INDEX

Accelerator effect, 221 Arithmetic mean, vs. geometric mean, 300 Accountability, and security Ascoli, Max, 364 development, 311 Asian security markets Adjustable Rate Mortgage (ARM), 285–286 bubble in (Modigliani interview), 371 Age potential for development of, 314–316 and consumption function, 10, 35–36, 45n.67, Assets. See also Durable 48 accumulation of and uncertainty, 6, and consumption-income relation, 39n.23 30–31 and of consumption with respect to and consumption, 29–30 income, 28 and downward revaluation of market of and marginal propensity to consume, 11–12 assets, 76n.32 and marginal propensity to consume with and income increase, 17 respect to assets, 30 and marginal propensity to consume, 66 Age-wealth profile, in LCH test, 149–153 net worth as, 10, 29, 36 Aggregate consumption function and , 30 a priori estimates of coefficients of, 51–52 stationary equilibrium assets, 14 derivation of, 48–51 Association for Investment Management and and expected income, 52 Research (AIMR), 300 Auctioning, of employment vouchers and in functional finance, 365 benefits, 235 in Keynesian analysis, 346 Australia and unemployment in Europe, 240, 244, 250 saving rates for, 108–111, 112–114 in Modigliani interview, 370 saving rates changes for, 129 and puzzle of 1980s, 261 Austria Aggregate demand policies, 209, 214, 221–224, saving rates for, 108–111, 112–114 236 saving rates changes for, 129 and European role, 224–226 Average annual expected income, 50 and United Kingdom, 220 Aggregate saving, and transitory income, 115 Baby pensions, 155 Alexander, Sidney, 366, 374 Bach, O. L., 366 Algeria, income and in, 134 Bangladesh, income and savings in, 134 Allais, Maurice, 363 Banks Allen, R. G. D., 365 as investment organizations, 311–312 American Common Market, 323 and rapid development, 306 American Economic Association, Presidential Barbados, income and savings in, 134 Address to, 377 Bard College of Columbia University, 366 Ando, Albert, 379 Barnett, William, 364 Antifascism, of Modigliani, 364 Barro, Robert, 375 A priori estimates, of coefficient of aggregate Barro hypothesis, 121, 125–126, 128, 139, consumption function, 51–52 375–377 Argentina, income and savings in, 134 Beals, Ralph, 105n.33 386 Index

Belgium Cameroon, income and savings in, 134 and exchange rates, 277 Canada and floating , 276 savings rates for, 108–111, 112–114 and rates, 278, 280 savings rates changes in, 129 monetary stance of, 279 Cape Verde, income and savings in, 134 saving rates for, 108–111, 112–114 Capital formation reduction, and national debt, saving rates changes for, 129 80, 83, 85, 86, 89, 90, 93, 99, 101 unemployment in, 239 Capitalism Benefit Transfer Program (BTP), 227, and European unemployment, 212 233–235 and regulation, 316n.4 Benin, income and savings in, 134 Capital-output ratio, 69 Bequest motive, 91, 118. See also Heirs, Carnegie Institute of Technology (now saving for benefit of vs. bequest amount, Carnegie Mellon), 366 167–168 Cash income Bequests, 91 as irrelevant and misleading, 143 and absence of negative saving, 157 in NIA definition, 142 in Japan, 325 Central African Republic, income and savings in Life-Cycle model, 118–119, 165–168, 168, in, 134 379, 381 Central Bank(s). See also European Central from precautionary motive vs. true bequest Bank motive, 118 and accommodation to nominal and function, 48–49 increase, 254–255, 266 Beveridge Curve, 246–247, 248 and fiscal policy, 356 alternative decomposition of effect of and Germany, 264 availability of jobs and shifts in, and government credibility, 312 271–274 and inflation vs. unemployment, 224–225, Biases, in estimation procedures, 54, 60, 61–62, 257, 358, 372–373 71–72 and as tool, 354 Birth-control policy, of China, 179, 181 of Italy, 370 Birth rate, in China, 181 and supply in Keynesian analysis, Bolivia, income and savings in, 134 252 Botswana and puzzle of 1980s, 258, 260 income and savings in, 134 and real vs. nominal , rate of, 199, 202 357–358 Bowen, Howard H., 367 and stock of money, 330 Bowen, W. G., 88 and unemployment remedies, 270, 375 Brady, Dorothy S., 27, 367 Centrally planned economies, and question of Brazil, income and savings in, 134 government intervention, 307 Bruxelles Commission, 223–224 Chile, income and savings in, 134 Bubbles, stock market, 371 China Buchanan, J. M., 79, 82, 83, 89 birth rate of, 182 Budget constraint, 5 data limitation for, 183 Bundesbank income and savings in, 134 as central bank for Union, 379 and Life-Cycle Hypothesis, 173–174, 179, 202 and EMS, 260 basic data in study of, 174–178, 203–204 and interest rate cuts, 277 and demographic structure, 180–182 high interest rates of, 240, 263 and estimation of saving ratio, 187–193 and , 345 and estimation tests for saving ratio, errors in, 358 193–198 and unemployment, 275, 276 and income growth, 134, 199–202 and unemployment remedies, 270 and inflation, 183–187 Burbank (head of Harvard Economics and Keynesian model, 178–179 Department), 366 and modeling of permanent variation in per Burkina Faso, income and savings in, 134 capita income growth rate, 183 Burma, income and savings in, 134 savings increase in, xii Burundi, income and savings in, 134 savings rate for (national), 199, 201–202 Business-cycle theory, 374–375 savings rate for (private), 199 Index 387

