THE FORMATION OF CONSUMER INFLATION EXPECTATIONS: NEW EVIDENCE FROM JAPAN'S DEFLATION EXPERIENCE

Using a new data set, we investigate the relationship between the inflation experience and expectations of households in Japan, focusing on the post-1995 deflationary era. Our first finding is that inflation expectations increase with age. Second, we find that measured inflation rates also increase with age, although age and inflation expectations continue to exhibit a positive correlation even after controlling for the household-level inflation rate. Analysis suggests that the correlation between age and inflation expectations is driven largely by the correlation between cohort and inflation expectations, which we interpret to represent the effect of historical inflation experience on inflation expectations.     

Tax incidence in a two good model

In a two consumer, two commodity economy with an excise tax on one good, analysis is done of the effects of lump sum transfers between consumers and of an increase in the excise tax, proceeds being returned as a lump sum. Changes in price, incomes, and utilities are calculated in terms of demand and supply derivatives and changes in profit shares going to the two consumers. Analysis complements that of Harberger by concentrating on the demand side and considering only a reduced form of supply responses. Some of the analysis parallels consideration of the classical transfer problem in international trade.     

Social Security Reform with a Focus on the Netherlands

The essay discusses the general issues of labor market incentives and of adapting to the trend to longer lives, including legislated adaptations in Chile, Italy, Sweden, and the US. For the Netherlands there are two concrete proposals – that the AOW fund hold a diversified portfolio and that workers have the option of delaying the start of AOW benefits in order to receive larger benefits for themselves and surviving spouses. Three issues are identified for evaluation and monitoring: whether widow benefits from private pensions might become too small in the future (given the introduction of choice between higher worker benefits and survivor benefits), whether final-pay pensions should be modified to indexed career-average pensions (to improve labor mobility and fairness), and whether there should be some automatic adjustments for cohort life expectancy.     

Use of Data Envelopment Analysis in an Evaluation of the Efficiency of the DEEP Program for Economic Education

The method of data envelopment analysis is used to show that participation in DEEP seems to increase the efficiency of some classes and decrease the efficiency of the other classes.     

Managing Change Or Coping With Conflict? - Mapping The Experience Of A Local Regeneration Partnership

Post May 1997 the conventional approaches to regeneration strategies in Britain have focused upon establishing local partnerships between - not only service providers and potential employers - but also local community-based groups. Neighbourhoods or 'localities'are now seen as the arenas within which coalitions of local interest groups meet to identify needs, to allocate resources and to engage with local communities. This paper will examine the assumptions behind such approaches and will explore the sites of conflict and the ways in which local managers attempt to reconcile differing aspirations and expectations. The paper draws upon a series of interviews with participants in regeneration initiatives in Manchester, and will suggest that regeneration managers occupy a significant place in arbitrating between different interest groups. In particular, the role of multi-agency working will be explored and the ways in which professionals (from a variety of occupations) seek to negotiate common terms of reference and understanding.     

Optimal taxation in a stochastic economy: A Cobb–Douglas example

Optimal linear and two-piece linear taxes are calculated in two-period economies in which individuals face uncertainty about their ability to work in the second period. These second-best insurance/redistribution programs are compared with first-best economies, equilibria without government intervention, and analogous determinate economies having the same ex post production possibilities. The calculations point out ways in which economies with individual uncertainty differ from those without it.     

Aligning Incentives at Systemically Important Financial Institutions: A Proposal by the Squam Lake Group

To address the moral hazard problem that can motivate bank executives to take excessive risks and to fail to raise capital when needed, a group of 13 distinguished financial economists recommends that systemically important financial institutions be required to issue contingent convertible debt (CoCos) and to hold back a substantial share—as much as 20%—of the compensation of employees who can have a meaningful impact on the survival of the firm. This holdback should be forfeited if the firm's capital ratio falls below a specified threshold. The deferral period should be long enough—the authors suggest five years—to allow much of the uncertainty about managers' activities to be resolved before the bonds mature. Except for forfeiture, the payoff on the bonds should not depend on the firm's performance, nor should managers be permitted to hedge the risk of forfeiture. The threshold for forfeiture should be crossed well before a firm violates its regulatory capital requirements and well before its contingent convertible securities convert into equity. The Swiss Bank UBS has paid bonuses to its top 6,500 executives that have been structured in exactly this way. Management forfeits its deferred compensation if the bank's regulatory capital ratio falls below 7.5%, and its contingent convertible debt is set up to convert into equity if the bank's capital ratio falls below 5%.