Search Results
Journal Article
The performance of traditional macroeconomic models of businesses' investment spending
The rate of capital formation by businesses has long been among the most closely watched elements of the national accounts. During the last decade, this component of investment attracted considerable interest as capital spending helped support our uncommonly high rate of economic growth. Not only did this spending lift the growth of aggregate demand, it also increased our capacity for supplying goods and services, which in turn could allow output to continue growing rapidly in the future. ; This article analyzes the performance of conventional models of investment spending by comparing their ...
Journal Article
Safety and soundness of financial intermediaries: capital requirements, deposit insurance, and monetary policy
More than two-thirds of the $25 trillion of financial assets held in the United States is managed on behalf of investors by financial intermediaries, ranging from trusts, mutual funds, and mortgage pools to insurance companies, pension funds, and banks. Because of their importance, governments have long regulated the activities of these intermediaries to ensure sound financial markets, a foundation of secure economic development. Currently, regulators both here and abroad are considering reforms that not only might foster more efficient domestic financial markets, but also might prepare the ...
Working Paper
Tobin's Q, economic rents, and the optimal stock of capital
Within optimal investment programs, the accumulation of capital is a stable function of marginal q. Much of the interest in q, however, derives from its potential to reflect the demand for capital when the optimal program changes. If the marginal return on capital diminishes as capital increases, the correspondence between marginal q and the optimal stock of capital can shift whenever investors alter their assessments of prospective economic rents. At such times, marginal q even could rise as the optimal stock of capital falls. In general, robust investment functions express optimal ...
Journal Article
No gain, no pain: some consequences of taxing capital gains
Working Paper
The capitalization and portfolio risk of insurance companies
The enormous growth in both Social Security and private pension plans has stimulated much interest in the impact of these retirement programs on individual saving behavior and the level of national saving. The first issue is the extent to which employees covered by pension plans reduce their own direct saving in response to expected retirement benefits; the response of individuals to guaranteed retirement income will determine, to a large extent, their well-being in retirement. For a nation concerned about saving and capital formation, the second issue is the impact of collectivized ...
Journal Article
The influence of housing and durables on personal saving
The rate of national saving declined sharply in the 1980s. Some of the explanations for this puzzling performance have considered the influence of capital gains, a reduction in the need for precautionary saving, a decline in the need for retirement saving, the effect of slower income growth, and a host of other factors. ; This article explores the relationship between personal saving and the treatment of owner-occupied housing and consumer durable goods in the national income and product accounts. It examhaes the potential consequences of understating the returns on owner-occupied houses and ...
Journal Article
How humans behave: implications for economics and economic policy
Economic policymakers attempt to improve the welfare of their citizens, based on assumptions about how people think, feel, and behave, and on what they view as welfare-improving. Economists usually describe economic agents as fully informed and model them as striving to maximize a set of stable preferences. While these assumptions provide a simple framework for analyzing economic activity, actual human behavior has proved more complex. As a result, economists have started looking to psychologists and others who study human behavior for guidance on the decision-making process, the roles of ...
Discussion Paper
The taxation of equity, dividends, and stock prices
The Jobs and Growth Tax Relief Reconciliation Act of 2003 (JGTRRA) essentially halved the tax rate on dividends and reduced the top tax rate on capital gains. This paper explores the likely effect of JGTRRA on the composition of returns on corporations? common stock. Both larger corporations? past behavior and theory suggest that the recent tax cuts are not likely to increase dividend payouts significantly. Instead, in the short run, dividends will continue to rise in the customary way in response to the recovery in earnings. In the longer run, the tax cuts will principally reduce companies? ...