Abstract: We introduce a new measure of the extent
of federal regulation in the U.S. and use it to investigate the relationship between federal regulation and macroeconomic performance.
We find that regulation has statistically and economically significant effects on aggregate output and the factors that produce ittotal
factor productivity (TFP), physical capital, and labor. Regulation has caused substantial reductions in the growth rates of both output
and TFP and has had effects on the trends in capital and labor that vary over time in both sign and magnitude. Regulation also affects
deviations about the trends in output and its factors of production, and the effects differ across dependent variables. Regulation
changes the way output is produced by changing the mix of inputs. Changes in regulation and marginal tax rates offer a straightforward
explanation for the productivity slowdown of the 1970s.
Keywords: Regulation, macroeconomic performance.
JEL classification: L50; O40
growth requires offsetting diminishing returns to reproducible factors of production. In this article we present a theory of
factor elimination. For simplicity and clarity, there is no augmentation of non-reproducible factors, thus excluding the
of growth. By spending resources on R&D, agents learn to change the exponents of a Cobb-Douglas production
function. We obtain
the economy?'s balanced growth path and complete transition dynamics. The theory provides a mechanism
for the transition from an initial
technology incapable of supporting perpetual growth to one with constant returns to reproducible
factors that supports it.
Endogenous growth, technical change, factor elasticity of income, factor substitution.
JEL classi?cation: O40, O31, O33
Abstract: We study the world trading equilibrium in a Ricardian model where factors of production are themselves produced
and tradable rather than endowed and non-tradable, corresponding to the three-quarters of international trade that is in intermediate
and capital goods. We show that trade a¤ects economic growth purely through comparative advantage, even in the absence of technology
transfer, research and development, and international investment, and also in the absence of aggregate scale e¤ects. Trade may raise
a country?s growth rate or leave it unchanged. When a world balanced growth rate exists, trade always raises the growth rate of both
trading partners. Otherwise, either one partner?s growth rate is increased and the other is una¤ected or neither partner?s growth
rate is a¤ected, depending on the patterns of comparative and absolute advantage. Trade?s e¤ect on a country?s growth rate depends
on the nature of the imported good and not the exported good, a result contrary to the direction of many countries?export policies.
Trade in factors of production e¤ectively transfers technology by producing an equilibrium identical to that which would obtain if
technology had been transferred between trading partners even though no such transfer actually occurs, which suggests that existing
empirical evidence on the relation between trade and technology transfer may not be evidence that trade facilitates actual technology
transfer. We show the conditions under which factor price equalization, the Stolper-Samuelson theorem, and the Rybczynski theorem
hold. We perform a numerical analysis of the transition dynamics, which appear to be saddle-point stable but may be monotonic or oscillatory
in converging to the balanced growth path.
article discusses the history of government debt from the year 1800 to the present. Before 1950, virtually all large movements in
government debt were related to wars, with debt rising during major wars and falling during peace time. After 1970, many countries,
both developed and developing, experienced an historically unprecedented large increase in the peace time debt/GDP ratio similar
to those that previously occurred during wars. Simultaneously, most countries also experienced a large increase in the ratio of social
spending to GDP, much of it in the form of entitlement programs that are similar to more traditional debt in that they promise a flow
of payments to the citizens.
Abstract: A brief review of the meaning, measurement,
and economices of government debt and deficits is presented.
Abstract: This paper utilizes relatively unexplored Canadian provincial-level data to investigate an old
but still relevant question in macroeconomics as to whether consumption responds to income innovations in a manner consistent with
the stochastic implications of the permanent income hypothesis (PIH). The empirical results obtained do not appear to be in accord
with the PIH. Instead consumptions response to income innovations are found to be much weaker than the PIH predicts; in particular,
the response displays an asymmetric pattern in the sense that it is much stronger for negative than positive income innovations. We
interpret this evidence of asymmetry as being consistent with the presence of liquidity constraints in provincial households.
