The Expectations Hypothesis of the Term Structure and Time-Varying Risk Premia: a Panel Data Approach

One implication of the expectations hypothesis is that the yield spread should forecast subsequent changes in the long yield. However, regression tests based on this specification strongly reject the expectations hypothesis. One explanation for this rejection is that these tests fail to allow for a time varying risk premium that is correlated with this yield spread, leading to a bias in the estimated regression coefficients. This paper uses panel data in order to testm the expectations hypothesis under the assumption that risk premia are time-varying but driven by a single factor. It is found that while the expectations hypothesis is still rejected, the bias in the estimated coefficient is verysubstantially reduced.     

Labor supply responses to marginal Social Security benefits: Evidence from discontinuities

A key question for Social Security reform is whether workers respond to the link on the margin between the Social Security taxes they pay and the Social Security benefits they will receive. We estimate the effects of the marginal Social Security benefits that accrue with additional earnings on three measures of labor supply: retirement age, hours, and labor earnings. We develop a new approach to identifying these incentive effects by exploiting five provisions in the Social Security benefit rules that generate discontinuities in marginal benefits or non-linearities in marginal benefits that converge to discontinuities as uncertainty about the future is resolved. We find that individuals approaching retirement (age 52 and older) respond to the Social Security tax-benefit link on the extensive margin of their labor supply decisions: we estimate that a 10% increase in the net-of-tax share reduces the two-year retirement hazard by a statistically significant 2.0 percentage points from a base rate of 15%. The evidence with regard to labor supply responses on the intensive margin is more mixed: we estimate that the elasticity of hours with respect to the net-of-tax share is 0.42 and statistically significant, but we do not find a statistically significant earnings elasticity. Though we lack statistical power to estimate results within subsamples precisely, the retirement response is driven mostly by the female subsample, while the hours response comes from the male subsample.     

Efficiency Gains Under Exchange-Rate Emission Trading

In the case of emission of non-uniformly dispersed pollutants such as SO2 the negative effects depend on the location of the sources. A unit increase at one source must be compensated by either a larger or smaller reduction at another source to keep the negative effects at the same level. Emission trading between countries is possible under the Second Sulphur Protocol. Exchange rate trading and third party problems are studied within a simultaneous model facilitating impositions of various environmental constraints. Simulations based on the negotiated emission quotas are offered. Results indicate potential cost savings of 19%.