Coefficients of the aggregate consumption Consumption-income relationship (ratio) function, a priori estimates of, 51 cross-section, 12–13, 17–24, 40n.23 Cohen, Rich, 382 cyclical vs. long-run behavior of, 67–70 Cohort effects, 146, 150, 151 expected income in, 58 vs. age effect, 162 and income over short interval, 26–27 in wealth, 152 in Lifetime Cycle Hypothesis, 179 Co-integration, 187 in nonstationary household, 15–16, 18 Colombia, income and savings in, 134 residual error in and savings-income Commodity basket, 283, 332–333 relationship, 72 Communist regimes, 316n.4 in stationary household, 13–15, 20, 38–39n.23 Comoros, income and savings in, 134 Corporate finance, Modigliani-Miller theorem with low-wage countries, and on, 373–374 European unemployment, 212 Costa Rica, income and savings in, 134 Conditional negative income taxes, 232–233 Cost of capital , 45n.58 investment and output dependent on, 349–350 Consumables, level of, 4, 7 in Modigliani interview, 373 , theory of, 4 Cost-of-living adjustment, uniform (Italy), 383 Consumption Côte d’lvoire, income and savings in, 134 age profile of, 155 Counter-cyclical measure, debt as, 100–102 and assets, 29–30 Credit in China, 175–176 in Modigliani interview, 369–370 sources for, 203 and underdeveloped regions, 227–228 definition of, 7 and unemployed, 233 in SHIW, 170–171 Cross-section consumption-income relation, and utility function, 8–9 12–13, 17–24, 40n.23 Consumption function, 3, 19 Cross-section data, 3 aggregate, 48–52 Cross-section savings-income relation, and and downward revaluation of market value of marginal propensity to save, 32–33 assets, 76n.32 , xi, 222, 356, 376. See also individual, 10–12 Capital formation reduction Keynesian, 3, 64–66, 68, 75n.26, 345 Cultural values, and economic organization, and Sterling effect in LCH framework, 120 308 theory of, 31 Culture, and saving ratios, 200 Consumption function model (Modigliani and Currency speculation, 277 Brumberg), 4, 47 Current Account Budget, 222 and aggregate consumption function, 48–51 Cyclically balanced budget, 102 and a priori estimates of coefficients of Cyprus, income and savings in, 134 aggregate consumption function, 51–52 and cyclical vs. long-run behavior of Deadweight debt or deficit, 84, 103n.5 consumption-income ratio, 67–70 Deceased effect, 164, 166–167, 168 and Duesenberry-Modigliani consumption Deficit (debt) financing. See also National debt, function, 70 burden of empirical verification and estimation of, investments and current accounts treated 54–63 identically in, 221 with addition of variables, 75n.26 in Keynesian analysis of unemployment, 356 bias in estimation of, 54, 60, 61–62, 71–72 and Life Cycle model, 120 high serial correlation of residuals in, 74n.21 and Ricardian equivalence, 376–377 and 1900–1928 statistics, 70–71 vs. tax financing, 89–90, 102, 104n.27 implications of and empirical evidence on, for impact vs. total effects, 90–94, 96 10–33 and war financing, 99 and Klein’s analysis, 33–36 in U.S., 324–325 and measurement of expected income, 52–54 under Reagan, 322, 376 and saving, 91 Demand, aggregate. See Aggregate demand and saving-income ratio, 67 Demand management policy and standard Keynesian consumption errors in, 214–215 functions, 64–66, 68 and inflation, 209 theoretical foundations of, 4–10 for unemployment, 209, 213, 214 388 Index

Demand and supply, “law” of, 328–329 Durable goods, 6 Demographic structure or socio-demographic as consumption, 45n.58 variables, and saving rate, 118 determinants of acquisition of, 31 in China, 180–182, 196, 200–201 postwar purchase of, 29 Denmark Durand, David, 373 and exchange rates, 277 and interest rates, 280 Early retirement, 217–218 monetary stance of, 279 Earned income, 153–154 saving rates for, 108–111, 112–114 age profile of, 155 saving rates changes for, 129 vs. disposable, 143 Depression retirement, 155 , 355, 356, 375 in SHIW, 170 and national debt burden, 83, 100–102 Earned Income Tax Credit (EITC), 232–233 Deutsche Mark, 275 East Asia. See Asian security markets Developing countries ECB. See European Central Bank and European jobs, 245 Econometric model, 378 financial liberalization in, 313, 315 Economic analysis, normative, 305 and government involvement in economy, Economic legislation. See Legislation, 306–308 economic and LCH applied to China, 173 Economics, theory vs. policy in, 382 and saving–income ratio, 131–137 , as public servants (Modigliani security markets in, 308 interview), 382 Diamond, Peter, 363 “Economists’ Manifesto on Unemployment in Discretionary saving, 143, 144, 153, 168 the European Union, An,” 209, 363–364, by age and cohort, 159 383. See also Unemployment in European age profile of, 157, 158, 159, 160 Union, manifesto on and life cycle, 156 Ecuador, income and savings in, 134 and mandatory saving, 168 Education, and saving ratios, 200 “Personal” (NIA), 143 Efficiency Discretionary wealth, 149, 168 as damaged by dependence on private in Italian survey, 149 enforcement, 310 age profile of, 151, 153, 158, 166, 168 vs. equity, 306 cohort effect of, 152 Egypt, income and savings in, 134 of older cohorts, 150 EIB (European Investment Bank), 223 in SHIW, 170–171 Elasticity of consumption with respect to Displacement effect, 376 income Disposable income, 153–154 and age, 28 age profile of, 155 and income stability, 25, 26 alternative, 145 and index of accustomed level, 27 in China, 177 Elasticity of income expectations, 21–22 conventional, 145 and age, 28 vs. earned, 143 El Salvador, income and savings in, 134 and life cycle, 156 E/M (ratio of employed to minors), 181, 182, in SHIW, 170–171 188 Dissaving Employment vouchers, 233–234 definition of, 7 auctioning of, 235–236 and elderly, 141, 380 EMS (European Monetary System) in 1990s, as purposive endeavor, 91 261–264, 278 Dollar, and ECB, 225–226 costly participation in, 262–263 Dominican Republic, income and savings in, end of proposed, 276 134 in Modigliani interview, 379 Draghi, Mario (Director General of Treasury of and unemployment, 275 Italy), 378 EMU project, 280 Drèze, J., 241, 243 Enforcement of private arrangements, by legal Duesenberry, James, 366 rules, 305, 308, 310 Duesenberry-Modigliani consumption function, Entity theory of valuation, 373 70 Entrepreneurs, regional paucity of, 227 Index 389