Keywords: Consumption, Permanent Income, Canadian provinces
Abstract: A transactions model of the demand for multiple media of exchange is developed and applied to the study of currency
substitution. The analysis provides a theoretical foundation for results reported in the empirical literature. It also predicts that
variables not previously considered in the literature will affect currency substitution in complex and unexpected ways. Independent
empirical work supports the theory.
Government Debt and Deficits. John J. Seater. The Concise Encyclopedia of Economics,
David R. Henderson, ed., The Library of Economics and Liberty, Online version http://www.econlib.org/library/CEE.html. Print version
Liberty Fund, Indianapolis, 2008, pp. 224-227.
Abstract: A brief review of the meaning, measurement, and economices of government debt
and deficits is presented.
Deficits. John J. Seater. Battleground: Economics and Business, Michael Walden, ed. Greenwood Press,
Westport CT, 2007, pp. 87-95.
Abstract: A brief review of the meaning, measurement, and economices of government debt and deficits
Testing the Cross-Section Implications of Friedmans Permanent Income Hypothesis. Joseph DeJuan and John
J. Seater. Journal of Monetary Economics 54, April 2007, pp. 820-849.
Abstract: We use modern household data and econometric methods
to conduct some of the original tests of the Permanent Income Hypothesis (PIH) suggested and used by Friedman (1957). The data and
methods are superior to those available to Friedman, allowing us to refine Friedmans tests and perform tests he could not do. The
results provide overall but not universal support for PIH.
This paper investigates whether time-series data from eleven West German states (Lander) provide evidence in accord with the implication
of the permanent income hypotheses (PIH) for the stochastic relationship between consumption and income innovations. The empirical
results do not support this hypothesis. In particular, the response of consumption to income innovations is found to be much
weaker than is predicted by the PIH. Moreover, the response was found to be asymmetric, being stronger for negative than positive
income innovations. This evidence of asymmetry is qualitatively consistent with models in which consumers are liquidity constrained.
Simple Test of Friedmans Permanent Income Hypothesis. Joseph DeJuan and John J. Seater. Economica 73, February 2006, pp. 27-46.
Friedmans Permanent Income Hypothesis (PIH) predicts that the income elasticity of consumption should be higher for households for
whom a large fraction of the variation of their income is permanent than for households experiencing more transitory variations in
income. We test this prediction using modern household data from the U.S. Consumer Expenditure Survey. The results offer some support
for the PIH.Keywords: Consumption; Permanent income; Consumer Expenditure SurveyJEL Code: E21
"Share-Altering Technical Progress." John
J. Seater. Economic Growth and Productivity, L. A. Finley, ed., Nova Science Publishers, Hauppage, NY 2005, pp. 59-84.
Abstract:The implications of technical change that directly alters factor shares are examined. Such change can lower the income of some factors
of production even when it raises total output, thus offering a possible explanation for episodes of social conflict such as the Luddite
uprisings in 19th century England and the recent divergence in the U. S. between wages for skilled and unskilled labor. An explanation
also why underdeveloped countries do not adopt the latest technology but continue to use outmoded production methods. Total factor
productivity is shown to be a misleading measure of technical progress. Share-altering technical change brings into question the plausibility
of a wide class of endogenous growth models.
A Direct Test of the Permanent Income Hypothesis. Joseph DeJuan, John J. Seater,
and Tony Wirjanto. Journal of Money, Credit, and Banking 36, December 2004, pp. 1091-1103.
Abstract:This paper tests the prediction
of the Permanent Income Hypothesis (PIH) that news about future income induce a revision in consumption equal to the revision in permanent
income. We use time-series data from 48 contiguous US states to perform the test. The empirical results provide some support for the
PIH across states.
JEL Classification: E21
Keywords: Permanent income, Consumption, US states
"Invention and Business Cycles." John
J. Seater. Revista Basileira de Economia de Empresas 4, January-April, 2004, pp. 7-42.
Abstract: Invention of new final goods can lead
to interesting business cycle behavior if the new good somehow involves durability. Either the good itself can be durable (a consumer
durable, productive capital), or it can be produced in a new sector by a technology that requires capital as an input. Many kinds
of invention have one of these characteristics. The economys dynamic response to invention of such a good is shown to be consistent
with several business cycle facts that the standard real business cycle model has difficulty explaining.
