modern practice of contingent claims to develop a quantitative risk-based model of sovereign credit risk. The motivation in developing this framework is to provide a clear and workable complement to traditional debt sustainability analysis which-although it has many useful applications-suffers from the inability to measure risk exposures, default probabilities and credit spreads. Importantly, this new framework can be adapted for policy analysis, including debt and reserve management.
{"title":"A Risk-Based Debt Sustainability Framework: Incorporating Balance Sheets and Uncertainty","authors":"D. Gray, Cheng Hoon Lim, Elena Loukoianova, Samuel W. Malone","doi":"10.5089/9781451869026.001","DOIUrl":"https://doi.org/10.5089/9781451869026.001","url":null,"abstract":"This paper proposes a new framework for the analysis of public sector debt sustainability. The framework uses concepts and methods from modern practice of contingent claims to develop a quantitative risk-based model of sovereign credit risk. The motivation in developing this framework is to provide a clear and workable complement to traditional debt sustainability analysis which-although it has many useful applications-suffers from the inability to measure risk exposures, default probabilities and credit spreads. Importantly, this new framework can be adapted for policy analysis, including debt and reserve management.","PeriodicalId":170505,"journal":{"name":"Macroeconomics eJournal","volume":"82 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2008-02-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"124135486","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2008-02-01DOI: 10.5089/9781451868890.001.A001
M. Syed, Michael Skaarup, Tarhan N. Feyzioğlu
Korea is on the verge of an unprecedented demographic shift. In coming decades, rapid aging will transform it from one of the youngest populations in the OECD to among the oldest in record time. In turn, this shift will put tremendous pressure on the pension system and health and long-term care expenditures. This paper evaluates the impact of population aging on the long-term fiscal position in Korea, and assesses potential policy responses using the IMF's Global Fiscal Model. The paper finds that the key to maintaining a sound long-run fiscal position is to act early and with a range of policy tools, including pension reform, tax base broadening (and, if necessary, rate hikes), improved tax administration and some expenditure reallocation.
{"title":"Addressing Korea's Long-Term Fiscal Challenges","authors":"M. Syed, Michael Skaarup, Tarhan N. Feyzioğlu","doi":"10.5089/9781451868890.001.A001","DOIUrl":"https://doi.org/10.5089/9781451868890.001.A001","url":null,"abstract":"Korea is on the verge of an unprecedented demographic shift. In coming decades, rapid aging will transform it from one of the youngest populations in the OECD to among the oldest in record time. In turn, this shift will put tremendous pressure on the pension system and health and long-term care expenditures. This paper evaluates the impact of population aging on the long-term fiscal position in Korea, and assesses potential policy responses using the IMF's Global Fiscal Model. The paper finds that the key to maintaining a sound long-run fiscal position is to act early and with a range of policy tools, including pension reform, tax base broadening (and, if necessary, rate hikes), improved tax administration and some expenditure reallocation.","PeriodicalId":170505,"journal":{"name":"Macroeconomics eJournal","volume":"263 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2008-02-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"129195347","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
This paper examines the contribution of investments in Information Technology (IT) and in advertising to the output and profits of Spanish banks, in the period 1983-2003. We find that the growth in the stock of IT capital explains one third of output growth of banks, and that an additional investment in IT of one million euros may be substituted for twenty-five workers. The paper also finds that advertising investments increase the demand for bank services with an elasticity of 0.22 for deposits and 0.11 for loans. For all the assets considered, the null hypothesis that banks use the profit-maximizing amount of services per period cannot be rejected with the data.
{"title":"The Output and Profit Contribution of Information Technology and Advertising Investments in Banks","authors":"Alfredo Martín-Oliver, V. Salas-Fumás","doi":"10.2139/ssrn.1084832","DOIUrl":"https://doi.org/10.2139/ssrn.1084832","url":null,"abstract":"This paper examines the contribution of investments in Information Technology (IT) and in advertising to the output and profits of Spanish banks, in the period 1983-2003. We find that the growth in the stock of IT capital explains one third of output growth of banks, and that an additional investment in IT of one million euros may be substituted for twenty-five workers. The paper also finds that advertising investments increase the demand for bank services with an elasticity of 0.22 for deposits and 0.11 for loans. For all the assets considered, the null hypothesis that banks use the profit-maximizing amount of services per period cannot be rejected with the data.","PeriodicalId":170505,"journal":{"name":"Macroeconomics eJournal","volume":"131 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2008-01-17","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"116449486","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Cohesion policy micro-efficiency is determined by institutional or absorption capacity of recipient regions and Member States which, in turn, co-determines the policy's macro-economic impact. The analysis shows that cohesion policy is not perceived as an "EU receipts maximising instrument", but instead that it is understood as a means to the set objectives, i.e. that it is about the genuine impact. At the same time however, the analysis also shows that proper change in the implementation systems is needed. The paper puts forward four proposals for improvements, the most radical of them, the "coordinated full decentralisation", conceives cohesion policy as a bulk transfer of investment-conditioned financial resources, where full responsibility for the legality, regularity, efficiency and effectiveness would be entirely transferred to the Member States/regional level. The analysis reveals that subsidiarity principle is still not taken into account to a satisfactory degree, that experience and political context have significant influence on the (optimal) design of implementation systems and finally that, on average, there seems to be merit in concentration both with regards to the number of operational programmes (less so for their thematic focus) as well as to the number of institutions involved in the implementation systems, horizontally and especially vertically.
