Volatility Of Spending Research Articles

Who Are the Hand-to-Mouth?

Abstract Many households hold little wealth. In standard precautionary savings models, these households should not only display higher marginal propensities to consume (MPCs) but also higher future consumption growth. In contrast, we see from the Panel Study of Income Dynamics that such “hand-to-mouth” households do not display higher growth in spending. They also exhibit greater volatility of spending and adjust their spending to a greater extent through the number of categories consumed. Consistent with a role for preference heterogeneity, the panel data show that it is persistent differences across households, not current assets, that predict low consumption growth and other spending differences for the hand-to-mouth households. To identify the extent of preference heterogeneity, we consider the model of Kaplan and Violante with both liquid and illiquid assets, but allow heterogeneity in preferences. To match the data, many poor hand-to-mouth must be relatively impatient and have a high inter-temporal elasticity of substitution. The model shows that preferences predominantly explain the higher MPCs for low-asset households. Preference heterogeneity notably increases the spending impact of fiscal transfers, but only if targeted, while reducing that from interest rate cuts.

Determinants of the Polish State Budget Stability

The problem of the stability of budget revenue and expenditure has been the subject of research for many years. However, there is still a need to monitor this phenomenon to achieve a correct balance in the budget because of the instability of different factors in the economic surroundings that affect the budget. This is especially important in developing countries undergoing economic transformation, and Poland is still in that process. The study aims to assess changes in the Polish state budget’s size and revenue and expenditure structure between 2000 and 2022. The method of comparative analysis over time is used with the actual value of the money concept, measures of dynamics, structure, GDP ratios, statistical description and coefficients of dissimilarity of structures. Analyses have shown a permanent imbalance in the Polish budget. However, the budget’s primary result oscillates around zero and both revenues and expenditures have gradually increased. The volatility of budget revenue and spending is moderate. Only the use of EU funds is characterised by high volatility. The emerging crises (e.g. Russia’s war against Ukraine and the coronavirus pandemic) have a negligible impact on the budget structure, but they influence its level of expenditure. The changes in Polish budget size are generally due to inflation, economic growth rates, and the inflow of funds from the European Union budget.

Perfiles económicos y comportamiento del gasto en salud de los hogares con personas adultas mayores

En este artículo se estiman modelos no paramétricos del comportamiento económico y del gasto en salud de las familias con personas adultas mayores en México. Con información de la Encuesta Nacional de Ingresos y Gastos de los Hogares de 2016, se describen los patrones de consumo de los hogares a lo largo de la edad del jefe de familia como una representación del curso de vida familiar. Los resultados muestran que la presencia de población adulta mayor en los hogares se vincula con un incremento de alrededor de 50% del gasto en salud y un respectivo financiamiento por medio del aumento de los flujos de ahorro monetario a lo largo del ciclo de vida. Asimismo, se aporta evidencia de la importancia de la seguridad social en la reducción de la volatilidad del gasto en salud en las fases avanzadas del curso de vida.

Practical Applications of What Investment Risk Means to You, Illustrated: Strategic Asset Allocation, the Budget Constraint, and the Volatility of Spending During Retirement

Practical Applications Summary In What Investment Risk Means to You, Illustrated: Strategic Asset Allocation, the Budget Constraint, and the Volatility of Spending During Retirement , from the Fall 2018 issue of The Journal of Retirement , Barton Waring , retired chief investment officer of Barclays Global Investors , and Laurence Siegel , director of research of the CFA Institute Research Foundation , present and explain two key points. First, individual investors often do not correctly understand the real meaning of risk. The problem is that the concept is often articulated in vague or confusing terms. An individual investor can easily miss the point that although a risky investment strategy may offer a higher “expected return, ” it may also entail significant risk of seriously adverse outcomes or even financial ruin. Individual investors may not readily grasp the important difference between the statistical concept of expected return as just the middle of what might be a very broad range of possible outcomes, and the everyday notion of expectation as something that is likely to happen. Second, static retirement spending plans are a major source of risk for retirees. A safer spending plan—one that ameliorates risk—responds to periods of weak investment performance with lower spending levels. Such a plan can nearly eliminate the risk of exhausting a retiree’s assets. The authors demonstrate a mechanism for periodically adjusting spending in response to actual investment performance.

