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  • 2b88qc23w?file=thumbnail
    Creator: Prescott, Edward C. and Wallenius, Johanna
    Series: Quarterly review (Federal Reserve Bank of Minneapolis. Research Department)
    Number: Vol. 35, No. 2
    Abstract:

    Macroeconomics has made tremendous advances following the introduction of labor supply into the field. Today, it is widely acknowledged that labor supply matters for many key economic issues, particularly for business cycles and tax policy analysis. However, the extent to which labor supply matters for such questions depends on the aggregate labor supply elasticity—that is, the sensitivity of the time allocation between market and nonmarket activities. For several decades, the magnitude of the aggregate labor supply elasticity has been the subject of much debate. In this article, we review the debate and conclude that the elasticity of labor supply of the aggregate household is much higher than the elasticity of the identical households being aggregated. The aggregate household utility function differs from the individuals’ utility functions for the same reason that the aggregate production function differs from the individual firms’ production functions being aggregated. The differences in individual and aggregate supply elasticities are what aggregation theory predicts.

  • M613mx72g?file=thumbnail
    Creator: Birkeland, Kathryn and Prescott, Edward C.
    Series: Quarterly review (Federal Reserve Bank of Minneapolis. Research Department)
    Number: Vol. 31, No. 1
    Abstract:

    People are enjoying longer retirement periods, and population growth is slowing and, in some countries, falling. In this article, we determine the implications of these demographic changes for the needed amount of government debt. If tax rates and the transfer share of gross national income (GNI) are both high, the needed debt is near zero. With such a system, however, huge deadweight losses are incurred as a result of the high tax rate on labor income. With a savings system, a large government debt to annual GNI ratio is needed. In a country with early retirement and no population growth, the needed government debt is as large as five times GNI, and welfare is as much as 24 percent higher in terms of lifetime consumption equivalents in the savings system relative to the tax-and-transfer system.

  • 7d278t17r?file=thumbnail
    Creator: Prescott, Edward C.
    Series: Quarterly review (Federal Reserve Bank of Minneapolis. Research Department)
    Number: Vol. 28, No. 1
    Abstract:

    Americans now work 50 percent more than do the Germans, French, and Italians. This was not the case in the early 1970s, when the Western Europeans worked more than Americans. This article examines the role of taxes in accounting for the differences in labor supply across time and across countries; in particular, the effective marginal tax rate on labor income. The population of countries considered is the G-7 countries, which are major advanced industrial countries. The surprising finding is that this marginal tax rate accounts for the predominance of differences at points in time and the large change in relative labor supply over time.

  • Kh04dp89s?file=thumbnail
    Creator: McGrattan, Ellen R. and Prescott, Edward C.
    Series: Quarterly review (Federal Reserve Bank of Minneapolis. Research Department)
    Number: Vol. 24, No. 4
    Abstract:

    The value of U.S. corporate equity in the first half of 2000 was close to 1.8 times U.S. gross national product (GNP). Some stock market analysts have argued that the market is overvalued at this level. We use a growth model with an explicit corporate sector and find that the market is correctly valued. In theory, the market value of equity plus debt liabilities should equal the value of productive assets plus debt assets. Since the net value of debt is currently low, the market value of equity should be approximately equal to the market value of productive assets. We find that the market value of productive assets, including both tangible and intangible assets and assets used outside the country by U.S. subsidiaries, is currently about 1.8 times GNP, the same as the market value of equity.

  • 4t64gn41j?file=thumbnail
    Creator: Prescott, Edward C.
    Series: Quarterly review (Federal Reserve Bank of Minneapolis. Research Department)
    Number: Vol. 23, No. 1
    Abstract:

    The Great Depression in the United States was largely the result of changes in economic institutions that lowered the normal or steady-state market hours per person over 16. The difference in steady-state hours in 1929 and 1939 is over 20 percent. This is a large number, but differences of this size currently exist across the rich industrial countries. The somewhat depressed Japanese economy of the 1990s could very well be the result of workweek length constraints that were adopted in the early 1990s. These constraints lowered steady-state market hours. The failure of the Japanese people to display concern with the performance of their economy suggests that this reduction is what the Japanese people wanted. This is in sharp contrast with the United States in the 1930s when the American people wanted to work more.

  • C821gj930?file=thumbnail
    Creator: Parente, Stephen L. and Prescott, Edward C.
    Series: Quarterly review (Federal Reserve Bank of Minneapolis. Research Department)
    Number: Vol. 17, No. 2
    Abstract:

    This study systematically examines the distribution of the wealth of nations and how it has evolved over time. A nation's wealth is measured by its real per-capita gross domestic product. The study documents the following key economic development facts that a theory of economic development must be consistent with: There is a great disparity in wealth between the richest and poorest countries. This disparity has changed little in the postwar period. There was an upward shift in the distribution of the wealth of nations. There has been considerable relative wealth mobility, with some spectacular changes for individual countries in the distribution.

  • Xg94hp68r?file=thumbnail
    Creator: İmrohoroglu, Ayşe Ökten and Prescott, Edward C.
    Series: Quarterly review (Federal Reserve Bank of Minneapolis. Research Department)
    Number: Vol. 15, No. 3
    Abstract:

    The welfare effects of alternative monetary arrangements are computed for an economy calibrated to U.S. data. In the model world, people vary their holdings of liquid assets in order to smooth their consumption. In such worlds, we find that the feature of an arrangement that matters is the equilibrium after-tax real return on savings. We also find that relative to a tax on labor income, seigniorage is a poor source of revenue.

  • 0p096701c?file=thumbnail
    Creator: Kydland, Finn E. and Prescott, Edward C.
    Series: Quarterly review (Federal Reserve Bank of Minneapolis. Research Department)
    Number: Vol. 14, No. 2
    Abstract:

    This paper argues that the reporting of facts in light of theory fosters the development of theory. Dynamic neoclassical macro theory guided the selection of facts to report. The hope is that these facts will foster the further development of this theory. A finding is that the price level is countercyclical in the post-Korean War period. This finding debunks the myths that the price level is procyclical, with the postwar period being no exception.