Rowena A. Pecchenino

An Overlapping Generations Model of Growth and The Environment

This article analyzes the potential conflict between economic growth and the maintenance of environmental quality in an overlapping generations model. Short-lived individuals make decisions which have long-lasting effects on both factor productivity and the environment. The model provides a theoretical explanation of observed correlations between environmental quality and income, whereby economic growth is associated first with declines, then improvements, in environmental quality. It suggests circumstances in which multiple Pareto-ranked steady-state equilibria may arise, and in which sustained growth of both capital and environmental quality may occur. Overmaintenance of the environment, analogous to dynamically inefficient overaccumulation of capital, may emerge. Copyright 1994 by Royal Economic Society.

The Search for Equilibrium Relationships in International Finance: The Case of the Monetary Model

Abstract This paper considers some of the main long-run equilibrium relationships in international finance. We supplement the Phillips–Perron test, which has a unit root under the null, with the new KPS test statistic which is based on a stationary null and apply them to the various exchange rate fundamentals. The application of the Johansen test for multiple cointegrating factors finds evidence of the existence of stable money demand functions in both the USA and UK with relatively short-lived perturbations. However, there appears to be insufficient information in the data to distinguish whether the real exchange rate has a unit root or is persistent and mean reverting. The consequent persistent deviations from purchasing power parity appears the only source of rejection of the equilibrium monetary model.

Dependent children and aged parents: funding education and social security in an aging economy

In the last few decades in the United States birth rates have declined and longevity has risen while productivity growth has slowed. Given such changes, the increasing burden of funding programs for the elderly is likely to shift resources away from the young and toward the elderly. This paper uses an overlapping generations framework to examine the effects of tax policies on an aging economy. We find that if the quality of the education system is sufficiently high then raising the education tax rate and subsequently lowering the social security tax rate enhances growth and welfare.

P* Type Models: Evaluation and Forecasts

This paper critically evaluates the Federal Reserves p* model of inflation, and develops a model of national income determination implicit in the p* formulation. We use this model to forecast the future paths of key macroeconomic variables and investigate its behavior under a variety of deterministic monetary policy rules. These forecasts and policy simulations suggest a dynamic economic behavior inconsistent with stylized facts, and lead us to question the underlying structure of the p* formulation.

Commodity prices and the CPI: Cointegration, information, and signal extraction

Abstract This paper provides theoretical underpinnings for the commodity price/aggregate price relationship, discusses the conditions under which commodity prices are useful information variables for monetary policy, and provides empirical results which suggest why commodity prices have not been very useful for forecasting.

Risk averse bank managers: Exogenous shocks,portfolio reallocations and market spillovers

Abstract This paper develops a model of the banking market in which individual banks make decisions concerning both the size and risk characteristics of their portfolios, and in which actions of one bank spill over to affect actions of other banks. Various observed banking market behaviors, such as herding, credit crunches, bank reaction to policy changes, etc., are explained as optimal bank responses to idiosyncratic or systemic shocks.

A Macroeconomic Analysis of Publicly Funded Health Care

In a general equilibrium, overlapping generations framework this paper examines how the tax-benefit system that underlies the U.S. health care system affects the well-being of different age groups, and the lifetime well-being of different socioeconomic groups, as well as society as a whole. We find that the optimal set and generosity of publicly funded health care programs is sensitive to the social welfare function and to the prices that various agents in society pay for medical care. Social welfare under the current financing system is also compared to alternative financing mechanisms such as Medical Savings Accounts. Copyright 2002 by Blackwell Publishing Inc.

Risk-Based Deposit Insurance: An Incentive Compatible Plan

This paper develops a model of a risk-based deposit insurance regulatory regime in which the insurer induces banks to reveal truthfully the riskiness of their portfolios and to protect adequately their creditors from loss. This scheme reduces the limits on stockholder liability, responds to changes in market conditions, and provides depositors with timely information on bank risk. Copyright 1992 by Ohio State University Press.

Herd Behavior or Animal Spirits: A Possible Explanation of Credit Crunches and Bubbles

Casual Observation of bank behavior would suggest that banks often act in tandem, expanding and contracting lending in concert. Sometimes banks’ actions are consistent with aggregate economic activity and attract little notice. At other times, bank lending practices receive greater scrutiny because either economic conditions do not appear to warrant expansion or contraction or their behavior appears, at least ex post, to contradict sound banking practices. Two recent examples of rapidly increasing aggregate lending were the expansion of loans to less developed countries (LDCs) in the 1970s and loans to finance real estate expansion in the United States during the mid-1980s. Examples of credit crunches are the real estate credit crunch of 1989–1992 as well as those in 1966 and 1969.

The Loan Contract: Mechanism of Financial Control

In this paper, it is shown that an industry bank specializing in the financial needs of an indust ry can effect industry control in a variety of economic situations. S pecifically, a bank, through its loan contract, can set industry outp ut at the monopoly level and extract surplus from collusion if the fi rms in the industry cannot collude directly because of asymmetric inf ormation, signalling problems, and/or antitrust restrictions. Copyright 1988 by Royal Economic Society.