What Investment Risk Means to You, Illustrated: Strategic Asset Allocation, the Budget Constraint, and the Volatility of Spending during Retirement

In our experience, many investment professionals don’t articulate risk well to clients. This research uniquely and graphically reveals the nature of strategic asset allocation investment risk not only for single-period investors, but also for multi-period investors such as those whose savings are held for retirement. Using Monte Carlo simulations, we evaluate and picture the nature of that multi-period consumption risk with spending rules that are subject to a budget constraint and those that aren’t (such as the 4% rule). Risk in a multi-period context means that realized spending may increase with greater SAA risk, but it may instead be worse.

Contribution volatility and public pension reform

AbstractIn the wake of the economic downturn of 2008–2009, researchers and policymakers have focused considerable attention on the extent of unfunded liabilities in US public sector pension plans and the implications for the long term fiscal sustainability of state and local governments. In response to the growth in liabilities, many states have introduced legislation that cuts back on defined benefit (DB) plan commitments, in some cases even shifting the pension system from a DB to a defined contribution or hybrid plan. This paper explores the factors that have led states to engage in pension reform, focusing particular attention on one factor that has only recently gained attention in the research literature: contribution volatility. While unfunded liabilities have significant long-term solvency implications, in the short term fluctuations in the amount of required contributions pose substantial difficulties for the ability of plan sponsors to balance budgets and engage in strategic planning. We begin by quantifying the volatility in the required contributions US states were expected to make between 2001 and 2013 and comparing the volatility of pension spending to other relevant tax and spending measures. Next, we describe the various types of pension reforms that states have implemented and examine the fiscal pressures facing those states that have engaged in reform. States with greater fluctuations in their required payments have been more likely to reduce benefits and increase employee contributions; they have also been more likely to institute these reforms sooner.

The Impact of Government Spending on Private Spending in a Two-Sector Economy

Based on evidence that the dynamics of private spending on durables seem to differ from that of nondurables and services, this article disaggregates the impact of an exogenous government shock into its effect on each type of consumption good. Different calibrations of a dynamic stochastic general equilibrium (DSGE) model suggest that increases in government spending crowd out private spending on durable goods, while they serve to expand nondurable and services spending. Vector autoregression (VAR) estimates across these sectors yield qualitatively similar results. The estimated responses are driven by a negative correlation between durable spending and two measures of government spending that has not greatly varied over time—whereas the correlation between nondurable spending and government consumption has remained consistently positive throughout the sample. Estimates are consistent with a Great Moderation in three components of consumption, whereas moderations in the volatility of government spending took place earlier than the 1980s. The Great Recession of 2008–2009 saw an increase in volatility of consumption spending with no similar increases in the uncertainty of government spending.

Legislative fractionalization and partisan shifts to the left increase the volatility of public energy R&D expenditures

This article shows that legislative fractionalization and leftward (but not rightward) partisan shifts increase the volatility of public R&D expenditures in new energy technologies. We develop a highly accurate estimator for public energy R&D expenditures, and examine deviations from the estimated values using data for member states of the International Energy Agency, 1981–2007. Given that unpredictable fluctuation in public spending on new energy technology reduces the positive effect of such spending on innovation, our empirical analyses imply that countries with fractionalized legislatures can improve the performance of their energy technology programs by enacting institutional mechanisms that reduce the volatility of public spending. Similarly, the results indicate that left-wing and right-wing governments can improve the performance of public technology programs through agreements that distribute gains in such a fashion that partisan shifts do not cause spending cuts. Contravening the conventional wisdom, we also find that public energy R&D is unusually stable in the United States.