Equilibrium Expectations, income market, 328–329, 334 average annual expected income, 50 money market, 329–330 elasticity of, 21–22 in Keynesian analysis, 341–342 inaccessibility of, 34 under-employment (Keynesian), 341, 347, measurement of expected income, 52–54 350–352 Equity, vs. efficiency, 306 and economic legislation, 305 Equity risk premium, 293 knowledge as, 307 ERM, 275–276 demise of, 277 Family, and life-cycle saving in China, 181, Estate motive, 7–8 200 Estimation procedures, flaws in, 54, 60, 61–62, Family size, life cycle of, 156 71–72 Fazio, Fabio, (Governor of Bank of Italy), 378 Ethiopia, income and savings in, 134 Federal Reserve System, U.S., 224 Euro and Great Depression, 375 and aggregate demand policies, 214 and Modigliani, 363 and Italy, 383 and MPS quarterly macroeconometric model, Modigliani as supporter of, 379 378 Europe. See also specific countries Fiduciary responsibility, and security market disposable vs. earned income in (Western development, 311 Europe), 143 Fiji, income and savings in, 134 Modigliani’s reputation in, 363–364 Finance, corporate, Modigliani-Miller theorem European Central Bank (ECB), 224–226 on, 373–374 inflation over unemployment as concern of, Finance, international, 378 224–225, 358 Financial assets, and liquidity , and monetary policy, 224, 225, 345 342–344 errors in, 358, 379 “Financial deepening” school, 307–308 and unemployment (Modigliani interview), Financial development. See also Developing 371 countries; Growth European Commission, and labor market and government intervention, 306–308 reforms, 232 institutional framework for, 308 European Community Financial liberalization. See Liberalization, common market institutions of, 276 financial and puzzle of 1980s, 258, 259 Financial markets. See Security markets European economy, xii Financial superstructure, development of, 313 European Investment Bank (EIB), 223 Financial Times, 262 European Structural Funds, 222–223 Finland European unemployment. See Unemployment saving rates for, 108–111, 112–114 in Europe; Unemployment in European saving rates changes for, 129 Union, manifesto on Fiscal levies, 228–229 European Union, unemployment in. See , 356–357 Unemployment in European Union, manifesto on as demand management tool (EU), 223 Exchange rates or regimes uses of (Modigliani interview), 377 change of, 322–323, 324 Fischer, Stanley, 378, 382 and deficit, 325 Fisher, Irving, 111, 330 as demand management tool (EU), 223 Fisher, Janet, 28 and ERM demise, 277 Fisher’s Law, 287, 287–288 and Euro, 379 Fixed mark-up model, 337, 340, 353 fixed Fixed-term jobs, and supply-side measures, and employer’s mark-up, 243 230 and unemployment, 240 Four quadrants analysis, 347, 349 fixed vs. floating, 378–379 and dependence of income on investment, and foreign capital, 322–323 347–349 and interest rates, 240 and dependence of investment and output on and transfer of resources, 263 capital, 349–350 and transnational groups, 324 and fiscal policy, 356 and wage rigidity, 358, 378–379 and underemployment equilibrium, 351 390 Index

France Government investment program, 222 and exchange rates, 277 Graduated Payment Mortgage (GPM), 286 and German monetary policy (1990s), 261, Grange, Red, 367 262 Great Depression and floating currency, 276 and fiscal policy, 356 growth as aim of, 278 and Keynes on aggregate demand, 214 hard currency of, 275 and , 355 and interest rates, 280 and real money supply, 375 labor market reforms in, 219 Greece low growth in, 319 income and savings in, 134 monetary stance of, 279 saving rates changes in, 131 and puzzle of 1980s, 258, 259, 260 unemployment in, 239 saving rates for, 108–111, 112–114, 201 Greenland saving rates changes for, 129, 131 saving rates for, 108–111, 112–114 social security in, 211 saving rates changes for, 129 unemployment in, 236n.2, 239, 240 Growth. See also Financial development; and job availability, 248, 249 Income growth French Mortgage, 287, 288 and investment, 325 Friedman, Milton, 375, 377, 381 problems of (1990s), 319–321 permanent income hypothesis of, 47, 111 and savings ratio for China (long-term), Friedman, Rose D., 27 195–196 Full employment, and burden of national debt, Growth theory, and government intervention, 80 307 Functional finance principle, 82, 85, 102, 365 Growth trend for China, 191 Gabon, income and savings in, 134 and saving ratio, 193 Gambia, income and savings in, 134 Guanxi, 310 General Theory of Employment, Interest, and Guatemala, income and savings in, 134 Money, The (Keynes), 17, 327, 334 Geometric mean, vs. arithmetic mean, 300 Haberler, Gottfried, 366 Germany Habit persistence, and savings under income and Beveridge Shift, 272, 273 increase, 17–18 and Bundesbank program, 276 Haiti, income and savings in, 134 low growth in, 319, 320 Harvard University, 366 monetary stance of, 279 Heirs, saving for benefit of, 5. See also 1990s monetary policy of, 261–262, 263 Bequests and puzzle of 1980s, 258, 259 Hicks, Sir John, 366, 374 saving rates for, 108–111, 112–114 Hobbes Principle, 305 saving rates changes for, 129 Holland. See Netherlands taxation and unemployment in, 211 Honduras, income and savings in, 134 unemployment and job availability in, 248, Hong Kong, income and savings in, 134 249 Household, theory of, 5–6, 7 unification of West and East, 261 assumptions on, 7–10, 35 and reconstruction of East Germany, 320 Households (consumption-income relationship) Gerschenkron, A., 306 nonstationary, 15–16, 18 Ghana, income and savings in, 134 stationary, 13–15, 20, 38–39n.23 Goodwin, Richard, 366 Human capital, 307 Government, in Life-Cycle model, 119–122 Hurd, Michael, 164, 167 Government debt, 376. See also Deficit Hurwicz, Leo, 367 financing Government intervention Icelands and credibility of macroeconomic policy, saving rates for, 108–111, 112–114, 199, 312–313 201 and financial development, 306–308 saving rates changes for, 129 historical experience of, 309–310 Income. See also Consumption-income importance of, 314 relationship; Wealth-income ratio and legal rules, 308–309 (see also Legal age profile of, 155 rules) average annual expected, 50 Index 391