{"title":"Micro-Efficiency of the EU Cohesion Policy","authors":"Peter Wostner","doi":"10.2139/ssrn.1083477","DOIUrl":"https://doi.org/10.2139/ssrn.1083477","url":null,"abstract":"Cohesion policy micro-efficiency is determined by institutional or absorption capacity of recipient regions and Member States which, in turn, co-determines the policy's macro-economic impact. The analysis shows that cohesion policy is not perceived as an \"EU receipts maximising instrument\", but instead that it is understood as a means to the set objectives, i.e. that it is about the genuine impact. At the same time however, the analysis also shows that proper change in the implementation systems is needed. The paper puts forward four proposals for improvements, the most radical of them, the \"coordinated full decentralisation\", conceives cohesion policy as a bulk transfer of investment-conditioned financial resources, where full responsibility for the legality, regularity, efficiency and effectiveness would be entirely transferred to the Member States/regional level. The analysis reveals that subsidiarity principle is still not taken into account to a satisfactory degree, that experience and political context have significant influence on the (optimal) design of implementation systems and finally that, on average, there seems to be merit in concentration both with regards to the number of operational programmes (less so for their thematic focus) as well as to the number of institutions involved in the implementation systems, horizontally and especially vertically.","PeriodicalId":170505,"journal":{"name":"Macroeconomics eJournal","volume":"36 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2008-01-13","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"115866949","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
This study examines option market liquidity using Ivy DB's OptionMetrics data. We establish convincing evidence of commonality for various liquidity measures based on the bid-ask spread, volumes, and price impact. The commonality remains strong even after controlling for the underlying stock market's liquidity and other liquidity determinants such as volatility. Smaller firms and firms with a higher volatility exhibit stronger commonalities in option liquidity. Aside from commonality, we also uncover several other important properties of the option market's liquidity. First, information asymmetry plays a much more dominant role than inventory risk as a fundamental driving force of liquidity. Second, the market-wide option liquidity is closely linked to the underlying stock market's movements. Specifically, the options liquidity responds asymmetrically to upward and downward market movements, with calls reacting more in up markets and puts reacting more in down markets.
{"title":"Option Market Liquidity: Commonality and Other Characteristics","authors":"Melanie Cao, Jason Wei","doi":"10.2139/ssrn.1082642","DOIUrl":"https://doi.org/10.2139/ssrn.1082642","url":null,"abstract":"This study examines option market liquidity using Ivy DB's OptionMetrics data. We establish convincing evidence of commonality for various liquidity measures based on the bid-ask spread, volumes, and price impact. The commonality remains strong even after controlling for the underlying stock market's liquidity and other liquidity determinants such as volatility. Smaller firms and firms with a higher volatility exhibit stronger commonalities in option liquidity. Aside from commonality, we also uncover several other important properties of the option market's liquidity. First, information asymmetry plays a much more dominant role than inventory risk as a fundamental driving force of liquidity. Second, the market-wide option liquidity is closely linked to the underlying stock market's movements. Specifically, the options liquidity responds asymmetrically to upward and downward market movements, with calls reacting more in up markets and puts reacting more in down markets.","PeriodicalId":170505,"journal":{"name":"Macroeconomics eJournal","volume":"93 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2008-01-10","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"126219179","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
We estimate vector autoregressions with drifting coefficients and stochastic volatility to investigate whether US inflation persistence has changed. We focus on the inflation gap, defined as the difference between inflation and trend inflation, and we measure persistence in terms of short- to medium-term predictability. We present evidence that inflation-gap persistence increased during the Great Inflation and that it fell after the Volcker disinflation. We interpret these changes using a dynamic new Keynesian model that highlights the importance of changes in the central bank's inflation target. (JEL E12, E31, E52, E58)
{"title":"Inflation-Gap Persistence in the U.S","authors":"Timothy Cogley, Giorgio E. Primiceri, T. Sargent","doi":"10.1257/MAC.2.1.43","DOIUrl":"https://doi.org/10.1257/MAC.2.1.43","url":null,"abstract":"We estimate vector autoregressions with drifting coefficients and stochastic volatility to investigate whether US inflation persistence has changed. We focus on the inflation gap, defined as the difference between inflation and trend inflation, and we measure persistence in terms of short- to medium-term predictability. We present evidence that inflation-gap persistence increased during the Great Inflation and that it fell after the Volcker disinflation. We interpret these changes using a dynamic new Keynesian model that highlights the importance of changes in the central bank's inflation target. (JEL E12, E31, E52, E58)","PeriodicalId":170505,"journal":{"name":"Macroeconomics eJournal","volume":"33 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2008-01-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"123051603","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
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