Optimal Bank Regulation
and Monetary Policy. John J. Seater. ICFAI Journal of Bank Management 2, February 2003, pp. 7-28.
Abstract: A unified model of
monetary policy and bank regulation is presented. In accordance with modern banking theory, banks not only intermediate loans and
deposits but also provide a financial service affecting aggregate output. Optimal parameter settings for monetary and regulatory policy
are derived. New results are that monetary policy affects the expected level as well as the variance of output, bank regulation should
change continually in response to the state of the economy, and bank regulation and monetary policy should be tightly coordinated.
This last result has important implications for the institutional arrangements for conducting regulatory and monetary policy.
and Banking." John J. Seater. Research in Banking and Finance, Volume 2 , I. Hasan & W. C. Hunter, eds. Elsevier, Amsterdam &
New York, 2002
Abstract: Household demand for financial transaction services is investigated. The quantity and variety of services
demanded depends positively on household income, with households at the bottom of the income distribution demanding no financial services
at all. Demand for financial services also depends on household allocation of income among types of consumption goods. These results
have implications for the organization of the banking market, especially branch bank location, and for the availability of banking
services across geographical areas. The results therefore also have implications for the regulation of banking activities, such as
neighborhood siting requirements for bank branches or neighborhood lending requirements.
"Economic Information versus Quality Variation
in Cross-Country Data." John W. Dawson, Joseph P. DeJuan, John J. Seater, and E. Frank Stephenson. Canadian Journal of Economics 34,
Abstract: Data quality in the Penn World Tables varies systematically across countries that have different growth rates
and are at different stages of economic development, thus introducing measurement error correlated with variables of economic interest.
We explore the seriousness of this problem with three examples from the literature, showing that the problem appears to be minor in
growth convergence regressions but serious in estimating the effect of growth volatility on the average growth rate and in a cross-country
test of the Permanent Income Hypothesis. The results suggest, at the least, a need for performing appropriate sensitivity tests before
drawing conclusions from analyses based on these data.
KEYWORDS: Data quality, cross-country comparisons.
JEL Classification: O57; E21,
Abstract: We derive a semi-nonparametric utility function containing the constant relative risk aversion
function (CRRA) as a special case, and we estimate the associated Euler equations with U.S. consumption data. There is strong evidence
that the CRRA function is misspecified. The correctly specified function includes lagged effects of durable goods and perhaps non-durable
goods, is bounded as required by Arrow's Utility Boundedness Theorem, and has a positive rate of time preference. Constraining sample
periods and separability structure to be consistent with the generalized axiom of revealed preference affects estimation results substantially.
Using Divisia aggregates instead of the NIPA aggregates also affects results.
Abstract: We examine whether annual, quarterly,
and monthly U.S. aggregate consumption data could have been generated by a utility maximizing representative agent with intertemporally
separable utility. The model appears inapplicable over the full time periods covered by the NIPA data, which are the sample periods
often used in the literature. The model does appear applicable, however, over long subsamples. The data also are inconsistent with
separability assumptions routinely made in the literature. In particular, the main categories of consumption (nondurables, services,
and durables) are not mutually separable. We consider the implications of our results for inference about consumption based on the
representative agent model.
Abstract: This paper derives the optimal size of the financial sector using a general
equilibrium framework that is an extension of Holmstrom and Tiroles 1997 paper. We show that the financial sector has a unique optimal
size relative to the size of the economy as a whole. Creating and maintaining this sector requires diversion of some physical capital
from production of output to monitoring that production. However, the efficiency gain in output production brought about by monitoring
warrants the diversion. It is also found that the optimal size of the financial sector is independent of the state of the economy
and does not vary over the business cycle.