cash, 142, 143 and Life-Cycle Hypothesis, 137–138, 139 in China, 175–176, 177 and measurement of income and savings, and consumption function, 3 183–186 current vs. life-cycle, 381 in Modigliani interview, 382 disposable, 153–154, 155, 156 (see also national debt reduced by, 98 Disposable income) need to avoid (1993), 278 disposable vs. earned, 143 as neutral in effect, 283, 284 earned, 153–154, 155, 170 and oil crises, 257–258, 322 as earned family income (net of personal programming of, 266–267, 268–269 taxes) less family consumption, 142, and puzzle of 1980s, 260 143 and real money supply, 240 expectations of, 21–22, 34, 50, 52–54 and real vs. nominal wage rigidity, 253 measurement of, 52–54 and saving, 186–187, 191, 382 inflation and measurement of, 183–186 taxes as preventing, 82 and investment, 347–349 vs. unemployment as Central Bank concern, labor vs. property, 65 224–225, 257, 358, 372–373 and Life-Cycle Hypothesis, 131 from unemployment measures, 215 and Bosworth model, 139 and unemployment policies proposed, in developing countries, 131–137 218 multiple definitions of, 142 and war financing, 100 and net worth, 65, 68–69 and work sharing, 218 nominal (Keynesian analysis), 367–368 Inflation correction, 126 nonpermanent component of, 15 Inflation illusion, 138, 186, 197, 283, 288 and savings, 32, 196 (see also Saving-income Inflation Proof Mortgage (IPM), 287–288 ratio) Information ratio, 301–302 in China, 196, 200 Interest rates stability of, 25–26 and depreciation of , 280 transitory, 111, 348, 380 and European unemployment, 240, 275 Income-asset-age relation, equilibrium, 13–16 and expansion, 278 Income effect, 138 and inflation, 285 Income growth in China, 197–198 and Life Cycle Model, 115–117, 119 inflation correction component of, 126 modeling permanent variation in, 183 and investment, 344–345 and savings rate, 179, 381 in Keynesian analysis of unemployment, in China, 199 354–355 Income redistribution, and propensity to save, and Modigliani interview, 368–369 32 and Life-Cycle Hypothesis, 137–138, 139 Indexation, 283 and , 343, 344 India, income and savings in, 134 as measure of national debt burden, 80, 86, Individual consumption function, 10–12 88–89 Indonesia, income and savings in, 134 nominal vs. Fisherian real, 185, 382 Industrial districts, 227 and savings-income ratio, 107 Inflation targeting of, 280 and capital gains or losses, 161 Intergenerational accounting framework, 145 and Central Bank accommodation to nominal inter-generation equity, and deadweight deficit, wage increase, 254 102 in Italy, 256 Intergenerations transfers, 165 in China, 194 national debt as, 81, 97 decrease in, 224–225 International finance, 378 demand management against, 209 International Finance Corporation, 314 disruptive effects of, 283 International and finance, and ECB, 224, 225, 345, 358 358 Germany’s aversion toward, 320 as Keynesian invention, 342 inherent tendency to (Modigliani interview), International Monetary Fund, 132, 196, 202 372 International monetary system, 379 and interest rates (China), 197–198 Inter vivos transfers, 161–162, 164, 165, 167 and lending contracts, 284–288 age profile of, 162 392 Index

Investment, 60–61 Jensen’s alpha, 290, 295 decline in, 325 Job creation policies, 228 as dependent on cost of capital, 349–350 Job security legislation, 216–217 by EIB, 223 reform of, 230 and European unemployment, 215 Jordan, income and savings in, 134 and income, 347–349 and monetary policy, 224 Kenya, income and savings in, 134 and saving-investment identity, 346 Keynes, John Maynard stimulating of, 221 on income-consumption relation, 3, 32 Investment function, 344–345, 373 as “interest skeptic,” 344 Investment , 346–347 on labor and real wage, 372 Ireland and ostentatious durables, 45n.58 saving rates for, 108–111, 112–114 and unemployment, 239 saving rates changes for, 129 Keynesian analysis unemployment in, 239 and burden of national debt, 83, 85–86 Israel, income and savings in, 134 and no-burden argument, 81–82 Italy and Chinese experience, 191–192, 195 average-wage escalator clause in, 383 and classic model, 327, 328 in case study (Central Bank accommodation), in Modigliani interview, 367–368 255–256 and flows vs. stocks, 79 credit improvements in, 227 fundamental message of, 356–357 and deficit effect, 139n.3 and government, 119 disposable vs. earned income in, 143 and income-saving relation, 137 and Euro requirements, 383 and LCH applied to China, 174 growth strategy of, 280 Modigliani on (interview), 370 industrial districts in, 227 and saving behavior, 178–179 infrastructural investments in, 223 and tax financing, 89 labor market reforms in, 219 Keynesian analysis of unemployment, 327–328, Life-Cycle Hypothesis test in, 143–146, 358 168 case studies in, 255–261 and age-wealth profile, 149–53, 154 and classical model of market equilibrium, dataset for, 146–149 328–329 and discrepancy between saving and wealth generalization of, 334 measures, 157–168 and classical monetary theory, 331–333, 334 saving estimates with flow data, 153–157 and EMS in 1990s, 261–264 Modigliani’s early life in, 364 and fiscal policy, 356–357 Modigliani’s reputation in, 363 and four quadrants analysis, 347, 349 monetary stance of, 279 and income as dependent on investment, saving rates for, 108–111, 112–114, 199, 201 347–349 saving rates changes for, 129 and interest rate remedy, 354–355 social security in, 211 and Monetarist controversy, 355 tripartite compact to end inflation in, 255, investment and output dependent on cost of 256, 266, 372 capital, 349–350 unemployment in, 239, 244, 370 and liquidity trap, 355 and “long run,” 352 Jamaica, income and savings in, 134 and mechanism for clearing money market Japan (monetary mechanism), 250–252, 327, 331, and exchange rates, 324 342 growth period of (1960s), 321 investment function, 344–345 growth rate of, 202, 314 investment multiplier, 346–347 and liquidity trap, 355 liquidity preference, 342–344 low growth in, 319, 320–321 saving (and consumption) function, 345 past and future role of, 324–325 saving-investment identity, 346 saving rates for, 108–111, 112–114, 199, 201, and money market equilibrium, 329–330, 341 325 nominal money supply increase as remedy, saving rates changes in, 129, 131 354 stock market in, 320 and nominal vs. real wage rigidity, 357–358 Index 393

