Franco Modigliani's research while affiliated with Carnegie Institute and other places

Publications (182)

Article
Full-text available
Résumé. Les auteurs résument des écrits importants liés au krach universel d'octo-bre 87. Ils en rappellent diverses facettes et interprétations et proposent quelques explications. Ils vérifient ensuite si les réactions de trois Bourses (Bruxelles, To-ronto et New York) aux bonnes nouvelles de dividendes et de bénéfices annoncées autour du krach di...
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Miller ha examinado, en su forma magistral habitual, la validez y el funcionamiento del teorema de MM bajo condiciones de mercado perfecto y sin impuestos. Parece que hay poco que añadir al tema, especialmente desde que, a estas alturas, se han aportado innumerables demostraciones alternativas del teorema. Consecuentemente, tras decir unas pocas pa...
Book
This volume of papers, articles, and essays by the late Nobel Prize-winning economist Franco Modigliani contains writings published during the last decade of his life as well as three seminal earlier papers on the life-cycle hypothesis. As in the previous Collected Papers, the writings are organized by topic; within each topic, the order is chronol...
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China's per capita income ranks below 100th in the world. Its saving rate, however, has been one of the highest worldwide in recent decades. In this paper, we attempt to explain the seeming paradox within the framework of the Life-Cycle Hypothesis developed by Franco Modigliani. The key LCH variables are income and population growth. Our results ba...
Article
The President is pleading for a drastic reform of our tax system that would exempt corporate dividends from the personal income tax, using the bugaboo of double taxation and of a weak economy. However, upon closer examination, one must conclude that these are but excuses for advancing his real agenda, namely to make the richest richer at the expens...
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Full-text available
To clarify the global debate on social security, the authors establish the basic choices in designating any system to help policy makers develop the system that achieves their many objectives. Because the success of reforms depends on financial innovation to mitigate key risks, innovations are discussed which demonstrate how pension reform choices...
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We argue that in an unreliable enforcement regime, transactions tend to become intermediated through institutions or concentrated among agents bound by some form of private enforcement. Provision of funding shifts from risk capital to debt, and from markets to institutions with long term relations. When minority investors' rights are poorly protect...
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When minority investors’ rights are poorly protected, the ability of firms to raise equity capital is impaired, leading to less finance for new ventures. Fewer firms will be financed with outside equity, resulting in a low market capitalization relative to GNP. External funding requires easily enforceable claims such as debt or requires long-term r...
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Cover title. "March 1999." Includes bibliographical references. by Franco Modigliani and Arun S. Muralidhar.
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Caption title. "Revision--April 1999." Includes bibliographical references. by Franco Modigliani, Maria Luisa Ceprini, Arun Sundarram Muralidhar.
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The life-cycle hypothesis posits that saving is positive for young households and negative for the retired, so that wealth should be hump-shaped. Yet, if one looks at the microeconomic evidence on saving by age, dissaving by the elderly is limited or absent. But the saving measures usually computed on cross-sections or panel data are based on a con...
Article
We argue that in an unreliable enforcement regime, transactions tend to become intermediated through institutions or concentrated among agents bound by some form of private enforcement. Provision of funding shifts from risk capital to debt, and from markets to institutions with long term relations. When minority investors' rights are poorly protect...
Article
The authors find serious weaknesses in the Italian pension system that can and must be rectified in the near future. The central pillar of the system is the compulsory saving, channeled through the INPS, the Italian Social Security. This is a pay-as-you-go system. Such systems are common today, but they have four main disadvantages by comparison wi...
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Since the collapse of the Bretton Woods System, countries have adopted a variety of different exchange arrangements. The largest industrial countries adopted either a floating or a block floating system, while other countries chose a fixed or a crawling peg arrangement. We offer a few observations that suggest floating has not been all it was made...
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This manifesto challenges a pernicious orthodoxy that has gripped Europe's policy makers. It is that demand- and supply-side policies must have different aims, that a limited number of supply-side policies are to be devoted to fighting unemployment, and that demand management (and particularly monetary policy) is are to be devoted solely to fightin...
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The central lesson from the Bretton Woods system of fixed parities was that there is a unique relation of the domestic price level (wage rate and interest rate) to the price level (wage rate and interest rate) in the rest of the world that is consistent with balance of payments equilibrium and full employment. Simply said, countries can simultaneou...
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While excessive regulation is an obstacle to the development of financial markets, we argue that lack of basic rules or poorly enforced regulation may explain the relative importance across countries of banking and security markets in financing firms. A selective or arbitrary enforcement transforms legal rules into an exclusionary good; arm's lengt...
