The Economic Welfare Cost of Conflict: An Empirical Assessment

War, whether external or internal, large or small, is a costly endeavor. Loss of life, loss of close friends or family, and the destruction of material possessions all play a part in the costs of war. The purpose of this paper is to capture only the material, economic welfare costs of conflict stemming from the altered path of consumption resulting from conflict. As such, our measure is quite a lower bound for the true and more encompassing welfare loss from living in a non-peaceful world. Remarkably, however, even these pure economic welfare losses from conflict are large. We find that, on average, individuals would give up over 8 percent of their current level of consumption to live in a peaceful world. Such large potential welfare gains from reducing warfare should make economists and policy-makers take note.Growth; Conflict; Welfare Costs

Understanding the Backus-Smith Puzzle: It’s the (Nominal) Exchange Rate, Stupid

Backus, Kehoe and Kydland (BKK 1992) showed that if international capital markets are complete, consumption growth correlations across countries should be higher than their corresponding output growth correlations. In stark contrast to the theory, however, in actual data the consumption growth correlation is lower than the output growth correlation. By assuming trade imperfections due to non-traded goods, Backus and Smith (1993) showed that there is an additional impediment that works to lower the consumption growth correlation. While Backus and Smith’s argument was successful in partially explaining the low growth correlation puzzle, it contributed to generating another puzzle because the data forcefully showed that consumption growth is negatively correlated with the real exchange rate, which is a violation of the theory. In this paper, by decomposing the real exchange rate growth of the OECD countries into the nominal exchange rate growth and the inflation differential, we find that nominal exchange rate movements are the main source for the Backus-Smith puzzle. We find that the nominal exchange rate moves counter-cyclically with consumption movements, which is a violation of the risk sharing theory with non-traded goods. We also find that the violations are more pronounced when nominal exchange rate changes are larger in absolute value . In contrast, the negative of bilateral inflation differentials is positively correlated with bilateral consumption movements. The latter finding is in accordance with the theory. Furthermore, using intranational data for the United States where the nominal exchange rate is constant, the Backus-Smith puzzle disappears, although complete risk sharing is rejected.Risk Sharing; Exchange Rate

What’s in a Name?

Plenty. This paper analyzes two broad questions: Does your first name matter? And how did you get your first name anyway? Using data from the National Opinion Research Centers (NORC’s) General Social Survey, including access to respondents first names from the 1994 and 2002 surveys, we extract the important “first name features” (FNF), e.g. popularity, number of syllables, phonetic features, Scrabble score, “blackness” (i.e. the fraction of people with that name who are black), etc ... We then explore whether these first name features are useful explanatory factors of a respondent’s exogenous background factors (sex, race, parents’ education, etc...) and lifetime outcomes (e.g. financial status, occupational prestige, perceived social class, education, happiness, and whether they became a parent before 25). We find that first name features on their own do have significant predictive power for a number of these lifetime outcomes, even after controlling for a myriad of exogenous background factors. We find evidence that first name features are independent predictors of lifetime outcomes that are likely related to labor productivity such as education, happiness and early fertility. Importantly, however, we also find evidence based on the differential impacts of gender and race on the blackness of a name and its popularity that suggest that discrimination may also be a factor.names, identity, discrimination

What's in a Name?

Plenty. This paper analyzes two broad questions: Does your first name matter? And how did you get your first name anyway? Using data from the National Opinion Research Center’s (NORC's) General Social Survey, including access to respondent’s first names from the 1994 and 2002 surveys, we extract the important ``first name features'' (FNF), e.g. popularity, number of syllables, phonetic features, Scrabble score, `blackness’ (i.e. the fraction of people with that name who are black), etc ... We then explore whether these first name features are useful explanatory factors of an respondent's exogenous background factors (sex, race, parent's education, etc...) and lifetime outcomes (e.g. financial status, occupational prestige, perceived social class, education, happiness, and whether they became a parent before 25). We find that first name features on their own do have significant predictive power for a number of these lifetime outcomes, even after controlling for a myriad of exogenous background factors. We find evidence that first name features are independent predictors of lifetime outcomes that are likely related to labor productivity such as education, happiness and early fertility. Importantly, however, we also find evidence based on the differential impacts of gender and race on the blackness of a name and its popularity that suggest that discrimination may also be a factor.Names, Identity, Discrimination

