Twenty-sixth NBER Summer Institute held in 2005.

• Position: National Bureau of Economic Research

In the summer of 2005, the NBER held its twenty-sixth annual Summer Institute. More than 1300 economists from universities and organizations throughout the world attended. The papers presented at dozens of different sessions during the four-week Summer Institute covered a wide variety of topics. A complete agenda and many of the papers presented at the various sessions are available on the NBER's web site by clicking Summer Institute 2005 on our conference page, www.nber.org/confer.

Oda and Ueda empirically investigate monetary policy in Japan in the zero- interest-rate environment that has held sway since 1999. In particular, they focus on the effects of the zero-interest-rate commitment and of quantitative monetary easing on medium-to-long-term interest rates in Japan. By applying a version of the macro-finance approach, involving a combination of estimation of a structural macro-model and calibration of time-variant parameters to the yield curve observed in the market, they can decompose interest rates into expectations and risk premium components and simultaneously extract the market's perception of the Bank of Japan's (BOJ's) willingness to carry on its zero-interest-rate policy. Oda and Ueda tentatively conclude that the BOJ's monetary policy since 1999 has functioned mainly through the zero-interest-rate commitment, which has led to declines in medium- to long-term interest rates. They also find some evidence that, until the end of 2003, raising the reserve target may have been perceived as a signal indicating the BOJ's accomodative policy stance, although the size of the effect is not large. The portfolio rebalancing effect--either by the BOJ's supplying ample liquidity or by its purchases of long-term government bonds--is found to be significant.

Coleman argues that the growth slowdown in Japan in the 1990s was a consequence of a structural transformation set in motion by the emergence of lower cost producers of manufactured goods. Prior to the 1900s, Japan had achieved a significant cost advantage in producing various goods, which led to an allocation of resources towards this sector. Indeed, the fraction of resources in the manufacturing sector in Japan exceeded that of other countries in a similar stage of development. The emergence of largely populated developing countries, such as China, lowered the profitability of the manufacturing sector in Japan. This required a substantial reallocation of labor and capital resources from the manufacturing to the service sector. This process of structural transformation led to the growth slowdown in Japan during the 1990s.

In the 30-year period between 1960 and 1990, Japan saw labor productivity rise from a level of 27 percent of that of the United States to 87 percent of that of the United States. This development miracle can be explained by an initial low capital stock and measured variations in Total Factor Productivity (TFP). These facts motivate the investigation into the sources of Japanese TFP variations by Braun, Okada, and Sudou. They consider Japanese and U.S. data that is filtered to retain medium-cycle events, such as the productivity slow down in the 1970s. An investigation of Japanese medium cycles reveals an important role for the diffusion of usable ideas from the United States to Japan. U.S. research and development (R and D) leads Japanese TFP by four years and accounts for as much as 60 percent of the variation in medium-term-cycle Japanese TFP. Japanese R and D, in contrast, is coincident with Japanese TFP. Simulations designed to isolate the roles of Japanese and U.S. R and D find that the diffusion of knowledge from the United States is a key driver of Japanese medium cycles.

Ono poses three fundamental questions about lifetime employment in Japan: How big is it? How unique is it? And, how is it changing? He examines various concepts and methods of estimating lifetime employment and concludes that it covers roughly 20 percent of the Japanese labor force. Job mobility remains considerably lower in Japan than in other economies (particularly that of the United States). Evidence regarding changes in lifetime employment is mixed. While the core workforce is shrinking, the proportion of lifetime workers in the labor force is expanding. Ono's interpretation is that the population of workers who presumably are covered by the lifetime employment system may be declining, but the probability of job separations has remained stable for those who are already in the system. He also finds evidence that the incentives among workers, managers, and executives are aligned to preserve the lifetime employment system.

