Liquidity Preference and Financial Intermediation

We examine the characteristics of optimal monetary policies in a general equilibrium model with incomplete markets. Markets are incomplete because of uninsured preference uncertainty, and because productive capital is traded infrequently. Rational individuals are willing to hold a liquid asset—money—at a premium. Monetary policy interacts with existing financial institutions to determine this premium, as well as the level of precautionary holdings. We show that inflation is expansionary, and that the optimal inflation rate is positive if there is no operative banking system (the Tobin effect). Otherwise, efficiency requires that money be undominated in its rate of return (the Friedman Rule).     

Persistent gaps and default traps

We show how vicious circles in countries' credit histories arise in a model where output persistence is coupled with asymmetric information about output shocks. In such an environment, default signals the borrower's vulnerability to adverse shocks and creates a pessimistic growth outlook. This translates into higher interest spreads and debt servicing costs relative to income, raising the cost of future repayments, thereby creating “default traps”. We build a long and broad cross-country dataset to show the existence of a history-dependent “default premium” and of significant effects of output persistence on sovereign creditworthiness, consistent with the model's predictions.     

Private Foreign Investment in India: Pain or Panacea?

Private foreign capital, whose presence in Indian industry was long regarded with concern and suspicion, is now presented as a panacea for India's poor industrial and export performance. This paper examines available evidence to compare the behaviour and performance of domestic and foreign‐controlled firms in India over the last five decades. It discusses the contribution of foreign capital to aggregate investment, balance of payments and economic growth. We assess the effects of government policy towards foreign investment, review recent changes, and outline implications for the future.     

Exploring Civic Engagement Through Seniors' Good Citizenship Behavior Within Clubs

The argument for civic engagement is that it enables individuals to feel empowered and shapes their political and social attitudes which are attributes that promote individuals to be better citizens. This study focuses on senior citizens, and we use the place-attachment theory to better understand the good citizenship behavior of seniors within clubs, and we further explore how this behavior affects their civic engagement. The findings provide insights into seniors' civic engagement within the confines of clubs. As a result of these findings, we go on to suggest a framework for understanding the behavior of civic engagement. Our model of seniors' civic engagement in clubs provides greater insights for academics and policy makers on the sources and physical places that can foster communities to come together for shared interaction and cohesion.     

The Impact of the Health Insurance Market on Small Firm Employment

Small firms that offer health insurance to their employees may face variable premiums if they hire employees with high expected health costs. To avoid expensive premium variability, small firms may attempt to maintain a workforce with low expected health costs. This results in employment distortions. I examine the magnitude of these employment distortions using the 1987 National Medical Expenditure Survey and the 1996 Medical Expenditure Panel Survey. Based on the underwriting behavior of insurance companies in 1988, I classify medical conditions into three categories: conditions that led to denial of coverage; conditions that led to exclusion restrictions; and, conditions that led to higher premiums. In 1987, I find that insured small firms were less likely to employ workers with families that had conditions that led to higher premiums than insured large firms. However, in 1996, possibly due to the passage of small group health insurance reforms that restrict insurers' ability to exclude or deny coverage, insured small firms were less likely to employ workers with denial conditions compared to insured large firms. These results suggest that the pattern of employment distortions in insured small firms is consistent with the evolving small group health insurance market.     

Where Do the Sick Go? Health Insurance and Employment in Small and Large Firms

Small firms that offer health insurance to their employees may face variable premiums if the firm hires an employee with high-expected health costs. To avoid expensive premium variability, a small firm may attempt to maintain a workforce with low-expected health costs. In addition, workers with high-expected health costs may prefer employment in larger firms with health insurance rather than in smaller firms. This results in employment distortions. We examine the magnitude of these employment distortions in hiring, employment, and separations using the Medical Expenditure Panel Survey from 1996 to 2001. We find that workers with high-expected health costs are less likely to be new hires in insured small firms and are less likely to be employed in insured small firms. We find no evidence that state small group health insurance reforms designed to restrict insurers' ability to deny coverage and restrict premium variability have reduced the extent of these distortions.     

Problems of indexation in financially liberalized less developed economies

This paper constructs a short-run, dynamic model of a newly-liberalized less developed economy, and uses it to examine the policy options with respect to the indexation of key macro-economic variables. It concludes that ‘full indexation’ of the exchange rate, wage rate, and deposit rate of interest is likely to prove dynamically beneficial to the economy, provided that at the same time the monetary base is manipulated so as to maintain steady-state price stability.     

The fiscal impact of high-skilled emigration: Flows of Indians to the U.S.

What are the fiscal consequences of high-skilled emigration for source countries? This paper develops methodologies for inferring these consequences and applies them to the recent sizable emigration of high-skilled workers from India to the U.S. This wave of emigration from India to the U.S. is shown to be unusually concentrated amongst the prime-age work force, the highly educated and high earners. In order to calculate the fiscal losses associated with these emigrants, estimates of their counterfactual earnings distributions are generated using two distinct methods and integrated with a model of the Indian fiscal system to calculate fiscal consequences. Conservative estimates indicate that the annual net fiscal impact to India of high-skilled emigration to the U.S. is one-half of 1% of gross national income (or 2.5% of total fiscal revenues). The sensitivity of these results to the method of predicting counterfactual incomes and the implications of these estimates for other developing countries is discussed in detail.