HOUSEHOLD SAVING AND PORTFOLIO CHANGE: EVIDENCE FROM THE 1983–89 SCF PANEL

There are few sources of high-quality data on the dynamics of wealth accumulation. This paper uses newly available data from the 1983 89 panel of the Survey of Consumer Finances to examine household saving and portfolio change over the 1980s. Our main findings are as follows. First, median household wealth rose modestly over the period. Second, while overall wealth inequality increased, households in the top 1 percent of the wealth distribution in 1983 saw their share of total wealth decline, probably reflecting turnover among the very wealthy. Third, although age, income, and initial wealth had significant effects in regressions on household saving, a large part of the variation in saving was unexplained. Finally, there were clear life-cycle patterns in the portfolios of assets and liabilities held by households, with younger households acquiring homes, businesses and all types of debts, and older households divesting themselves of these assets and debts.     

HOUSING MARKETS AND THE GLOBAL FINANCIAL CRISIS: THE COMPLEX DYNAMICS OF A CREDIT SHOCK

We analyze the multiple channels of influence that global financial crisis‐induced credit restrictions had on New Zealand's subnational housing markets. The dynamics caused by the credit shock are compared to those caused by a migration shock, a more common form of housing shock in New Zealand. We focus on the impacts on two outcome variables, house prices and housing supply, within a structural time series model of regional housing markets. Both shocks cause substantial and prolonged cyclical adjustments in each variable. Similar cyclical dynamics could complicate the conduct of macroprudential policies designed to affect bank credit allocation. (JEL E32, E44, R21)     

Comparative Statics Predictions for Changes in Uncertainty in the Portfolio and Savings Problems

The paper investigates comparative statics effects of changes in uncertainty for a general family of problems that encompasses both the portfolio and saving decisions. Conditions are derived on preferences that are necessary and sufficient for unambiguous comparative statics predictions. The paper consolidates and completes the statement of restrictions on attitudes toward risk–bearing needed for determinate predictions in the portfolio and saving problems.     

BANKING ON SOCIALISM

Terry Arthur argues that the current UK banking system represents the very opposite of a free market, and that a genuine free market, in which there is no place for a nationalised central bank, is the best solution. One of the most successful examples of such a market is the Scottish experience of the nineteenth century, destroyed only by Peel's Banking Acts of 1844–45.     

Naive Adaptive Behavior and the Observability of Gambles

This paper considers a class of naive adaptive learning rules in a social setting. They generalize biological selection and have become relevant in economic theory as a consequence of their use in evolutionary game models. The environment considered here is nonstrategic but includes gambles which are more or less completely observed in each period. In the long run, individuals are more averse to a gamble which is less observable, other things being equal, and may violate first-order stochastic dominance. Thus these rules need not be consistent with rational behavior in the usual sense.Journal of Economic LiteratureClassification Numbers: D83, C72.     

When Is a Coinsurance‐Type Insurance Policy Inferior or Even Giffen?

This article derives the necessary and sufficient conditions for a coinsurance‐type insurance policy covering a particular risk to be inferior and to be Giffen. Mossin's decreasing absolute risk aversion assumption for insurance to be inferior is avoided. The result generalizes Hoy and Robson and Briys, Dionne, and Eeckhoudt's results to the case with a continuum of states and relaxes their assumption of constant relative risk aversion. It is shown that knowledge about the distribution of risk can be used to relax assumptions on an utility function for a coinsurance‐type insurance policy to be inferior and to be Giffen.     

Determinants of advertising expenditures: aggregate and cross-media evidence

Advertising expenditures account for 1 per cent of developed country GDP, having grown at an average real rate of 5 per cent p.a. over the 1980s. Trends in New Zealand have been similar to trends overseas. Hence analysis of the determinants of advertising in New Zealand should assist understanding of the determinants of advertising expenditures in other developed countries. We discuss changes in NZ's advertising industry and use a multi-equation co-integration framework to model the determinants of NZ advertising expenditure, both in total and across different media. We find that expenditure on advertising in all media is strongly pro-cyclical, that the allocation of expenditures depends on circulation patterns, and that press and magazines are complementary media and are substitutes for TV advertising.     

Financial Literacy and Preparation for Retirement

To meet the challenges of an ageing population, eligibility ages for state pensions have increased, early retirement arrangements have been abolished, and a substantial part of the risk and responsibility for an adequate standard of living after retirement has been shifted from the government, employers and pension funds to individuals and private households. Consequently, policy makers have become more concerned with whether individuals are able to make pension-related decisions that are in their own best interest.