Resurrecting the weak credibility hypothesis in models of exchange-rate-based stabilization

We analyze how weak credibility affects the volatility of consumption spending in a model of exchange-rate-based stabilization that allows for both durable and nondurable goods. The inclusion of durables greatly improves the explanatory power of the weak credibility hypothesis. The hypothesis can account for the main qualitative properties of the boom–bust cycle provided the elasticity of durables expenditure with respect to Tobin's q is greater than the intertemporal elasticity of substitution. Moreover, the quantitative effects are very large. In numerical simulations based on conservative assumptions about the expenditure share of durables (20%) and wealth effects (none), aggregate consumption increases 17–22% and the real exchange rate appreciates 24–26% when the crawl decreases from 100% to zero for 3 years. In variants of the model that incorporate supply effects, the consumption boom is equally strong but appreciation of the real exchange rate rises to 30–40%.

Government size, composition, volatility and economic growth

This paper analyses the effects in terms of size and volatility of government revenue and spending on growth in OECD and EU countries. The results of the paper suggest that both variables are detrimental to growth. In particular, looking more closely at the effect of each component of government revenue and spending, the results point out that i) indirect taxes (size and volatility); ii) social contributions (size and volatility); iii) government consumption (size and volatility); iv) subsidies (size); and v) government investment (volatility) have a sizeable, negative and statistically significant effect on growth.

The Effect of Asset Price Volatility on Fiscal Policy Outcomes

This paper examines the effect of asset price volatility on fiscal policy stance. We find that asset price volatility affects the volatility of discretionary fiscal policy in a positive and significant manner, which according to Fatas and Mihov (2003) has negative repercussions on output volatility and economic growth. Higher residential property price volatility amplifies both the volatility of government spending and the volatility of the discretionary fiscal policy stance. Equity price volatility increases the volatility of the fiscal policy stance, primarily via the government revenue channel.

Resurrecting the Weak Credibility Hypothesis in Models of Exchange-Rate-Based Stabilization

We analyze how weak credibility affects the volatility of consumption spending in a model of exchange-rate-based stabilization that allows for both durable and nondurable goods. The inclusion of durables greatly improves the explanatory power of the weak credibility hypothesis. The hypothesis can account for the main qualitative properties of the boom-bust cycle provided the elasticity of durables expenditure with respect to Tobin's q is greater than the intertemporal elasticity of substitution. Moreover, the quantitative effects are very large. In numerical simulations based on conservative assumptions about the expenditure share of durables (20%) and wealth effects (none), aggregate consumption increases 12-28% during the low-crawl phase and the real exchange rate appreciates 24-26%. In variants of the model that incorporate supply effects, the consumption boom is equally strong but appreciation of the real exchange rate rises to 30-40%.

Government Size, Composition, Volatility and Economic Growth

This paper analyses the effects in terms of size and volatility of government revenue and spending on growth in OECD and EU countries. The results of the paper suggest that both variables are detrimental to growth. In particular, looking more closely at the effect of each component of government revenue and spending, the results point out that i) indirect taxes (size and volatility); ii) social contributions (size and volatility); iii) government consumption (size and volatility); iv) subsidies (size); and v) government investment (volatility) have a sizeable, negative and statistically significant effect on growth.

Cointegration and Error Correction Models: The Temporal Causality between Investment and Corporate Cash Flow

It has been long recognized that business investment spending is one of the most volatile components of aggregate expenditures. For this reason, fluctuations in output and employment are more likely to reflect volatility of investment spending than changes in relatively stable components such as consumption expenditures. Among factors that may help to explain the unstable behavior of investment spending, the financing side of investment decisions has received renewed attention from both academics and the press. In the past decade or so, a number of theoretical arguments have been advanced suggesting that the ability of some firms in raising funds externally for investment purposes may be limited due to capital market imperfections such as transaction costs of issuing new bonds or shares and asymmetric information. The firms facing these financing constraints, therefore, may have to rely more heavily on their internal funds to finance investment projects than would have otherwise been the case. Consequently, the firms' investment expenditures become sensitive to variations in their sources of internal funds as measured by cash flow or closely related variables such as earnings or profits. A significant drop in cash flow of these firms, for example, may force them to pass up profitable investment opportunities. This may in turn cause an economic downturn or intensify a recession that is already underway. The emphasis on the influence of financing factors on investment decisions, however, may be traced back to the writings of Keynes (1936) and Kalecki (1971 [1937]). Moreover, Post Keynesian economists such