Household Debt Overhang and Transmission of Monetary Policy

We investigate how the level of household indebtedness affects the monetary transmission mechanism in the U.S. economy. Using state‐dependent local projection methods, we find that the effects of monetary policy are less powerful during periods of high household debt. In particular, the impact of monetary policy shocks is smaller on GDP, consumption, residential investment, house prices, and household debt during a high‐debt state. We then build a partial equilibrium model of borrower households with financial constraints to rationalize these facts. The model points to the weakening of the home equity loan channel as a possible reason for the decline in monetary policy effectiveness when initial debt levels are high.     

Performance Measurement and Incentive Plans

This paper explores performance measurement in incentive plans. On the basis of theory, we argue that differences in the nature of jobs between blue‐ and white‐collar employees lead to differences in incentive systems. We find that performance measurement for white‐collar workers is broader in terms of the performance measures, the organizational level of performance measurement, and the time horizon. The intensity of incentives is also stronger for white‐collar employees. All of these findings are consistent with theory.     

Should Sales Taxes Be Imposed on E‐Commerce?

We study the impact of E‐commerce across state lines in the United States on tax revenue, public good provision, and real income. In particular, in light of the unenforceable nature of interstate taxation, we evaluate the potential gains from coordinating sales and income state taxes among sovereign jurisdictions. We find that the revenue at risk is small and that the welfare gains or losses of any countervailing policy measures, in particular those associated with the Streamlined Sales Tax Project, are even smaller.     

Evidence on the predictive ability of inflation-adjusted earnings measures*

Abstract. The results of prior studies on the information content of inflation-adjusted data in general, and of the SFAS 33 pronouncement in particular, have been mixed. The present study is motivated by the need to address further the relevance of SFAS 33 data to decisions made by security-market participants. The relevance of the SFAS 33 data is assessed in two contexts: (1) the association of security returns with inflation-adjusted and historical cost based earnings, and (2) the SFAS 33 data's ability, in a one-period-ahead prediction of security returns in comparison with the traditional historical cost model. The association test leads to mixed and inconclusive results. The predictive ability test indicates that several inflation-adjusted measures of firms' earnings outperformed the historical cost earnings measure for 1981 and 1982. The latter results were not sensitive to the form of user loss function, sample size, and type of sample. These results may suggest that the recent decision by the FASB to make reporting according to the SFAS 33 pronouncement optional was premature. Résumé. Les résultats d'études précédentes sur le contenu informationnel des données ajustées pour tenir compte des effets de l'inflation en général, et de l'émission par le FASB de la Norme n^o33 en particulier, ont été mixtes. L'étude qui suit se justifie par la nécessité de se pencher davantage sur la pertinence des données selon la Norme n^o 33 relativement aux décisions prises par les intervenants sur le marché des valeurs mobilières. Les auteurs évaluent la pertinence des données selon la Norme n^o 33 dans deux contextes: 1) l'association du rendement des titres aux bénéfices ajustés pour tenir compte des effets de l'inflation et aux bénéfices exprimés à la valeur d'origine et 2) la valeur des données selon la Norme n^o 33 dans la prévision, un exercice à l'avance, du rendement de titres par comparaison au modèle traditionnel du coût d'origine. Le test d'association mène à des résultats mixtes et non concluants. Le test de la valeur de prédiction indique que plusieurs mesures des bénéfices ajustées pour tenir compte des effets de l'inflation sont supérieures à la mesure des bénéfices au coût d'origine pour 1981 et 1982. Ces derniers résultats n'ont pas été sensibles à la forme de la fonction de perte de l'utilisateur, à la taille de l'échantillon et au type d'échantillon. Ces résultats donnent à penser que la décision récente du FASB de rendre facultative l'application de la Norme n^o33 en matière de publication d'information était prématurée.     

The Impact of Central Bank Independence on Political Monetary Cycles in Advanced and Developing Nations

This paper examines the extent to which monetary policy is manipulated for political purposes during elections. We do not detect political monetary cycles in advanced countries or developing nations with independent central banks. We do find evidence, however, in developing countries that lack central bank independence. Furthermore, we find some evidence that these cycles are not caused by monetization of election-related fiscal expansions. This suggests that pressure by politicians on the central bank to exploit the Phillips curve may be an important factor in generating political monetary cycles.     

Housing and Tax Policy

This paper investigates the effects of housing‐related tax policy measures on macroeconomic aggregates using a dynamic general‐equilibrium model featuring borrowing and lending across heterogeneous households, financial frictions in the form of collateral constraints tied to house prices, and a rental housing market alongside owner‐occupied housing. We analyze the effects of various tax policies and find that they all lead to significant output losses, with large long‐run tax multipliers of around 2. Among them, reducing the mortgage interest deduction is the most effective in raising tax revenue per unit of output lost, whereas reducing the depreciation allowance for rental income is the least effective.     

Characteristics of early and late adopters of pension accounting standard SFAS No. 87*

Abstract. Although there was strong opposition to the FASB's pension standard, SFAS No. 87, there is evidence that adoption of the standard had a favorable transitory effect on the earnings of a number of companies. This study examines firms' decisions to adopt SFAS No. 87 earlier than the FASB required. The results indicate that there were significant differences among firms that chose to adopt SFAS No. 87 early and those that did not. Unlike earlier studies of income-increasing accounting choices, early adopters were large firms with large, more fully funded pension obligations. They were subject to more accounting-based debt constraints, especially on working capital, and were more constrained on interest coverage than were those that did not adopt. Of early adopters, officers and directors owned less stock than did outside owners. Résumé. Bien que la norme SFAS n^o 87 du FASB relative aux régimes de retraite soulève une forte opposition, les faits démontrent que l'adoption de cette norme a eu des conséquences transitoires favorables sur les bénéfices de nombreuses entreprises. Les auteurs se penchent sur la décision de certaines sociétés d'adopter la norme SFAS n^o 87 avant l'échéance fixée par le FASB. Leur analyse révèle d'importantes différences entre les entreprises qui ont choisi d'adopter la norme avant l'échéance et celles qui ont préféré attendre. Contrairement à ce qu'ont indiqué les études précédentes relatives aux choix comptables entraînant une hausse des bénéfices, les entreprises qui ont adopté la norme avant l'échéance sont de grandes entreprises dont les obligations au titre du régime de retraite sont importantes et dont le régime est davantage provisionné. Elles sont assujetties à des contraintes fondées sur leurs obligations comptables, en particulier en ce qui a trait au montant de fonds de roulement à maintenir, et doivent assurer une bonne couverture des intérêts. Les cadres et les administrateurs des entreprises qui ont pris les devants possèdent moins d'actions que ceux des entreprises qui ont préféré attendre.