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Unemployment in the E.C. is tragically high compared with the average rate of 2–3% in the 1960s. Up to the early 1980s the rise may be justified by the need to end the inflationary spiral ignited by the two oil crisis. Thereafter, it is an unintended consequence of the fixed exchanges embraced in the march toward Maastricht. It forced a common inte...
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Résumé L’objectif de cet article est d’expliquer le chômage de masse, tel qu’il existe depuis plus d’une décennie dans les pays européens. Il est affirmé que sa cause réside dans une offre réelle de monnaie insuffisante, conjuguée avec une politique budgétaire trop restrictive. En découlent des taux d’intérêt à long terme trop élevés, une demande a...
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This paper employs a synthetic cohort technique and Consumer Expenditure Survey data to construct average age-profiles of consumption and income over the working lives of typical households across different education and occupation groups. Even after controlling for family and cohort effects, typical consumption profiles are not flat, and seem to t...
Chapter
1993 is for Italy the year of the great opportunity. As Mario Baldassarri first pointed out (in Il Sole 24 Ore, 6 February 1993) a coincidence of circumstances, such as repeats itself very rarely in the history of a country, makes it possible for Italy to make a great leap forward, a second miracle, which will enable the country to move from the ta...
Book
Since the early 1970s the Italian economy has been moving towards an irreversible real and financial crisis. Paradoxically, the conditions engendered by the currency crisis and recession may also provide the basis for a new economic policy strategy, which could lead to built a mere 'economic miracle!'
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In the course of the last three decades, the national saving to income ratio, which has traditionally been regarded as fairly stable at least in the medium run, has undergone profound changes, especially among the industrialized countries. These changes have tended to run in the same direction for all countries, namely down. While this development...
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The American dream of home ownership has created the world's largest debt market - exceeding the stock and corporate bond markets combined. Mortgage-backed securities, financially engineered products of that debt, represent a unique challenge to professional investors, mortgage originators, bankers, regulators, and financial economists. This book d...
Chapter
One of the most important and counter-intuitive implications of the Life-Cycle Hypothesis of Saving is the proposition that the national rate of saving of a country at different points of time, or of different countries at the same point of time, should not be systematically related to the level of real per capita income. It goes against an ingrain...
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This chapter discusses various aspects of the relation between the supply of money and nominal income and their implications for the conduct of monetary policy. It focuses on the traditional versions of the monetary mechanism—the mechanism through which the monetary authority endeavors to control nominal income. In these versions, the monetary aggr...
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This paper examines whether managers use inflation accounting data in making dividend decisions. Two sources of inflation accounting data are used: individual firm data mandated by the FASB, and aggregate data estimated by the Department of Commerce. We find that aggregate dividend changes are related to aggregate inflation adjustments, but no such...
Book
These two volumes bring together articles, commentaries, and excerpts by Nobel Prize-winning economist Franco Modigliani published from the late 1970s to 1989. The 11 essays collected in Volume 4 focus on money and inflation and on stabilization policies for growth and unemployment. The 21 essays in Volume 5 cover saving and wealth, deficits, the r...
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The economic policies of the Videla government (March 1976–March 1981) remain highly controversial. Almost without exception, the exchange rate policy initiated in January 1979 is the most controversial; this policy, the critics argue, not only resulted in virtual bankruptcy for large segments of the domestic economy but also gave rise to the accum...
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[This is a comment on “The Modigliani-Miller Propositions after Thirty Years” by Merton H. Miller in this same issue.] Before getting serious about the MM theorem's past and future, I would like to say a few words about its more personal history, including the origins of the Modigliani-Miller alliance. Miller has reviewed, in his usual masterly fas...
Book
This 1986 book examines some of the main issues that have characterized macroeconomics: the debate between ‘monetarists’ and ‘Keynesians’; the response to demand shocks and supply shocks, by which the monetary authorities control aggregrate nominal income and the use and relevance of the money supply as a target; and the consumption function and th...
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The Plenary Session of the EEA Meetings consisted of a roundtable discussion of the causes and implications of the stock market crash in the Fall of 1987. The four participants, Martin Feldstein, Franco Modigliani, Allen Sinai, and Robert Solow, spoke to a large audience of severarl hundred economists. In view of the widespread interest in this ses...
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The purpose of this paper is to review what economists know at present about the following question: How large a portion of the existing wealth is the result of a bequest motive, that is, of accumulation for the specific purpose of leaving bequests? But first I will clarify why an answer to this question is of interest.
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The Reagan administration is credited with one major success: the reduction in inflation. But it was not achieved painlessly, through "monetarism" and "supply" policies. Money growth swung widely and disinflation required, as always, a high and protracted unemployment rate. The deep tax cuts failed to increase saving, but contributed to the largest...