and open economy, 358 Leverage of portfolio, 291, 292, 293–294, 300, and price flexibility, 329 303, 373 underemployment equilibrium, 350–352 Liberalization, financial, in developing wage and price rigidity in, 252–254, 333–334, countries, 313, 315 335–337, 338–340, 353–354 Liberalization of labor market, in Europe, 226 and Central Bank accommodation dilemma, Liberia, income and savings in, 135 254–55 Life cycle, and composition of assets, 31 implications in, 337, 340–342 Life-Cycle Hypothesis (LCH), xi–xii, 107, 141, wage rigidity as downward only, 352–353 179, 363, 379–381. See also Consumption Keynesian consumption functions function model and constant term, 67 and aggregate saving, 111 and consumption function model (Modigliani apparent contradictions of, 141–142, 168 and Brumberg), 64–66, 68 vs. Barro’s model (Ricardian equivalence), with addition of variables, 75n.26 376–377 vs. New Theories of the Consumption basic model of, 115 Function, 111 factors other than income affecting saving Keynesian money economizing syndrome, 283 rate, 117–118 Keynesian under-employment equilibrium, 341, and role of income growth, 115–117, 119 347, 350–352 and Bosworth model, 138–139 Keynesian unemployment. See Keynesian for China, 173–174, 179, 202 analysis of unemployment basic data in study of, 174–178, 203–204 Klein, Lawrence R., 33–36 and demographic structure, 180–182 Koopmans, Tjalling, 365 and estimation of saving ratio, 187–193 Korea and estimation tests for saving ratio, income and savings in, 134 193–198 national saving rate of, 199, 202 and income growth, 199–202 and inflation, 183–187 Labor-management consultation, on and and Keynesian model, 178–179 , 255, 256, 266, 270, 372 and modeling of permanent variation in per Labor market. See also Wage rigidity capita income growth rate, 183 equilibrium in (Keynesian), 251, 341 and consumption function, 345 (see also “flexible” vs. “inflexible,” 212 Consumption function) and Keynes vs. classical models, 327 and definition of income, 142 and unemployment, 223 and developing countries, 173 (see also Labor market flexibility policies, 226–227 Developing contries) Laissez faire capitalistic system, 316n.4 empirical tests of in OECD countries, 122 Lange, Oskar, 365, 366 first-difference, 123–124, 127–131 Lao P.D.R., income and savings in, 134 results-level, 122–127 LCH. See Life-Cycle Hypothesis general model of Leff, Nathaniel H., 132 bequests in, 118–119 Legal rules government in, 119–122 and developing countries, 313 and income, 131 and development of security markets, and Bosworth model, 139 310–312, 313 in developing countries, 131–137 and government intervention, 308–309 and inflation, 137–138, 139 inadequacy of, 313–314 and interest rate, 137–138, 139 vs. privileged access to officials, 310 Italian test of, 143–146, 168 Legislation, economic and age-wealth profile, 149–53, 154 and Asian economies, 315 dataset for, 146–149 and equity vs. efficiency, 306 and discrepancy between saving and wealth as government intervention, 306–307 measures, 157–168 purpose of, 305 savings estimates with flow data, 153–157 Lending contracts, and inflation, 284–288 life as finite in (vs. permanent-income Leontief, Wassily, 366 hypothesis), 111, 115, 120, 380, 381 Lerner, Abba P., 365 among New Theories of Consumption functional finance principle of, 82 Function, 111 Lesotho, income and savings, 135 and propensity to consume, 145 394 Index

Life-Cycle Hypothesis (LCH) (cont.) Mark-up model, 337, 340, 353 and propensity to save during transitory Marschak, Jacob, 365 deviations, 191, 348, 380 Mauritania, income and savings in, 135 and steady growth, 179 Mauritius, income and savings in, 135 and test bias toward high-income countries, McCarthyism, at University of Illinois, 367 131 McKinnon, R., 307 Life-cycle theory of savings with bequests, Meade, J. E., 79, 84, 98 376 Measurement Liquidity, and security market development, errors of, 60, 72 311 of expected income, 52–54 Liquidity preference, 251, 342–344, 363, Measurement error, and Italian LCH survey, 368–369 160, 166–167 “Liquidity Preference and the Theory of Mentoring, Modigliani on (interview), 378 Interest and Money” (Modigliani), 328, 367 M/E ratio, for six countries, 199 Liquidity trap, 355, 356 Mexican Mortgage, 287 Lucas, Robert, 375 Mexico Luxembourg communiqué, 212–213 income and savings in, 135 U.S. treaty with, 323 Maastricht agreement, 221, 222, 225, 229 Miller, Merton, 363. See also Modigliani-Miller Macroeconomic policy theorem credibility of, 312–313 Minimum wage policies, 215–216 and economic legislation, 305 restructuring of, 228–230 Modigliani’s influence in, 363 and unemployment, 358 Macroeconomics, 358, 368 in Europe, 245–246, 250 as Keynesian invention, 342 and United Kingdom, 220 most fertile fields in (Modigliani interview), Miracolo Possibile, II (The Achievable 378 Miracle), 383 open-economy, 358, 378 MIT (Massachusetts Institute of Technology) Madagascar, income and savings in, 135 Inflation Proof Mortgage developed at, 28 Malawi, income and savings in, 135 Modigliani at, 366 Malaysia, income and savings in, 135 Mobility of labor Maldives, income and savings in, 135 geographic, 226 Mali, income and savings in, 135 policies to stimulate, 231 Malta, income and savings in, 135 Models, econometric, 378 Mandated wealth, 145 Modigliani, Amedeo (painter), 365 Mandatory saving, 143, 144, 157, 168 Modigliani, Franco, 363–364 Marginal propensity to consume, 11–12 interview with, 364 and assets, 66 life of (interview), 364–367 biased estimate of, 72 Nobel Prize of, 363, 374 and income, 65 photographs of, ii, v and inflation impact, 186–187 Modigliani, Serena, 364 and transitory variations, 345 Modigliani-Miller theorem, 373–374 Marginal propensity to consume with respect to and Barro hypothesis, 375–376 assets, 30 and monetarists Marginal propensity to save in Modigliani interview, 377 and cross-section savings-income relation, for money supply over interest-rate policy, 32–33 355 of farmers vs. government employees, 380 in U.S. under Volker, 322 and investment multiplier, 346, 348 Monetarist controversy, 355 and time-series propensities, 33 Monetary mechanism, 250, 327, 331 out of transitory income, 348, 380 classical, 250–251, 331, 332–333 analysis, 4 Keynesian, 251–252, 331, 342 Market equilibrium investment function, 344–345 classical model of, 328–329 investment multiplier, 346–347 generalization of notion of, 334 liquidity preference, 342–344 , economic legislation to limit, saving (and consumption) function, 345 305 saving-investment identity, 346 Index 395

