nep-mac New Economics Papers
on Macroeconomics
Issue of 2005‒08‒28
three papers chosen by
Soumitra K Mallick
Indian Institute of Social Welfare and Bussiness Management

  1. Is lumpy investment really irrelevant for the business cycle? By Tommy Sveen; Lutz Weinke
  2. Is the price level in Norway determined by fiscal policy? By Ragna Alstadheim
  3. Understanding Expenditure Patterns in Retirement By Barbara A. Butrica; Joshua H. Goldwyn; Richard W. Johnson

  1. By: Tommy Sveen (Norges Bank); Lutz Weinke (Universitat Pompeu Fabra)
    Abstract: New-Keynesian (NK) models can only account for the dynamic effects of monetary policy shocks if it is assumed that aggregate capital accumulation is much smoother than it would be the case under frictionless firm-level investment, as discussed in Woodford (2003, Ch. 5). We find that lumpy investment, when combined with price stickiness and market power of firms, can rationalize this assumption. Our main result is in stark contrast with the conclusions obtained by Thomas (2002) in the context of a real business cycle (RBC) model. We use our model to explain the economic mechanism behind this difference in the predictions of RBC and NK theory.
    Keywords: Lumpy investment, Sticky prices
    JEL: E22 E31 E32
    Date: 2005–08–19
  2. By: Ragna Alstadheim (Norges Bank)
    Abstract: The Norwegian public sector has net financial assets. The fiscal theory of price determination applies equally to Norway and economies with net public debt: If primary surpluses evolve independently of nominal debt (or assets), the price level has to adjust to satisfy the intertemporal budget constraint of the public sector. In this ‘non-Ricardian’ regime, monetary policy cannot provide the nominal anchor. In the alternative ‘Ricardian’ regime, surpluses respond to debt, and monetary policy is the nominal anchor. The plausibility of NR regimes is disputed. I use fiscal data and oil prices to argue that the Norwegian regime is Ricardian. The fiscal theory of price
    Keywords: Price-level determinacy, fiscal policy, Richardian regime, nominal anchor
    JEL: E60 E63
    Date: 2005–08–19
  3. By: Barbara A. Butrica (Urban Institute); Joshua H. Goldwyn (Urban Institute); Richard W. Johnson (Urban Institute)
    Abstract: Understanding the consumption needs of retirees is critical to assessing the adequacy of retirement income and the possible impact of Social Security reform on the well-being of older Americans. This study uses data from the Health and Retirement Study, including a recent supplemental expenditure survey, to analyze spending patterns and consumption needs for adults ages 65 and older. Results indicate that typical older married adults spend 84 percent of after-tax household income, and nonmarried adults spend 92 percent of after-tax income. Even at older ages individuals devote a larger share of their expenditures and income to housing than any other category of goods and services, including health care. Fully 8 percent of married adults report after-tax incomes that fall short of our estimated basic-needs threshold, consisting of housing, health care, food, and clothing. By comparison, only 3 percent of married adults have incomes below the official poverty level.
    Keywords: consumption, retirees, spending, income, expenditures
    JEL: E21 J14 J12
    Date: 2005–01

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