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The paper develops frequency distribution of annual health expense for a variety of family compositions. The basic data resource was a sample of claims for a large group of federal employees in 1977. The primary data were compared in several aspects against three other sources of reference data on expenses by the non-aged population; the comparisons were reassuring. The method of convolution is used to obtain family frequency distributions from the distribution for individual adults and children. This technique is necessary when the claims data do not record family com-position. In consequence, the results may not be nationally representative of households which are relatively large or affected by unemployment. Aside from this special reservation, the experience of the non-elderly federal employee families seems to be a useful resource for policy analysis.

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Much of the recent discussion about the relation between pensions and inflation has emphasized the adverse impact that the un-expected rise in inflation has had on pension recipients and on the performance of pension funds. In contrast, the present paper focuses on the way that pensions are likely to evolve in response to the expectation of continued inflation in the future and to the uncertainty about the rate of inflation. The unfortunate effects that occurred when inflation caught pensioners and pension fund managers by surprise should not be confused with an inability to adjust to future conditions, even uncertain future conditions. As I shall explain, the persistence of a high rate of inflation is likely to increase the share of total saving that goes into private pensions. Since the tax treatment of pension contributions allows individuals to save in this way for retirement on the same terms that they would under a consumption tax,' the existence of the private pension system may be one of a few things that prevents the national saving rate from going even lower in the current inflationary environment.

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This report presents two unrelated, short papers on exchange rate rules and on the real value of the external debt. The paper on exchange rate policy uses the Taylor model of overlapping, long term wage contracts to ask whether accommodating or PPP oriented exchange rate policies tend to stabilize output. In earlier work I had shown that exchange rate indexing, while destabilizing prices enhances the stability of output. The result is qualified hereby showing that the exchange rate not only affects aggregate demand directly but operates also, through the cost of imported intermediates, on the price level. It is shown that unless monetary policy is sufficiently accommodating this latter effect may dominate with the consequence that increased exchange rate indexation reduces output stability .The paper on the real value of external debt poses the question how to integrate external debt holdings in the traditional framework used to evaluate the effects on real income of changes in world prices. It is shown that integrating debt service liabilities in a comprehensive income measure makes real disposable income equal to the value of output less the real value of real interest payments on the external debt. Furthermore, with the CPI being the appropriate deflator for foreign debt, a rise in export prices raises income in proportion to exports while a rise in import prices lowers real income in proportion to Imports. The proper accounting of debt in a comprehensive income framework, noting the intertemporal budget constraints, thus restores the conventional treatment of the income effects of price changes.

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This study examines the determinants of the reservation wage of unemployed persons in the Federal Republic of Germany in 1976. The theoretical section presents the derivation of an optimal reservation wage and shows the source of an ambiguity of some explanatory variables. The data basis are unemployed persons leaving the unemployment register within a given sample week. For a subset of them, we know their reservation wage and a set of personal characteristics. Other variables, such as the wage offer distribution and demand side variables, are obtained by employing other data. Methodological problems, such as as a sample selection bias, are taken into account. As a result, individual characteristics and the wage offer distribution are dominant causes of the reservation wage, but demand side variables and the entitlement to unemployment compensation play minor roles.

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The paper analyzes the problem of short-term adjustment to a fall in the price of competing imports when thee is wage and price rigidity. This is done in terms of a two-sector model which incorporates a domestically producible import good and a semi-tradeable home good. The effect of a fall in import prices on domestic employment, prices and the balance of payments under nominal or real wage rigidity is analyzed in the various market disequilibrium regimes. The possible responses in terms of demand management and exchange rate (or tariff) policy as well as supply management are analyzed. The theory is then applied to the stagflationary environment of the 1970s within a modified framework in which the price of imported raw materials has simultaneously risen. This helps to show how the above adjustment problem crucially depends on the nature of the underlying macroeconomic environment.

Commerce --- Wage-price policy. --- Mathematical models.