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Assessing Aggregate Tests of Efficiency for Dynamic Economies

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Author Info
Martin Barbie (Universität Karlsruhe)
Marcus Hagedorn (University of Bonn)
Ashok Kaul (Universitat Pompeu Fabra)
Abstract

In a seminal contribution Abel, Mankiw, Summers, and Zeckhauser (1989) show that from an aggregate dynamic perspective the US economy is Pareto efficient. We argue that, when applying their test, they implicitly make strong assumptions about the economy's future behavior. We show how time series evidence may easily lead to wrong conclusions about the welfare properties of real world economies.We present a test criterion based on Zilcha (1991) and robust evidence that the US economy does not overaccumulate capital. Our contribution highlights that the distinction between efficient capital accumulation and Pareto efficiency is empirically relevant. The latter efficiency benchmark - encompassing also risk sharing issues - cannot be rigorously tested based on available approaches in the literature.

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Publisher Info
Article provided by Berkeley Electronic Press in its journal Topics in Macroeconomics.

Volume (Year): 4 (2004)
Issue (Month): 1 ()
Pages: 1207-1207
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Handle: RePEc:bep:mactop:v:4:y:2004:i:1:p:1207-1207

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Related research
Keywords: Overaccumulation of Capital Dynamic Efficiency Interim Pareto Optimality

Find related papers by JEL classification:
D92 - Microeconomics - - Intertemporal Choice and Growth - - - Intertemporal Firm Choice and Growth, Investment, or Financing

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

  1. Koda, Keiichi, 1984. "A note on the existence of monetary equilibria in overlapping generations models with storage," Journal of Economic Theory, Elsevier, vol. 34(2), pages 388-395, December. [Downloadable!] (restricted)
  2. Andrew B. Abel & N. Gregory Mankiw & Lawrence H. Summers & Richard J. Zeckhauser, 1989. "Assessing Dynamic Efficiency: Theory and Evidence," NBER Working Papers 2097, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  3. Benveniste, Lawrence & Gale, David, 1975. "An extension of Cass' characterization of infinite efficient production programs," Journal of Economic Theory, Elsevier, vol. 10(2), pages 229-238, April. [Downloadable!] (restricted)
  4. Manuelli, Rodolfo, 1990. "Existence and optimality of currency equilibrium in stochastic overlapping generations models: The pure endowment case," Journal of Economic Theory, Elsevier, vol. 51(2), pages 268-294, August. [Downloadable!] (restricted)
  5. Bertocchi, Graziella, 1991. "Bubbles and inefficiencies," Economics Letters, Elsevier, vol. 35(2), pages 117-122, February. [Downloadable!] (restricted)
  6. Bertocchi, Graziella, 1994. "Safe Debt, Risky Capital," Economica, London School of Economics and Political Science, vol. 61(244), pages 493-508, November. [Downloadable!] (restricted)
  7. Bullard, James & Russell, Steven, 1999. "An empirically plausible model of low real interest rates and unbacked government debt," Journal of Monetary Economics, Elsevier, vol. 44(3), pages 477-508, December. [Downloadable!] (restricted)
  8. Okuno, Masahiro & Zilcha, Itzhak, 1980. "On the Efficiency of a Competitive Equilibrium in Infinite Horizon Monetary Economies," Review of Economic Studies, Blackwell Publishing, vol. 47(4), pages 797-807, July. [Downloadable!] (restricted)
  9. Andrews, Donald W K & Monahan, J Christopher, 1992. "An Improved Heteroskedasticity and Autocorrelation Consistent Covariance Matrix Estimator," Econometrica, Econometric Society, vol. 60(4), pages 953-66, July. [Downloadable!] (restricted)
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  10. Bertocchi, Graziella & Kehagias, Athanasios, 1995. "Efficiency and optimality in stochastic models with production," Journal of Economic Dynamics and Control, Elsevier, vol. 19(1-2), pages 303-325. [Downloadable!] (restricted)
  11. Balasko, Yves & Shell, Karl, 1980. "The overlapping-generations model, I: The case of pure exchange without money," Journal of Economic Theory, Elsevier, vol. 23(3), pages 281-306, December. [Downloadable!] (restricted)
  12. Ball, Laurence & Elmendorf, Douglas W & Mankiw, N Gregory, 1998. "The Deficit Gamble," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 30(4), pages 699-720, November.
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  13. Zilcha, Itzhak, 1990. "Dynamic efficiency in overlapping generations models with stochastic production," Journal of Economic Theory, Elsevier, vol. 52(2), pages 364-379, December. [Downloadable!] (restricted)
  14. Cass, David, 1972. "On capital overaccumulation in the aggregative, neoclassical model of economic growth: A complete characterization," Journal of Economic Theory, Elsevier, vol. 4(2), pages 200-223, April. [Downloadable!] (restricted)
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(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Sebastian Rausch & Thomas F. Rutherford, 2008. "Computation of Equilibria in OLGModels with Many Heterogeneous Households," Economics working paper series 08/90, CER-ETH - Center of Economic Research (CER-ETH) at ETH Zurich. [Downloadable!]
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