Economic fluctuations and growth.

• Position: Conference held on October 23, 1998

The NBER's Program on Economic Fluctuations and Growth met on October 23 in Chicago. Organizers Lawrence Christiano of NBER and Northwestem University and Marjorie Flavin of NBER and the University of California, San Diego, put together this program:

Valerie A. Ramey, NBER and University of California, San Diego, and Matthew D. Shapiro, NBER and University of Michigan, "Displaced Capital" (NBER Working Paper No. 6775)

Discussant: Janice C. Eberly, NBER and Northwestern University

Andrew B. Abel, NBER and University of Pennsylvania, "The Aggregate Effects of Including Equities in the Social Security Trust Fund"

Discussant: Robert E. Hall, NBER and Stanford University

Fernando Alvarez, University of Chicago; Andrew Atkeson, NBER and University of Minnesota; and Patrick Kehoe, Federal Reserve Bank of Minneapolis, "Money and Interest Rates with Endogenously Segmented Markets"

Discussant: Robert Lucas, NBER and University of Chicago

Craig Burnside, Stanford University, and Martin Eichenbaum and Sergio Rebelo, NBER and Northwestern University, "Prospective Deficits and the Asian Currency Crisis" (NBER Working Paper No. 6758)

Discussant: Jaume Ventura, MIT

Ricardo J. Caballero, NBER and MIT, and Arvind Krishnamurthy, Northwestern University, "Emerging Markets Crises: An Asset Markets Perspective" (NBER Working Paper No. 6843)

Discussant: V.V. Chari, University of Minnesota

Ramey and Shapiro study how efficiently physical capital can be reallocated across sectors. based on equipment-level data from aerospace industry auctions, tracking the flow of used capital across industries and the discounts at which the capital sells, they show that there is substantial sectoral specificity of capital. For example, capital that flows out of the aerospace sector sells for only one-third of its estimated replacement cost.

Abel explains that if participation in the stock market has fixed costs, then high-income consumers will participate, but low-income consumers will not. If a fully-funded social security system tries to exploit the equity premium by selling a dollar of bonds per capita and buying a dollar of equity per capita, consumers who do not participate in the stock market will increase their current consumption, thereby reducing savings and capital accumulation. Abel's estimates indicate that this policy will reduce the aggregate capital stock substantially, by 50 cents per capita or more.

Alvarez, Atkeson, and Kehoe analyze the effects of open market...