Publications

1987
Mankiw NG. The Optimal Collection of Seigniorage: Theory and Evidence. Journal of Monetary Economicss. 1987;20 (327-341).Abstract

This paper presents and tests a positive theory of monetary and fiscal policy. The government chooses the rates of taxation and inflation to minimize the present value of the social cost of raising revenue given exogenous expenditure and an intertemporal budget constraint. The theory implies that nominal interest rates and inflation are random walks. It also implies that nominal interest rates and inflation move together with tax rates. United States data from 1952 to 1985 provide some support for the theory.

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Mankiw NG, Campbell J. Are Output Fluctuations Transitory?. Quarterly Journal of Economics. 1987;Nov :857-880.Abstract

According to the conventional view of the business cycle, fluctuations in output represent temporary deviations from trend. The purpose of this paper is to question this conventional view. If fluctuations in output are dominated by temporary deviations from the natural rate of output, then an unexpected change in output today should not substantially change one's forecast of output in, say, five or ten years. Our examination of quarterly postwar United States data leads us to be skeptical about this implication. The data suggest that an unexpected change in real GNP of 1 percent should change one's forecast by over 1 percent over a long horizon.

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Mankiw NG, Miron J, Weil D. The Adjustment of Expectations to a Change in Regime: A Study of the Founding of the Federal Reserve. American Economic Review. 1987;77 (June) :358-374. PDF
Mankiw NG. Government Purchases and Real Interest Rates. Journal of Political Economy. 1987;95 (Apr) :407-419.Abstract

This paper examines the dynamic impact of government purchases in a simple general equilibrium model with both durable and non-durable consumer goods as well as productive capital. The model generates perhaps surprising results. In particular, increases in government purchases are shown to cause reductions in real interest rates. The model thus provides a possible explanation for the observed behavior of real interest rates around wars.

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1986
Mankiw NG. The Allocation of Credit and Financial Collapse. Quarterly Journal of Economics. 1986;101 (Aug) :455-470.Abstract

This paper examines the allocation of credit in a market in which borrowers have greater information concerning their own riskiness than do lenders. It illustrates that (1)the allocation of credit is inefficient and at times can be improved by government intervention, and (2) small changes in the exogenous risk-free interest rate can cause large (discontinuous) changes in the allocation of credit and the efficiency of the market equilibrium. These conclusions suggests a role for government as the lender of last resort.

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Mankiw NG. The Equity Premium and the Concentration of Aggregate Shocks. Journal of Financial Economics. 1986;17 :211-219.Abstract

This paper examines an economy in which aggregate shocks are not dispersed equally throughout the population. Instead, while these shocks affect all individuals ex ante, they are concentrated among a few ex post. The equity premium in genera) depends on the concentration of these aggregate shocks; it follows that one cannot estimate the degree of risk aversion from aggregate data alone. These findings suggest that the empirical usefulness of aggregation theorems for capital asset pricing models is limited.

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Mankiw NG, Barsky R, Zeldes S. Ricardian Consumers with Keynesian Propensities. American Economic Review. 1986;76 (Sept) :676-691.Abstract

This paper examines Ricardian equivalence in a world in which taxes are not lump sum, but are levied on risky labor income. It shows that the marginal propensity to consume out of a tax cut, coupled with a future income tax increase, can be substantial under plausible assumptions. Indeed, the MPC out of a tax cut can be closer to the Keynesian value that ignores the future tax liabilities than to the Ricardian value that treats future taxes as if they were lump sum.

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Mankiw NG, Whinston M. Free Entry and Social Inefficiency. Rand Journal of Economics. 1986;17 (Spring) :48-58.Abstract

Previous articles have noted the possibility of socially inefficient levels of entry in markets in whichJirms must incurjixed set-up costs upon entry. This article identifies the fundamental and intuitive forces that lie behind these entry biases. Ifan entrant causes incumbent firms to reduce output, entry is more desirable to the entrant than it is to society. There is therefore a tendency toward excessive entry in homogeneous product markets. The roles of product diversity and the integer constraint on the number ofJirms are also examined.

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Mankiw NG, Miron J. The Changing Behavior of the Term Structure of Interest Rates. Quarterly Journal of Economics. 1986;101 (2) :211--228.Abstract

We reexamine the expectations theory of the term structure using data at the short end of the maturity spectrum. We find that prior to the founding of the Federal Reserve System in 1915, the spread between long rates and short rates has substantial predictive power for the path of interest rates; after 1915, however, the spread contains much less predictive power. We then show that the short rate is approximately a random walk after the founding of the Fed but not before. This latter fact, coupled with even slight variation in the term premium, can explain the observed change in 1915 in the performance of the expectations theory. We suggest that the random walk character of the short rate may be attributable to the Federal Reserve's commitment to stabilizing interest rates.

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1985
Mankiw NG. Small Menu Costs and Large Business Cycles: A Macroeconomic Model of Monopoly. Quarterly Journal of Economics. 1985;100 (May) :529-537. PDF
Mankiw NG, Rotemberg J, Summers L. Intertemporal Substitution in Macroeconomics. Quarterly Journal of Economics. 1985;100 (Feb) :225-251.Abstract

Modern neoclassical business cycle theories posit that the observed fluctuations in consumption and employment correspond to decisions of an optimizing representative individual. We estimate three first-order conditions that represent three tradeoffs faced by such an optimizing individual. He can trade off present for future consumption, present for future leisure, and present consumption for present leisure. The aggregate U. S. data lend no support to this model. The overidentifying restrictions are rejected, and the estimated utility function is often convex. Even when it is concave, the estimates imply that either consumption or leisure is an inferior good.

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1982
Mankiw NG. Hall's Consumption Hypothesis and Durable Goods. Journal of Monetary Economics. 1982;10 (Nov) :417-426. PDF

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