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Working Paper
Income inequality and minimum consumption: implications for growth
We propose a model that recognizes hierarchical goods and income inequality among households. The model demonstrates that growth is impacted not by inequality per se, but "absolute" income distribution or the level of poverty underlying the income distribution. Specifically, when a large fraction of the population is below the threshold income necessary for subsistence, aggregate consumption is depressed. In low-income countries, high inequality of income retards consumption growth, whereas in high-income countries inequality may be neutral for growth. Cross-country regressions indicate a ...
Working Paper
Seasonal production smoothing
Empirical tests of the production-smoothing hypothesis have yielded mixed results. In this paper, Donald Allen looks for, and finds evidence of, seasonal production smoothing in 15 out of 25 manufacturing series and 8 out of 10 retail series, using detrended seasonally unadjusted data. The equivalent test using seasonally adjusted data were negative for all 35 series. The results suggest that seasonally adjusted data obscure short-term production-smoothing.
Working Paper
Financial intermediation and economic growth in southern Africa
The role of the financial sector in stimulating economic growth has been debated in the economic profession for decades. The prevailing view is that financial intermediaries reduce the transactions costs of channeling funds from savers to entrepreneurs by reducing information asymmetries between lenders and borrowers, there by stimulating investment and growth. Inflation, on the other hand, increases uncertainty and has a negative impact on investment and reduces growth. This paper tests these two hypotheses empirically using a pooled time series for a cross-section of countries in the ...
Journal Article
Improving production management
Journal Article
Do inventories moderate fluctuations in output?
Inventories are widely believed to serve as a buffer stock against unexpected fluctuations in demand, allowing firms to plan production more efficiently. If so, we would expect production to vary less than sales and inventory to move in the opposite direction to sales. However, research finds that production varies more than sales and that there is a positive correlation between changes in inventory and changes in sales. These findings imply that inventories are not being used to smooth production and do not serve as a buffer for uncertain demand. Donald S. Allen examines firm-level data and ...
Working Paper
The efficiency of residential mortgage guarantee insurance markets
Mortgage Guarantee Insurance (MGI) provides protection to lenders against default by borrowers who have less than 20 percent equity interest in the mortgaged property. The existence of this form of insurance helps to stimulate home ownership by allowing consumers with less than twenty percent down payment access to credit markets. Initially an invention of lenders, MGI became dominated by government agencies after the Great Depression but recently private insurers have increased their market share to more than 75 percent. The domination of the industry by the private sector appears not to ...
Working Paper
A state space forecasting model with fiscal and monetary control
In this paper we model the U.S. economy parsimoniously in an a theoretic state space representation. We use monthly data for thirteen macroeconomic variables. We treat the federal deficit as a proxy for fiscal policy and the fed funds rate as a proxy for monetary policy and use each of them as control (exogenous) variables, and designate the rest as state variables. The output (measured) variable is the growth rate of quarterly real GDP which we interpolate to obtain a monthly equivalent. We specify a linear relation between state variables and implicitly allow for time variation of the ...
Journal Article
Another soft inventory landing?
Working Paper
Forecasting with an adaptive control algorithm
We construct a parsimonious model of the U.S. macro economy using a state space representation and recursive estimation. At the core of the estimation procedure is a prediction/correction algorithm based on a recursive least squares estimation with exponential forgetting. The algorithm is a Kalman filter-type update method which minimizes the sum of discounted squared errors. This method reduces the contribution of past errors in the estimate of the current period coefficients and thereby adapts to potential time variation of parameters. The root mean square errors of out-of-sample forecast ...
Journal Article
Seasonal production smoothing
Empirical tests of the production-smoothing hypothesis have yielded mixed results. In this paper, Donald Allen looks for and finds evidence of seasonal production smoothing in 15 out of 25 manufacturing series and eight out of 10 retail series, using detrended seasonally unadjusted data. The equivalent test using seasonally adjusted data were negative for all 35 series. The results suggest that seasonally adjusted data obscure short-term production smoothing.