Monetary policy NAIRU (nonaccelerating-inflation rate of argument against use of, 344 unemployment), 372–373 as demand management tool (EU), 223 National debt, burden of, 79–80 and employer’s mark-up, 243 coefficient of future burden for, 90 errors in, 358, 379 as counter-cyclical measure in depression, and European Central Bank, 225 100–102 and European unemployment, 214–215 and deficit vs. tax financing, 89–90 in France (and puzzle of 1980s), 260 for impact vs. total effects, 90–94, 96 and inflation, 209 and “gratuitous” increases in debt, 95, 96–98 and unemployment (Keynes), 354 and interest charges as measure of burden, 80, in Europe, 213, 240, 354, 379 86, 88–89 in United States, 278 no-transfer and no-burden argument on, 80–81 uses of (Modigliani interview), 377 fallacies in, 84–86, 87 Monetary theory, classical, 331–333 transfer and burden argument on, 82–84 and liquidity preference, 342–344 and war financing, 98–100 Money, purchasing power of, 333 National Income Accounts (NIA), 142, 143, Money demand, 330 174, 192, 197, 198 classical concept of, 330, 333 National Longitudinal Survey of Mature Men, in Keynesian analysis, 340–341, 350 161 and underemployment equilibrium, 350–351 Negative income taxes, conditional, 232–233 and liquidity preference, 342–344 Nepal, income and savings in, 135 Money economizing syndrome, Keynesian, Netherlands 283 and Benefit Transfer Program, 234–235 Money market equilibrium, 329–330, 341 labor market reforms in, 219–220 in Keynesian analysis, 341–342 monetary stance of, 279 Money supply, nominal saving rates for, 108–111, 112–114 in classical view on unemployment, 333, 355 saving rates changes for, 129 in Keynesian analysis of unemployment, 357 unemployment in, 239 increase of as remedy, 354 Net worth Money supply, real assets as, 10, 29 and accommodation to nominal wage and liquid assets, 36 increase, 254 and consumption, 62 in classical theory, 333 and income, 65, 68–69 controlling of, 252–253 New Jersey College for Women (now Douglas and Central Bank accommodation, College), 366 254–255 New School for Social Research, 364, 365, and rise in nominal wages, 253–254 366 and decline in real wages, 353 New Theories of the Consumption Function, importance of (Modigliani interview), 377 111 vs. nominal wage rigidity, 252 Niger, income and savings in, 135 raising of as unemployment remedy, 264 Nigeria, income and savings in, 135 of (case studies), 255–261 1980s, puzzle of, 258–261 and unemployment, 240 Nobel Prize of Modigliani, 363, 374 in Great Depression, 375 Nominal income, in Keynesian analysis, Keynesian, 250, 327, 353, 357, 370 367–368 and return to full employment, 351–352 Nominal wage rigidity. See Wage rigidity, power, and economic legislation, nominal 305 Nonpermanent component of income, 15 Morocco, income and savings in, 135 Nonworking population (minors), 180, 181, Mortality problem, in surveys, 148 188, 193. See also Demographic structure or Mortgages, 284–288 socio-demographic variables Motives for saving, 5–7 Normative economic analysis, 305 M/Pop (population structure), 200 Northwestern University, 366 M2 measure, xii Norway Multiplier, investment, 346–347 saving rates for, 108–111, 112–114 Musgrave, R. A., 79 saving rates changes for, 129 Mutual funds, analysis of (selected), 298 unemployment in, 214 396 Index

OECD countries. See also specific countries Philippines, income and savings in, 135 economic problems of, 319 Pigou effect, 44n.54, 84 empirical tests of LCH in, 122 Population, Chinese information sources on, results-level, 122–127 204 savings rates for, 199, 201 Portfolio optimization techniques, 301 Oil crises, 257–258, 321–322 Portfolio performance, measurement of, as break in employment stability, 357 289–290 inflationary spiral from, 215, 257 by risk-adjusted performance, 290–304 and interest rate policy, 240 Portugal Old boys network, 310 income and savings in, 135 Open economy, 358, 378 saving rates for, 108–111, 112–114, 201 , of money, 343 savings rates changes in, 129 Output unemployment in, 239 and aggregate demand, 244 Postulate of price flexibility, 329, 331, 332, in capital-output ratio, 69 333, 353 as dependent on cost of capital, 349–350 Post-war experience, and burden of national and investment, 348–349 debt, 85 in Keynesian analysis (Modigliani interview), Precautionary motive, 6 369 Presidential Address to American Economic and quantity of money, 367 Association, 377 and real , 250–251 Price flexibility, postulate of, 329, 331, 332, Overlapping generations approach, 363 333, 353 Over-life average propensity to consume (oac), 91, 94, 97, 101 classical theory on, 331–332 Over-life marginal propensity to consume of consumables, 4, 7 (omc), 91, 96, 97 in Keynesian analysis, 340 Over-life marginal propensity to save (oms), 96 and Modigliani interview, 368 and wages (Modigliani interview), 372 Pakistan, income and savings in, 135 Price Level Adjusted Mortgage (PLAM), 286 Panama, income and savings in, 135 Price rigidity, in Keynesian analysis, 333–334 Papua New Guinea, income and savings in, 135 implications of, 337, 340–342 Parameters, shift in (consumption function), 62 Price-wage spiral, 254, 257, 357. See also Parsimoniousness, 378 Inflation Part-time jobs, and supply-side measures, 230 Productivity Peace, as world requisite, 321 and employment growth, 244 Pensions, 142, 143, 169n.7 and minimum wage, 245–246 baby, 155 and real wage, 242–243, 267 in China, 177, 179, 204nn.2,3 and unemployment remedies, 268 pooling of, 177 and wage increases (nominal), 253 financing of, 144 in Italy, 255, 256 and humps in earned income, 156 and unemployment remedies, 264–265, and life-cycle model, 380–381 265–266 private, 169n.7 “Propensity,” 38n.19 in Singapore, 202 Propensity to save, 90, 145 Pension wealth, 152, 153 Purchasing power of money, 332–333 age profile of, 154 in SHIW, 170–171 Quantity of Money Theory of the price level, Per-capita income growth rate, modeling 332 permanent variation in, 183 Quantity theory of money, 328, 367 Permanent Income Hypothesis (PY) of Friedman, 47, 111, 115, 380, 381 Ram, R., 132 and consumption function, 345 RAP. See Risk-adjusted performance and propensity to save during transitory 375, 382 deviations, 191 Reagan, Ronald, 322, 376 Personal Saving, 142, 143 Real exchange rate, and transfer of resources, alternate measurement of, 174 263 Peru, income and savings in, 135 Real money supply. See Money supply, real Index 397

