WHAT IT TAKES TO SOLVE THE U.S. GOVERNMENT DEFICIT PROBLEM

This paper uses a structural multi‐country macroeconometric model to estimate the size of the decrease in transfer payments (or tax expenditures) needed to stabilize the U.S. government debt/gross domestic product (GDP) ratio. It takes into account endogenous effects of changes in fiscal policy on the economy and in turn the effect of changes in the economy on the deficit. A base run is first obtained for the 2013:1–2022:4 period in which there are no major changes in U.S. fiscal policy. This results in an ever increasing debt/GDP ratio. Then transfer payments are decreased by an amount sufficient to stabilize the long‐run debt/GDP ratio. The results show that transfer payments need to be decreased by 2% of GDP from the base run, which over the 10 years is $3.2 trillion in 2005 dollars and $4.8 trillion in current dollars. The real output loss is 1.1% of baseline GDP. Monetary policy helps keep the loss down, but it is not powerful enough in the model to eliminate all of the loss. The estimates are robust to a base run with less inflation and to one with less expansion. (JEL E17)     

On the Optimality of Portfolio Insurance

This paper examines the optimality of an insurance strategy in which an investor buys a risky asset and a put on that asset. The put's striking price serves as the insurance level. In complete markets, it is highly unlikely that an investor would utilize such a strategy. However, in some types of less complete markets, an investor may wish to purchase a put on the risky asset. Given only a risky asset, a put, and noncontinuous trading, an investor would purchase a put as a way of introducing a risk-free asset into the portfolio. If, in addition, there is a risk-free asset and the investor's utility function displays constant proportional risk-aversion, then the investor would buy the risk-free asset directly and not buy a put. In sum, only under the most incomplete markets would an investor find an insurance strategy optimal.     

Order Imbalances and Stock Price Movements on October 19 and 20, 1987

On October 19, 1987, NYSE stocks in the S&P index declined seven percentage points more than NYSE stocks not in this index. In the first hour of trading on October 20, the S&P stocks virtually recovered to the level of the non-S&P stocks. There is a strong relation between order imbalances and stock price movements, both in analyses of time series and cross-sections. Thus, in addition to the breakdown in the linkage between future prices and the spot index on these two days, there were also breakdowns in the linkage among NYSE stocks.     

THE IMPACT OF INTRA HOUSEHOLD BALANCE OF POWER ON EXPENDITURE PATTERN: THE AUSTRALIAN EVIDENCE*

The collective approach to household behaviour models the household utility function as the weighted average of the utilities of the individual members of the household. These weights, which measure the relative bargaining power of males and females within the household, are generally regarded as fixed and exogenous. The paper extends the collective approach and estimates a model where the weights are endogenously determined. The novelty of the analysis lies in the simultaneous equations estimation of the bargaining power and the budget share equation that allow for the endogeneity of the power variable in the examination of its impact on the budget share of the various items. The estimation is conducted using data from the 1998–99 Australian Household Expenditure Survey data set. The relative bargaining power of males and females have statistically significant effects on household expenditure patterns. The analysis reveals some interesting non‐monotonic relationships between relative power and budget shares that vary a great deal between commodities.     

Connecting Time and Space: The Significance of Transformations in Women's Work in the City

Growing numbers of women with children living in western cities are entering the labour market, raising new questions about changes in the allocation of the tasks of social reproduction between household members and others and about the effects of the increasing time women now spend in the workplace. As Manuel Castells noted over 25 years ago, women's unpaid labour has long been essential, not only in the domestic arena, but also in patching together facilities separated in space. The spatial layout of cities, with its specialized and segregated land‐uses, only works, he argued, if women's unpaid labour is available to connect urban locations. But many women now spend many more hours in the labour market, replacing their former domestic labour with a range of commodified goods and services as well as by help from a range of related or unrelated others, sometimes but not always remunerated and/or by state‐provided or supported services. This article examines the consequences of the growth of women's employment in Britain and the concomitant decline of the old breadwinner family, the growth of workfare policies that assume all individuals are available for waged work and the rise of commodified caring. The arguments are illustrated by empirical examples from interviews undertaken with middle‐class mothers in waged work in London and Manchester in the UK.