Albert Ando

The cost of capital in the United States and Japan: A comparison

Abstract This paper uses financial statement data for large samples of U.S. and Japanese nonfinancial corporations to estimate the return to capital in each country for the period 1967—1983. Interpreting these as measures of the cost of capital, we find that the before-tax cost of corporate capital was higher for U.S. firms than for their Japanese counterparts, with the average gap potentially as high as 5.8 percentage points. The use of alternative measurement techniques alters the gap slightly but does not alter the basic finding. However, market returns in the two countries were much closer during the same period. Certain potential explanations for the gap in returns are rejected by empirical evidence, including differences in corporate taxation, differences in borrowing, and differences in asset mix. This leaves three potential explanations: differences in risk, differences in the tax treatment of individual capital income, and imperfections in the international flow of capital.

Bayesian Analysis of the Independent Multinormal Process—Neither Mean Nor Precision Known

Abstract Under the assumption that neither the mean vector nor the variance-covariance matrix are known with certainty, the natural conjugate family of prior densities for the multivariate Normal process is identified. Prior-posterior and preposterior analysis is done assuming that the prior is in the natural conjugate family. A procedure is presented for obtaining non-degenerate joint posterior and preposterior distributions of all parameters even when the number of objective sample observations is less than the number of parameters of the process.

Life cycle and bequest savings A study of Japanese and U.S. households based on data from the 1984 NSFIE and the 1983 survey of consumer finances

This paper investigates whether the elderly save or dissave in light of two newly available sets of cross-section micro data, the 1983 “Survey of Consumer Finance” for the United States and the 1984 “National Survey of Family Income and Expenditure” for Japan. Contrary to dominant earlier findings we find for the United States that families after retirement dissave on average about a third of their peak wealth by the time of death, leaving the rest (mostly their homes) as bequests. For Japan, special handling is made to eliminate possible sample selection bias due to the different economic characteristics of the elderly forming independent households and those living with children. We find that the elderly belonging to both groups continue to save, and moreover, there appear to be significant signs of ongoing wealth transfer between the generations. The data in both countries also show that the elasticity of saving with respect to a life time income measure is significantly greater than unity, and more strongly so within higher age groups. J. Japan. Int. Econ., December 1988, 2(4), pp. 450–491. Department of Economics, University of Pennsylvania, Philadelphia, PA 19104-6297, and National Bureau of Economic Research.

The Cost of Capital in Japan: Recent Evidence and Further Results

We extend our recent work measuring the cost of capital in Japan and the United States by considering several questions that such results raised. Among our findings are: (1) The small firm - large firm distinction appears to be more significant in Japan, not in the United States; (2) Correcting Japanese accounting statements for cross-holding raises the estimated Japanese cost-of-capital by about 1 percentage point; (3) Correcting Japanese accounting statements for unmeasured returns to land has a significantly more important effect: the most conservative correction we attempt raises the implied Japanese return to capital to parity with the United States during the mid-1980s.

Dynamics of demographic development and its impact on personal saving: case of Japan.

Abstract A dynamic model of the demographic structure of Japan is summarized. It is capable of tracing the dynamic development of the Japanese population, including the distribution of families by age, sex, and marital status of the head, as well as by the number and age of children and other dependents. This model is combined with specification of the processes generating family income and consumption, and then used to generate the pattern of aggregate income, saving and asset accumulation for the period 1985–2050 under alternative fertility assumptions. The results suggest that the saving-income ratio for Japan will increase slightly in the immediate future as the number of children per family declines sharply, and then falls moderately as the proportion of older persons in the population increases. Qualitative results depend critically on the labour force participation rate of older persons and on the probability of older persons merging into younger households.

Prices, Wages, and Employment in the U.S. Economy: A Traditional Model and Tests of Some Alternatives

In this paper, we outline the cost minimizing behavior of oligopoly firms and the price adjustment process in the labor market which underlie the traditional formulation of aggregate wage-price behavior in the U.S., and show that resulting equations applied to U.S. data remain stable before and after the significant change in the monetary policy rule that had taken place in 1979. This result contradicts the prediction of the Lucas critique applied to this context that, in response to a major change of the monetary policy rule, the Phillips curve and the price setting equation of firms would have undergone significant changes. We test several competing hypotheses for the price level determination, including the possibility that more direct effect of the money supply should be relevant, and show that our formulation dominates alternatives in non- nested tests. Finally, we present evidence that the nature of capital is putty-clay rather than fully malleable, together with a demand function for labor based on this recognition. In the process of these inquiries, we contrast our formulation with that proposed by Layard and Nickell in England.

Saving among Young Households. Evidence from Japan and Italy

The tendency of both young and old households to save or dissave a very small fraction of their total resources is inconsistent with a strict life-cycle model. The authors concentrate on young households and document their behavior, drawing on Italian and Japanese data. The theoretical structure they propose is broadly consistent with the spirit of the life-cycle theory, while at the same time capable of accounting for the observed facts without relying on assumptions about credit markets or the degree of consumer foresight. Coauthors are Luigi Guiso, Daniele Terlizzese, and Daniel Dorsainvil. Copyright 1992 by The editors of the Scandinavian Journal of Economics.

Efficiency of the Cyber 205 for Stochastic Simulations of a Simultaneous, Nonlinear, Dynamic Econometric Model

A code for carrying out stochastic simulations of the MPS econometric model, a simultaneous, nonlinear, dynamic system of equations involving approximately 600 variables, was adapted to run on the CYBER 205 vector processor. The effi ciency gained relative to performance on an IBM 3081-GX was significant: the CPU time re quired for a given simulation was reduced by a factor of 10 to 12. However, this is considerably smaller than the theoretical gain expected from the manufacturers ratings. The basic causes of this smaller gain are the fairly small real memory of the CYBER 205 and the inefficiency of the CYBER 205 vector processor in performing ele mentary function look-up. The primitive nature of the operating system and some aspects of the FORTRAN compiler on the CYBER 205 required more reprogramming of our large code than such a conversion should demand. However, potential gains from such a conversion will be great once the deficiencies described above are eliminated.

Discussion of the Evans Paper

While the political discussion in the United States has suddenly focused on the so-called “Supply-side effects,” this is not a new discovery in the literature of economics. I don’t believe any one has denied the theoretical possibility that labor supply may depend on the real wage rate, and that personal savings may depend on the real after-tax rate of interest. The question has always been about the empirical order of magnitudes of these responses. In the case of savings, there are two further questions: whether or not an increase in savings will necessarily lead to correspondingly larger investment in capital goods, and how much the additional investment will contribute to potential and actual output.