Real wages. See Wages, real and changing composition of the cohort, Regulation, and communist vs. capitalist rule, 163–65 316n.4 choice between, 165 Reid, Margaret, 24, 25, 26, 27, 367 and conceptual differences, 161–163 Reputation, of financial center, 312 international evidence on, 160–161 Restart Programme (UK), 231 and measurement error, 160, 166–167 Retired households and severance pay, 160 consumption-income relation for, 24 and smoothing, 158–159 retirement effect, 144 “Savings and the Income ” (Brady Retirement, early, 217 and Friedman), 27 Retirement earned income, 155 Savings and saving rate or ratio. See also Retirement History Survey, 164 Dissaving; Saving-income ratio “Ricardian equivalence,” 121, 376 aggregate, 115 Risk and assets, 30 alternative measures of, 299–300 in China, 175–176, 202 “idiosyncratic,” 301 sources for, 203 and portfolio performance measurement, definition of, 7, 142 289–290 discretionary, 143,144, 153, 156, 168 and risk-adjusted performance, 290 (see also Discretionary saving) sigma as measure of, 293 and E/M (China), 182 Risk-adjusted performance (RAP), 290–293, and errors of measurement, 60–61 302–303 estimation of (China), 187–193 application of, 297–299 tests for, 193–198 graphical representation of, 295–297 factors affecting (LCH), 117–118 vs. other measures, 294–295 and income, 32, 196 qualifications to, 299–302 in China, 196, 200 relative measures of, 303–304 per capita, 115 and sigma as measure of risk, 293 and income (nonstationary household), as tool for optimal portfolio selection, 15–16 293–294 increase in, 16, 17 , 293 and income (stationary households), 14–15, Risk premium, 88, 289, 349–350, 355 38–39n.23 equity, 293 and income growth, 179, 381 Rule-making capability, of governments, 309 in China, 199 Rwanda, income and savings in, 135 and inflation, 98, 186–187, 191, 382 and measurement of, 183–186 Samuelson, Paul, 363, 378 and investment, 60 Saving function, 15. See also Savings and in Keynesian model, 178–179 saving rate or ratio and Life Cycle model, xi–xii (see also estimation of coefficient of (China), 189–190 Life-Cycle Hypothesis) in Keynesian model, 178, 345 as lifetime allocation of resources, 91 in Life-Cycle Hypothesis, 180 mandatory, 143, 144, 157, 168 Saving-income ratio. See also Savings and model of, 31 (see also Consumption function saving rate or ratio model) changes in, 107 motives for, 5–7 in China, 173, 174, 175–176 and uncertainty, 6, 7, 30–31 and consumption function, 67 multiple definitions of, 142 and cyclical swings in income, 69–70 national trends in, 107–111, 112–114 cyclical variability in, 67 personal (NIA), 142, 143, 174 and income, 131–132 and position in income distribution, and inflation, 186 27–28 in Life-Cycle Hypothesis, 179 propensity to, 90, 145 Saving-investment identity, 346 and return on capital, 350 Saving and Loan industry, U.S., 285 total (household), 143, 144, 145, 157, 168 Saving measures, vs. wealth measures, Schioppa, Padoa, 378 157–158 Schumpeter, Joseph, 366 and bequests, 165–168, 168 Search promoting policies, 231 398 Index

Second World War, consumption behavior and ERM, 275 during, 73n11 and exchange rates, 277 Securities and Exchange Commission (SEC), and inflation, 278 and mutual fund risk disclosure, 290 labor market reform in, 219 Security markets saving rates for, 108–111,112–114 afterthoughts on, 315 saving rates changes for, 129 and credibility of macroeconomic policy, unemployment in, 239, 244, 276 312–313 Sri Lanka, income and savings in, 135 development of, 310–312, 313 Stagfiation, 257, 358 in Asia, 314–316 Standard Keynesian consumption functions in France vs. England, 317n.13 and constant term, 67 and institutional framework, 308 and consumption function model (Modigliani Senegal, income and savings in, 135 and Brumberg), 64–66, 68 Severance pay, 160, 169n.11 with addition of variables, 75n.26 Sharpe ratio, 290, 294–295, 299, 303 Stationary households, 13, 39n.23 and information ratio, 302 and consumption-income relation, 14–15, 20, and leverage opportunity line, 296 38–39n.23 Shaw, E., 307 “Sterilization” policy, 263 Shiller, Robert, 364 Sterling coefficient, 120, 121, 122, 125–126 SHIW (Survey of Household Income and Stiglitz, Joe, 378 Wealth), 145, 147, 168, 170–171 Stock market bubbles, 371 Shocks. See also Oil crises Subsidies, in unemployment reduction policies, and asset accumulation, 150 227 and business cycles, 375 Substitution effect, 138, 144 and consumption function, 345 , “law” of, 328–329 Sierra Leone, income and savings in, 135 Supply effects, and unemployment in Europe, Simon, Herbert, 366 240 Singapore Supply side policies, and unemployment growth of, 321 misguided, 209, 214, 215 income and savings in, 135 job security legislation 216–217 savings rate of, 325 minimum wage legislation, 215–216 national, 199, 202 work sharing and early retirement, 217–218 Small entrepreneurial firms, and absence of proposed, 226–232, 236 public capital markets, 312 auctioning of unemployment benefits and Smoothing, 158–159 employment vouchers, 235–236 Social security, 236n.1. See also Pensions Benefit Transfer Program (BTP), 227, and European unemployment, 211–212 233–235 and life-cycle model, 380–381 and complementarity, 213, 218–219 as mandated wealth, 145 conditional negative income taxes, 232–233 and minimum wage, 216 Survey of Household Budgets, ISTAT, 160 and unemployment, 358 Survey of Household Income and Wealth for unwanted workers in Italy, 219 (SHIW), 145, 147, 168, 170–171 Social Security System (U.S.) Survey Research Center, University of amount taken by, 211 Michigan, and consumption function, 3, in Modigliani interview, 381 38n.16 reform of (Modigliani interview), 381–382, Sweden 383 and European system, 323 Socio-demographic variables or demographic labor market reforms in, 219 structure, and saving rate, 118 saving rates for, 108–111, 112–114 in China, 180–182, 196, 200–201 saving rates changes in, 129 and saving, 118 Switzerland Solow, Robert, 364 and European system, 323 Somalia, income and savings in, 135 interest rates of, 280 South Africa, income and savings in, 135 saving rates for, 108–111, 112–114 Spain saving rates changes for, 129 as case study (Central Bank accommodation), unemployment in, 214 257 Syria, income and savings in, 135 Index 399