War and Democracy

This paper presents a general equilibrium model of conflict based on a world populated by representative democracies. At the individual state level, when information regarding a leader's ability to defend the state against unavoidable conflict is va luable to voters, an incumbent leader seeking reelection may be tempted into potentially avoidable conflicts to demonstrate his ability and enhance his reelection prospects. As a result, democratic states may be responsible for at least some international conflict. In this paper, we investigate whether this motive is sufficiently important for war to persist in equilibrium if all countries are democracies. Three key findings emerge. First, the perpetual peace equilibrium hypothesized by Immanuel Kant (1795, 1991) always exists. The reason is that in the absence of the threat of war, leaders are unable to divert the public's attention away from domestic considerations. Consequently, the incentive for potentially avoidable conflicts vanishes. Second, if leader s are not sufficiently benevolent and wars are costly in expectation, then additional equilibria exist with a positive war frequency. Third, if multiple equilibria exist, the perpetual peace equilibrium may be unstable in which case an equilibrium with po sitive war frequency becomes the only stable outcome. The model is further extended to analyze the role of appropriative conflicts and non-democratic regimes. It is shown that if the diversionary motive of democratic leaders is strong, a more democratic world may not necessarily be more peaceful. We discuss the role that norms and institutions can play in facilitating a more peaceful world with democracies - for example, free trade areas and alliance formation.War, Democracy, Kant Hypothesis

Discussion: Narrow Money, Broad Money, and the Transmission of Monetary Policy

Monetary policy and theory have been greatly transformed since Dale Henderson, Richard Porter, and Peter Tinsley (HPT) first crossed the Board\u27s threshold more than thirty years ago. Judging from the sustained levels of robust growth and moderate rates of inflation in the United States since the early 1980s, both theory and policy have moved in a welfare-improving direction. The dramatic evolution of monetary policy during HPT\u27s tenure simply cannot be overstated. A revolution took place during their watch, and as the custodians and facilitators of research at the Federal Reserve Board, these three amigos should certainly take some credit

Marriage and Consumption Insurance: What’s Love Got to Do with It?

When markets are incomplete, individuals may choose to marry to diversify their labor income risk. Love, however, can complicate the picture. If love is fleeting or the resolution of agents’ income uncertainty occurs predominantly later in life, then marriages with good economic matches last longer. In contrast, if love is persistent and the resolution of uncertainty to agents’ income occurs early, then marriages with good economic matches are more likely to be caught short with too little love to save a marriage. Consequently, once married, the partners will be more likely to divorce. Evidence is provided to distinguish between these alternative scenarios

Is the political business cycle for real?

This paper's macroeconomic model combines features from both real and political business cycle models. It augments a standard real business cycle tax model by allowing for varying levels of government partisanship and competence in order to replicate two important empirical regularities: First, that on average the economy expands early under Democratic presidents and contracts early under Republican presidents. Second, that presidents whose parties successfully retain the presidency have stronger-than-average growth in the second half of their terms. The model generates both of these features in conformity with U.S. post-World War II data.Business cycles

Is the Political Business Cycle for Real?

This paper constructs and examines a macroeconomic model which combines features from both real and political business cycle models. We augment a standard real business cycle tax model by allowing for varying levels of government partisanship and competence in order to replicate two important empirical regularities: First, that on average the economy expands early under Democratic Presidents and contracts early under Republican Presidents. Second, that Presidents whose parties successfully retain the presidency have stronger than average growth in the second half of their terms. The model generates both of these features that conform to U.S. Post World War II data.Political business cycle

Are Tax Rates Too Volatile?

The way in which a government chooses to raise tax revenue over time has attracted considerable attention both in the tax literature, and the political business cycle literature. The tax literature ahs emphasized planning problems where the government chooses taxes and a path for government debt to minimize the excess burden of taxes over time. Alternatively, the political business cycle models focus on the fiscal policies pursued by incumbent governments to either improve their reelection prospects or to constrain the policies that future governments in power will pursue. This paper addresses the question of whether tax rates fluctuate “in excess” of movements in economic fundamentals. I consider, below, a simple theory of optimal taxation which implies that tax rates should follow a random walk. Under this null hypothesis, variance bounds on the inter-temporal government budget constraint are derived. The methodology of evaluating these variance bounds corresponds to the stock market volatility literature pioneered by Leroy and Porter and Shiller. The outline of the paper is as follows. Section II presents the simple linear-quadratic model of taxation and derives the inequality bounds for the volatility tests. Section III presents the calculation of the inequality bounds and discusses the results. In section IV, results from Monte Carlo simulations of the model, under a range of specifications, show the robustness of the empirical results. Section V explores both business cycle and political business cycle explanation for the excess volatility of taxes. I conclude in section VI