Do households smooth expenditure over anticipated income changes? Evidence from bonus payments to public employees in Japan

This paper provides new evidence of consumers’ reaction to an anticipated sizable change in income. Until FY2002, Japanese public employees received predictable large bonus payments three times a fiscal year (in June, December, and March), but the March bonus was abolished in FY2003. We compare the seasonal patterns of public employees’ expenditure before and after the reform of the bonus payment schedule. Contrary to the prediction of the life cycle/permanent income hypothesis (LC/PIH), we find evidence that monthly patterns of household expenditure were significantly affected by the anticipated large change in income pattern. However, at closer inspection, this excess sensitivity of expenditure is observed only for expenditure subcategories of some durability, i.e., durables and semi-durables. Thus, while the LC/PIH does not appear to hold for expenditure (which we observe here), it may still hold for consumption.     

Valuation of a Repriceable Executive Stock Option

We introduce a path-dependent executive stock option. The exercise price might be reduced when both the firm’s stock price and a stock market index fall greatly. The repriceable executive stock option has a simple payoff that may be used for realistic executive rewards. We show the valuation formula, and compute the probability of the repriceable executive stock option expiring in-the-money. Both price and probability are important pieces of quantitative information when choosing an executive compensation package.     

Can a Regional Trade Agreement Benefit a Nonmember Country without Compensating It?

RTAs are generally formed without any tariff concessions or transfers to nonmember countries. Can such an RTA benefit nonmembers' welfare? In a two‐good three‐country competitive equilibrium model in the absence of an entrepôt, an RTA without concessions to a nonmember will hurt nonmembers' welfare when goods are normal. If one of the member countries is an entrepôt, however, it definitely improves nonmembers' welfare. In a three‐good three‐country model, an RTA without concessions damages the nonmember's welfare, provided that all the goods are normal and substitutes, and that initial tariff levels are small.     

Permanent income,hedonic prices,and demand for housing: New evidence

Housing demand is examined by looking quite specifically at the income and price variables based on individual household data. Permanent and transitory incomes are computed through instrumental variables related to human and nonhuman wealth. A price is constructed by spatially varying hedonic techniques. Separation of measured income into permanent and transitory components substantially improves the predictive power of the housing demand estimation and leads to demand elasticities of +1 and ?1 with respect to permanent income and price. The permanent income elasticity is roughly twice the measured income elasticity.     

Exchange-Rate volatility,balance-of-payments instability and stabilizing-destabilizing capital flows

Zusammenfassung Wechselkursschwankungen, Instabilit?t der Zahlungsbilanz und stabilisierende/destabilisierende Kapitalstr?me. — In diesem Aufsatz wird ein Modell mit rationalen Erwartungen konstruiert, das erkl?ren soll, welche Auswirkungen ein übergang von festen zu flexiblen Wechselkursen auf den Grad an Stabilit?t der Handels- und Kapitalstr?me hat. Danach werden die Effekte untersucht, welche von der Liberalisierung (oder Stimulierung) von Kapitalbewegungen auf die Wechselkursschwankungen und die Instabilit?t der Zahlungsbilanz im Rahmen der beiden Wechselkurssysteme ausgehen. Als Ma\ für “Instabilit?t” oder “Schwankungen”wird nur die kurzfristige Varianz einer Periode in Betracht gezogen. Wenn es auch wichtig ist, die Instabilit?t für n-Perioden zu untersuchen, so erweist sich doch ein solcher langfristiger Vergleich im allgemeinen als nicht eindeutig.

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Résumé La volatilité du taux de change, l’instabilité de la balance des paiements et les flux de capitaux stabilisants-déstabilisants. — Le but principal de cet article est de construire un modèle des expectatives rationnelles pour expliquer les effets d’un changement du régime des changes fixes au régime des changes flexibles sur le degré des instabilités des flux commerciaux et de capitaux. Puis l’auteur analyse les effets d’une libéralisation et stimulation des mouvements de capitaux sur la volatilité du taux de change et la balance des paiements sous les deux régimes différents. Pour mesurer l’instabilité ou la volatilité on a seulement considéré la variance d’unepériode (ou la variance à court terme). Bien qu’il soit aussi important d’analyser l’instabilité sur n périodes, cette comparaison généralement se montre être assez ambigue.

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Resumen Volatilidad del tipo de cambio, inestabilidad de la balanza de pagos y flujos de capital estabilizadores-desestabilizadores. — El principal objetivo de este artlculo es probar un modelo de expectativas racionales capaz de explicar el impacto del cambio de un régimen de tipo de cambio fijo a flexible sobre el grado de inestabilidad de las cuentas comercial y de capital. En seguida se analizan los efectos de liberalizar (o estimular) los flujos de capital sobre la volatilidad del tipo de cambio y la inestabilidad de la balanza de pagos bajo disposiciones de tipo de cambio alternativas. Como medida de ?inestabilidad? o ?volatilidad? se considera solo la varianza de un período (o de corto plazo). Mientras es importante investigar la inestabilidad del período n, esta comparación de largo plazo generalmente resulta ser bastante ambigua.

     

The transition of postwar Asia-Pacific trade relations

The purpose of this paper is to examine the feature and the transition of trade relations in the Asia-Pacific region during the post-World War II period. The paper employs the gravity model with some regional dummy variables to estimate trade flows among 80 economies through temporal cross-section data analysis, for every five-year-term from 1960 to 1995. Its main findings are the following: First, ASEAN has had no effect of its own on promoting trade among its member countries. Second, the volume of trade among EAEC has been at a high level compared with the hypothetical trade level since 1960. Third, the amount of trade between EAEC economies and other APEC countries has been growing throughout the postwar period. Fourth, there has been close trade relations among APEC economies plus some other Asian countries.     

Estimation and policy implications of rental housing demand

The demand for rental housing using the Annual Housing Survey SMSA sample for 1977 is estimated. The principal determinants of rental housing demand, namely housing price and permanent/transitory income, are computed through spatially varying hedonic price techniques and instrumental variables methods (relating to human and nonhuman capital), respectively. Based on the demand estimation results, impacts of hypothetical cash and rent subsidy programs are analyzed in terms of “housing” and “welfare” effects. It is found that a rent subsidy achieves considerably larger effects than does a cash subsidy.