Kenneth S. Lin

Deficits, government expenditures, and tax smoothing in the United States: 1929-1988

Abstract Barros tax smoothing hypothesis (TSH) implies that the government runs a ‘budget deficit’ whenever it anticipates the growth rate of national income to increase or the growth rate of its expenditure to decline. We test this implication of the hypothesis by examining the implied cross-equation restrictions on a vector autoregression (VAR) model using U.S. data for the period ranging from 1929 to 1988. Our formal tests reject the hypothesis for the full sample period, but cannot reject it for the post-1947 period. Further investigations show that the statistical rejection should be attributed to sharp differences in the statistical properties of the pre-1947 and the post-1947 data rather than the failure of the hypothesis itself.

The Political Economy of Exchange Rate Regimes: Evidence from Hong Kong and Taiwan*

This paper investigates whether the macroeconomic performance of a small- open economy depends on the choice of exchange rate regimes. Hong Kong and Taiwan - two economies with many similar macroeconomic characteristics, but different in their choices of exchange rate regimes - provide a good setting to study the relation between the choice of exchange rate regime and macro-economic performance. We examine the basic facts of growth and inflation and the coefficients’ stability of their vector autoregression (VAR), as well as cyclical characters of other aggregate variables in Hong Kong and Taiwan. Our empiric finding indicates that macroeconomic performance is not systematically related to exchange rate regimes.

A note on least-squares learning mechanism

Abstract Marcet and Sargent (1989a,b) recently applied the approach of Ljung (1977) to analyze the convergence of the least-squares learning mechanism. The purpose of this short paper is to point out and to correct two types of errors in Marcet and Sargents analysis.