Sakai, Uesugi, and Watanabe investigate how a firm's borrowing cost evolves as it ages. Using a new dataset of more than 200,000 bank-dependent small firms in 1997-2002, these authors find that the distribution of borrowing costs tends to become less skewed to the right over time. Second, this shift in the distribution can be partially attributable to "selection" (that is, farms with lower quality and higher borrowing costs exit from markets), but is mainly explained by "adaptation" (that is, surviving firms' borrowing costs decline as they age). Third, there is an age dependence of a firm's borrowing costs, even after controlling for farm size, but no age dependence of the volatility of profits after controlling for firm size. The results suggest that age dependence of borrowing costs comes not from the (Diamond's 1989) reputation-acquisition mechanism, but rather from banks' learning about borrowers' true quality over the duration of the bank-borrower relationship.

Moriguchi and Saez construct the long-run series of top income shares and wage income shares in Japan using income tax statistics and investigate the evolution of income concentration in Japan from 1885 to 2002. They find that: the degree of income concentration was extremely high throughout the pre-WWII period during which the nation underwent rapid industrialization; a drastic de-concentration of income at the top had taken place during and immediately after WWII; a degree of income concentration has remained low throughout the post-1950 period despite high economic growth; and, a major component of the top income in Japan has shifted dramatically from capital income to employment income over the course of the twentieth century. They attribute the dramatic fall in income concentration primarily to the collapse of capital income attributable to wartime taxation, war destruction, hyperinflation, and to a lesser extent, postwar occupational reforms. They argue that the fundamental change in the institutional structure after WWII made the one-time income de-concentration difficult to reverse. In contrast to the sharp increase in wage income inequality observed in the United States since 1970, the top wage income shares in Japan have remained remarkably stable over recent decades. The authors show that the change in technology or tax policies alone cannot account for the comparative experience of Japan and the United States. Instead, they suggest that institutional factors, such as corporate governance and union structure, are important determinants of wage income inequality.

Skinner describes the role of accounting for deferred taxes in the ongoing financial crisis among major Japanese banks, as dramatized most vividly by the recent collapse of Resona Bank. He argues that the Japanese government, including bank regulators, used deferred tax accounting to help give the major banks the appearance of financial well being in spite of their economic difficulties. Further, managers of these banks used deferred tax accounting to bolster their banks' regulatory capital levels when their economic circumstances deteriorated. Skinner shows that, generally consistent with these arguments, accounting has played a role in helping the Japanese government to postpone the politically difficult task of reforming the major banks.

The empirical literature that examined data at the aggregate or macroeconomic level generally has found small or insignificant effects of exchange rate fluctuations on export volumes. This lack of association between real quantities--such as export volumes--and the exchange rate is the so-called "exchange rate disconnect" puzzle. Studies using microeconomic or firm-level data, however, have been more successful in finding relationships between export volumes and exchange rates. In their paper, Dekle, Jeong, and Ryoo attempt reconciliation between the macroeconomic, aggregate evidence and the microeconomic, firm-level evidence. They estimate their consistently aggregated, microeconomic model of exports and show that an exchange rate appreciation properly reduces export volumes.

Liu, Ondrich, and Lovely examine the provincial location choices of firms investing in China during 1993-6. First, using data on 2,884 equity joint venture (EJV) projects in manufacturing, they find strong support for the attractiveness of low wages. Their estimates indicate a downward bias of 50-120 percent in the wage coefficients estimated with standard techniques. Second, they find that low-wage locations are more attractive to unskilled-labor-intensive plants than to skill-intensive plants, although this effect is significant only for investors from OECD countries. The attraction of low wages for investors from ethnically-Chinese-economies, in contrast, is sensitive to the intensity of competition from other low-income countries for exports to the United States. This study provides the first estimates of how skill intensity and competition for export markets influence the probability a multinational firm will choose a given location.

Qian uses plausibly exogenous increases in sex-specific agricultural income caused by post-Mao reforms in China to estimate the effects of total income and sex-specific incomes on the sex ratios of surviving children. Her results show that increasing...