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How can the recent explosion in the fiscal deficit of the United States be reconciled with the well-known support of the American public for fiscal conservatism? It is first shown that the reputation for fiscal conservatism is fully supported by public opinion polls dating back over a period of four decades. Solid majorities have consistently oppos...
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The rôle of the economy’s financial structure and institutions in determining the functioning of the monetary mechanism and the effectiveness of monetary policy has attracted a lot of attention in recent years. The ongoing innovations and fundamental structural changes in domestic and international financial markets have led to a serious reassessme...
Chapter
In the late 1970s, a number of economists applied the Capital Asset Pricing Model (CAPM) to the problem of pricing insurance contracts (e.g., Munch and Smallwood 1978, Fairley, 1979, and Hill 1979). The CAPM offered a means of systematically accounting for the investment income of insurance companies and an operational definition of the risk of und...
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There are three basic issues connected with the economic consequences of the flow of deficits and the resulting stock of public debt.
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One theory of the determinants of individual and national thrift has come to be known as the life cycle hypothesis of saving. The state of the art on the eve of the formulation of the hypothesis some 30 years ago is reviewed. Then the theoretical foundations of the model in its original formulation and later amendment are set forth, calling attenti...
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I was born in Rome, Italy, the son of Enrico Modigliani and Olga Flaschel. My father was a leading pediatrician in the city and my mother was a volunteer social worker.
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[fre] Cet article présente un panorama de théorie des déterminants de individuelle et nationale connue sous nom d'hypothèse du cycle de vie l'épargne. Des applications à problèmes de politique sont également discutées. La première partie fait un état des à la veille de la formulation de hypothèse, il y a une trentaine La seconde partie présente les...
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"May 1984." Bibliography: p. 32-34. Franco Modigliani, Richard A. Cohn.
Chapter
It is a pleasure to comment on the Auerbach and Kotlikoff (AK) paper. I have found it fascinating, full of surprises and rich in paradoxes, though, admittedly, my enthusiasm may not be wholly unbiased. It turns out that their most unexpected and paradoxical results rely heavily on an unadulterated life cycle model, a model to which I am, understand...
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I modify the uniform-price auction rules in allowing the seller to ration bidders. This allows me to provide a strategic foundation for underpricing when the seller has an interest in ownership dispersion. Moreover, many of the so-called "collusive-seeming" equilibria disappear.
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Este trabalho visa focalizar mais uma vez o chamado "mecanismo monetario". Isto e, o mecanismo atraves do qual a Autoridade Monetaria consegue controlar com certa firmeza a renda nominal agregada. Nosso proposito e mostrar que a visao tradicional, englobando tanto formulacoes monetaristas como as de Keynes-Hicks, que coloca a oferta monetaria em pr...
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The aim of this paper is to develop and test hypotheses designed to explain international differences in saving behaviour. These hypotheses are derived from the life cycle hypothesis, which suggests that such differences may be explained by differences in the rate of growth of per capita income, length of retirement, demographic factors and the ava...
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The purpose of this paper is twofold. First, we discuss the nature and quantitative order of magnitude of the trade-off between real wages and employment in the small open economy Belgium. Second, we draw policy conclusions from our positive analysis, and compare income policies with alternative approaches to employment stimulation (including short...
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Standard real business cycle models must rely on total factor productivity (TFP) shocks to explain the observed comovement of consumption, investment, and hours worked. This paper shows that a neoclassical model consistent with observed heterogeneity in labor supply and consumption can generate comovement in the absence of TFP shocks. Intertemporal...
Book
Originally appeared in the Federal Reserve Bank of San Francisco Economic Review supplement, Spring 1977
Article
A model of the tax structure of interest rates is developed and simple approximate expressions relating yield to coupon are derived. The effect on these simple expressions of alternative assumptions about holding period length, expectations of future interest rates, and other factors, is evaluated. It is shown that with recent U.S. yield averages t...
Article
The organization of the paper is simple. We start by examining the real effects of anticipated inflation in an economy that has fully adapted to inflation. In particular, in this economy: (i) public institutions are fully attuned to inflation (or inflation proof), (ii) the same is true of private institutions, (iii) current and future inflation is...
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Zusammenfassung Optimale Nachfragepolitik zur BekÄmpfung der Stagflation. — Der Aufsatz beschÄftigt sich mit der Wahl einer optimalen Gesamtnachfrage-Politik als Antwort auf einen inflationÄren Schock — optimal in dem Sinne, da\ die Volkswirtschaft zur VollbeschÄftigung und PreisstabilitÄt auf einen Pfad zurückgeführt wird, der die sozialen Kosten...