Tanzania, income and savings in, 135 Keynes on, 327 (see also Keynesian analysis Tarantelli, Ezio, 266 of unemployment) Taxes vs. classic model on labor market, 327 and burden of national debt, 85 in Modigliani interview, 369, 370 and EU unemployment, 210, 211 and NAIRU, 372 frictional loss from, 81, 84 Unemployment benefits and functional finance principle, 82 auctioning of, 235–236 and Modigliani-Miller theorem, 374 reform in, 231–232 Tax financing, vs. deficit financing, 89–90, 102, Unemployment in Europe, xii, 239–240 104n.27 and Beveridge curve, 246–247, 248, 271–274 for impact vs. total effects, 90–94, 96 challenge of, 240–241 and war financing, 99 control of as ECB target, 224–225 Technological progress, and European demand explanations of, 240, 247–250 unemployment, 212 and ECB, 358, 371 lower rate of, 321 and EMS in 1990s, 261–264 Terms of trade, changes in (developing and high interest rates, 275 countries), 133–135 in Keynesian analysis (year-by-year), 338–340 Thailand Keynes’s explanation of, 250–261, 327–328 growth in, 314, 321 (see also Keynesian analysis of income and savings in, 135 unemployment) Tilt problem (mortgages), 284–285, 285–286, in Modigliani interview, 370–371 286–287, 288 and monetary policy, 213, 240, 354, 379 Togo, income and savings in, 135 1993 levels of, 277 Total (household) saving, 143, 144, 145, 168 note of optimism on, 359 age profile of, 157 remedies for Total wealth, age profile of, 153 emergency package of, 264–265 Tracking ability, 302 in France, 262 Trade deficit, of U.S., 324–325 general principles of, 265–266 Transfers. See also Bequests programming of inflation, 266–267 intergenerational, 165 programming of real wages (closed inter vivos, 161–162, 164, 165, 167 economy), 267 Transfer wealth, 168 programming of real and nominal wages Transitory fluctuations (deviations) (open economies/EMS), 267–271 and consumption, 345 supply explanations of, 241 and negative growth, 137 developing countries’ competition, 245 propensity to save during, 191 long-term unemployment, 245, 371 Transitory income minimum wage, 245–246 and Friedman, 111 mismatch, 245 and marginal propensity to save, 348, and real wages, 240, 241–244 (see also 380 Wage rigidity, real) Treynor ratio, 290, 295 welfare provisions, 244 Trinidad and Tobago, income and savings in, in United Kingdom, 214, 220, 239 135 and job availability, 248, 249 Tunisia, income and savings in 135 Unemployment in European Union, manifesto Turkey, income and savings in, 135 on, 209 challenge for, 210 Uncertainty, 6 misguided policies on, 214 and acquisition of assets, 30–31 demand management errors, 214–215 measurement of, 289 job security legislation, 216–217 and motives for saving, 6, 7, 30–31 minimum wage legislation, 215–216 Under-employment equilibrium, Keynesian, work sharing and early retirement, 217–218 341, 347, 350–352 and mistaken explanations, 210–213 Unemployment policies proposed for reduction of, 218–221 and expected income, 53 adoption of throughout EU, 224, 236 vs. inflation as Central Bank concern, aggregate demand policies, 221–226 224–225, 257, 358, 372–373 complementarity of, 209, 213, 218–219, 220, from inflation-fighting measures, 322 231 400 Index

Unemployment in European Union (cont.) Wage freeze or limitation, as unemployment supply side measures, 226–236 (see also remedy, 264–265 Supply side policies, and Wage-price spiral, 254, 257, 357. See also unemployment) Inflation and uniformity of wages vs. regional Wage rigidity, nominal differences in productivity, 226 concern followed by optimism over (Europe), United Kingdom 252–253 and Benefit Transfer Program, 234–235 and exchange regimes, 358, 378 growth strategy of, 280 and Hicks, 366 labor market reforms in, 219–220 in Keynesian analysis, 333–334, 335–337, monetary stance of, 279 338–340, 341, 346, 358 Restart Programme in, 231 and flexibility postulate, 353 saving rates for, 108–111, 112–114 implications of, 337, 340–342 saving rates changes for, 129 in Modigliani interview, 367–368 taxation and unemployment in, 211 and rational expectations (Modigliani unemployment in, 214, 220, 239 interview), 375 and job availability, 248, 249 vs. real money supply, 252 United States vs. real wage rigidity, 240, 253, 357–358, and American Common Market, 323–324 378–379 Earned Income Tax Credit (EITC) of, Wage rigidity, real, 23 32–233 and exchange regimes, 358 and exchange rates, 324 in Modigliani interview, 371–372 growth of real wage in, 242 vs. nominal wage rigidity, 240, 253, 357–358, growth record of, 319, 320 378–379 inflation in (1970s), 322 and real money supply, 253–254 inflation and employment in (Modigliani and Central Bank accommodation, 254–255 interview), 372 Wages, nominal and interest rate reduction, 263 in Modigliani interview, 371–372 low interest rates in, 345 programming of, 267–271 and monetary policy, 278 Wages, real monetary stance of, 279 employer’s setting of, 242 past and future role of, 324–325 programming of, 267–271 Savings and Loan industry in, 285 and unemployment, 240, 241–244 savings rates for, 108–111, 112–114, 199, 202 Walras, Léon, 382 savings rates changes in, 129 War financing, and burden of national debt, 83, Social Security in, 211, 381–382, 383 98–100 stock market bubble in, 371 Wealth taxation and unemployment in, 211 accumulation of, 169n.6 unemployment in, 239 and age (LCH test), 149–153 and “mismatch,” 245 annuitized, 166 University of Chicago, 366 and consumption, 65–66 University of Illinois, 366, 367 discretionary, 149, 150, 151, 168 (see also UN Yearbook of National Account Statistics, Discretionary wealth) 195 pension (mandated), 145, 152, 153, 154, Uruguay, income and savings in, 135 170–171 (see also Social security) Utility function, 4–5 transfer, 168 assumptions about, 48–51 Wealth-income ratio, 115–117 and Modigliani-Brumberg model, 48 and income, 131–132 and proportion devoted to consumption, in Lifetime Cycle Hypothesis, 179 8–9 Wealth measures, vs. saving measures, 157–158 and bequests, 165–168, 168 Vanuatu, income and savings in, 135 and changing composition of the cohort, 163–165 Velocity of circulation, in Keynesian analysis, choice between, 165 330 and conceptual differences, 161–163 Venezuela, income and savings in, 134 international evidence on, 160–161 Vouchers, for long-term unemployed people, and measurement error, 160, 166–167 233–234 and severance pay, 160 auctioning of, 235 and smoothing, 158–159 Index 401

“Wedge” between pay and cost to employer, 228–229 Welfare entitlements, as “unemployment trap,” 211 Welfare provisions, European and unemployment, 244 Welfare to Work policy, 231 Western Europe, disposable vs. earned income in, 143 Worker mobility, policies to stimulate, 231 for geographic mobility, 226 Work-sharing policies, 217–218 World economy, 319 exchange regime changes in, 322–323, 324 improvement in (1950–1992), 321 international monetary system, 379 low growth problem in, 319–321 and oil crises, 321–322 (see also Oil crises) role of Japan and U.S. in, 324–325 trans-national groupings (Europe, Americas, Japan), 323–324 World War II years, consumption behavior during, 73n.11

Yemen, income and savings in, 135 Youth unemployment, 230 Yugoslavia, income and savings in, 135

Zambia, income and savings in, 135 Zimbabwe, income and savings in, 135