R. Anton Braun

Transaction Services, Inflation, and Welfare

This paper is motivated by empirical observations on the comovements of currency velocity, inflation, and the relative size of the credit services sector. We document these comovements and incorporate into a monetary growth model a credit services sector that provides services that help people economize on money. Our model makes two new contributions. First, we show that direct evidence on the appropriately defined credit service sector for the United States is consistent with the welfare cost measured using an estimated money demand schedule. Second, we provide estimates of the welfare cost of inflation that have some new features.

THE SAVING RATE IN JAPAN: WHY IT HAS FALLEN AND WHY IT WILL REMAIN LOW

Japan is in the midst of a demographic transition that is larger and more rapid than other OECD countries. We are interested in understanding the role of lower fertility rates and aging for the evolution of Japans national saving rate. We use a computable general equilibrium model to analyze the response of the saving rate to changes in demographics and total factor productivity. In our model demographic factors account for 2-3 percentage points of the 9% decline in the saving rate between 1990 and 2000 and persistently depress the saving rate in future years. Copyright

Monetary policy during Japan's lost decade

We develop a quantitative costly price adjustment model with capital formation for the Japanese Economy. The model respects the zero interest rate bound and is calibrated to reproduce the nominal and real facts from the 1990s. We use the model to investigate the properties of alternative monetary policies during this period. The setting of the long-run nominal interest rate in a Taylor rule is much more important for avoiding the zero bound than the setting of the reaction coefficients. A long-run interest rate target of 2.3 percent during the 1990s avoids the zero bound and enhances welfare.

The Implications of a Graying Japan for Government Policy

Japan is in the midst of a demographic transition that is both rapid and large by international standards. As recently as 1990, Japan had the youngest population among the Group of 6 large, developed countries. However, the combined effects of aging of the baby boomer generation and low fertility rates have produced very rapid aging. Japan now finds itself with the oldest population among the Group of 6, and its population will continue to age at a rapid pace in future years. Aging is already placing a burden on government finances, and Japans ability to confront the negative fiscal implications of future aging is constrained by its very high debt-to-GDP ratio. We find that Japan faces a severe fiscal crisis if remedial action is not undertaken soon, and we analyze alternative strategies for correcting Japans fiscal imbalances.

Saving and Interest Rates in Japan: Why They Have Fallen and Why They Will Remain Low

This paper quantifies the role of alternative shocks in accounting for the recent declines in Japanese saving rates and interest rates and provides some projections about their future course. We consider three distinct sources of variation in saving rates and real interest rates: changes in fertility rates, changes in survival rates, and changes in technology. The empirical relevance of these factors is explored using a computable dynamic OLG model. We find that the combined effects of demographics and slower total factor productivity growth successfully explain both the levels and the magnitudes of the declines in the saving rate and the after-tax real interest rate during the 1990s. Model simulations indicate that the Japanese savings puzzle is over.

How large is the optimal inflation tax

Abstract I examine the title question in a competitive framework where the transaction demand for money is modeled using a cash-in-advance constraint and only distortionary taxes are possible. Empirical evidence and simulations are used to document the plausibility of the assumptions which produce the Friedman rule; these findings suggest that it is not a good benchmark. My results suggest that an optimal monetary policy calls for nominal interest rates that can exceed 6% per year.

Old, Sick, Alone, and Poor: A Welfare Analysis of Old-Age Social Insurance Programs

All individuals face some risk of ending up old, sick, alone, and poor. Is there a role for social insurance for these risks and, if so, what is a good programme? A large literature has analysed the costs and benefits of pay-as-you-go public pensions and found that the costs exceed the benefits. This article, instead, considers means-tested social insurance (MTSI) programmes for retirees such as Medicaid and Supplemental Security Income. We find that the welfare gains from these programmes are large. Moreover, the current scale of MTSI in the U.S. is too small in the following sense. If we condition on the current Social Security programme, increasing the scale of MTSI by 1/3 benefits both the poor and the affluent when a payroll tax is used to fund the increase.

Small and Orthodox Fiscal Multipliers at the Zero Lower Bound

Does fiscal policy have large and qualitatively different effects on the economy when the nominal interest rate is zero? An emerging consensus in the New Keynesian literature is that the answer is yes. New evidence provided here suggests that the answer is often no. For a broad range of empirically relevant parameterizations of the Rotemberg model of costly price adjustment, the government purchase multiplier is about one or less, and the response of hours to a tax cut is either negative or close to zero.

The Saving Rate in Japan: Why it Has Fallen and Why it Will Remain Low

This paper quantifies the role of alternative shocks in accounting for the recent declines in the Japanese saving rate and provides some projections about its future course. We consider three distinct sources of variation in the saving rate: changes in fertility rates, changes in survival rates, and changes in technology. The empirical relevance of these factors is explored using a computable dynamic OLG model. Our model successfully explains historical variation in the saving rate and other aggregate variables including the after-tax real interest rate, hours per worker and output. Model projections indicate that the Japanese saving rate will be much lower in future years and will not recover to levels of 15 percent that were seen as recently as 1990.

Generalized Look-Ahead Methods for Computing Stationary Densities

The look-ahead estimator is used to compute densities associated with Markov processes via simulation. We study a framework that extends the look-ahead estimator to a broader range of applications. We provide a general asymptotic theory for the estimator, where both L1 consistency and L2 asymptotic normality are established. The L2 asymptotic normality implies √n convergence rates for L2 deviation.