Citations

... Questo è ulteriormente diminuito nel periodo più recente, in cui un ulteriore drenaggio dell'investimento è derivato dalla progressiva internazionalizzazione delle attività produttive (per cui l'Italia è divenuta investitrice netta), mentre in direzione opposta va il passaggio di una quota crescente di debito pubblico presso investitori esteri. 8 Il rallentamento della produttività era stato segnalato come motivo della caduta del tasso di risparmio nazionale già da Modigliani e Jappelli (1990). Alla fine del 2009, le famiglie italiane risultavano impoverite in termini di potere d'acquisto per abitante rispetto al 2000 e, stante la forma (ad alta intensità di lavoro a bassa produttività) della crescita degli anni precedenti, ancora di più in termini di potere d'acquisto per occupato. ...
... Some observers, reminded of the old adage "the more things change, the more they remain the same," began to suspect that the similarities between the Southern-Cone and the heterodox programs were not purely coincidental. In particular, Kiguel and Liviatan (1990) dug up older 1/ The Southern-Cone programs--which comprise the stabilization plans in Argentina, Chile, and Uruguay--have been discussed, among many others, by Harberger (1982), Corbo (1985), Fernandez (1985), Hanson and de Melo (1985), Calvo (1986a), Ramos (1986), Edwards and Edwards (1987), Kiguel and Liviatan (1988), and Sjaastad (1989). ...
... 24 See special issue of The Journal of Law and Economics, 1983, devoted to the proceedings of the conference. 25 See Zingales (1994), Modigliani and Perotti (1997), Yurtoglu (2000) and discussion and references in Gugler (2001c, p. 207). ...
... Nevertheless, the size of the impact on consumption depends on different factors. In particular, Modigliani (1987) states that it will respond to the source of change in the deficit, which might in turn have an effect on the difference the two types of deficits have on consumption. In addition, in the short run, larger deficits are likely to lead to higher demand and higher output, while in the long run, according to the classical view, the response in consumption may be negative, given that higher government debt has a negative effect on capital accumulation. ...
... This relationship was found to be significant through Malovana, Hodula, and Frait's (2021) modified consumer confidence measure or Household Macroeconomic Environment (HOME) index. Although, Modigliani (1993) argues that, in the long term and through the perspective of his life-cycle model, interest rates have a direct relationship with consumption. This may be due to the prospect of a household investing in an asset and anticipating its rise in value as interest rates increase in the future. ...
... Fairley (1979) applied the CAPM to derive risk-adjusted rates of return for property-liability insurers. Important extensions of the Fairley model by Myers and Cohn (1987) and Hill and Modigliani (1987) provide empirical evidence on its reliability and stability. 5 Bronars (1985), Beenstock and Brasse (1986), and Blake and Beenstock (1988) took up the CAPM-based framework to study unemployment insurance with different focuses. ...
... Phelps (1972) also used this term in order to explain the reasons for soaring unemployment level in Europe over the post-1960s and Sachs (1986) ranged some possible effects of hysteresis on policy regimes. According to the traditional wisdom (e.g., Phelps, 1968;Friedman, 1968;Modigliani, 2003), the current deviation in unemployment rate in Europe was defined as temporary, which were theorized by the concept of non-accelerating inflation rate of unemployment (NAIRU). On the contrary, Blanchard and Summers (1986b) pointed to the existence of path-dependence of steady-state equilibrium unemployment through defining the hysteresis hypothesis. ...
... of the transition would be substantially reduced if the payroll tax reduction induces positive effects on labour productivity and employment. If the unemployment rate is gradually reduced to a half of its current level and labour productivity growth is 0.5% higher each year, in the first scenario the impact on the budget would be positive by 2025. Modigliani and Ceprini (1998) take a different approach and suggest a gradual transition to a fully funded system. They suggest the creation of a new fund financed by an additional contribution of 2% of earnings. Workers would receive the same pension benefits paid by the PAYG schemes. The fund would gradually pay an increasing part of these benefits allowing a redu ...
... In a similar vein, according to Modigliani and Brumberg's LCH, the consumer's consumption is not simply based on their current income, but on their expected lifelong income. In this context, LCH stresses the life stage sensitivity of consumption; that is, people spend more than their current income when they are out of the labor force and spend less than their current income when they are working (Modigliani & Bartel, 1987). To put it another way, people generally save when they are working and dissave when they are not. ...
... This paper is related to the literature studying life-cycle consumption profiles in the United States. Carroll (1997) and Gourinchas and Parker (2002) show that precautionary savings, generated by borrowing constraints and idiosyncratic income shocks, can explain the hump-shaped life-cycle consumption profile. Bullard and Feigenbaum (2007) find that including leisure in the utility function helps explain the decline in consumption late in life. ...