Inflation Dynamics in the U.S.: Global but Not Local Mean Reversion

A stylized fact of U.S. inflation dynamics is one of extreme persistence and possible unit root behavior. If so, the implications for macroeconomics and monetary policy are somewhat unpalatable. Our econometric analysis proposes a parsimonious univariate representation of the inflation process for the last 60 years, the nonlinear exponential smooth autoregressive. The empirical results confirm a number of the key features such as global stationarity, local unit root behavior, and lower persistence in the post-1983 period than in the pre-1983 period. We compare the forecasting ability of our model with that of competing univariate models and find that the nonlinear model outperforms the linear autoregressive model in the pre-1983 period and the random walk in the post-1983 period at short horizons.     

Ambiguity and Public Good Provision in Large Societies

In this paper, we consider the effect of ambiguity on the private provision of public goods. Equilibrium is shown to exist and be unique. We examine how provision of the public good changes as the size of the population increases. We show that when there is uncertainty, there may be less free‐riding in large societies.     

Public-Sector Outsourcing and Charging in-house Bidders for their use of Capital

In the formal process of determining whether there are potential savings from contracting out, public-sector agencies in Australia and Great Britain are required by various government-issued guidelines to measure the relevant costs of in-house activities and to compare these with external bids. The cost comparison methodology explained and demonstvated in some of the most rigorous of these published guidelines is mistaken in its treatment of the costs to agencies of owning and using capital assets. There are two distinct mistakes in the demonstrated treatment of capital costs, both adding to the apparent costs associated with in-house capital, and hence to some degree tilting the analysis against acceptance of any in-house bid.     

RACIAL DIFFERENCES IN HEALTH-CARE UTILIZATION: ANALYSIS BY INTENSITY OF DEMAND

Health-care utilization is estimated for different subpopulations with respect to various measures of health status, which allows the classification of health-care consumers into groups with different intensities of demand. This specification allows us to determine whether racial differences vary between subgroups of consumers. In addition to blacks, we also consider utilization by Hispanics. The model is estimated separately for five measures of utilization: office-based physician visits, office-based nonphysician visits, outpatient department visits, emergency room visits, and hospital discharges using data from the Medical Expenditure Panel Survey. Results across numerous specifications indicate that racial differences remain a serious public policy concern, both among healthy and unhealthy minorities. ( JEL I11, I12)     

Accounting for Forward Rates in Markets for Foreign Currency

Forward and spot exchange rates between major currencies imply large standard deviations of both predictable returns from currency speculation and of the equilibrium price measure (the intertemporal marginal rate of substitution). Representative agent theory with time-additive preferences cannot account for either of these properties. We show that the theory does considerably better along these dimensions when the representative agent's preferences exhibit habit persistence, but that the theory fails to reproduce some of the other properties of the data—in particular, the strong autocorrelation of forward premiums.