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Franco Modigliani

( American economist, Nobel Memorial Award in Economics, 1985)

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Biography Franco Modigliani
genus. June 18, 1918
American economist Franco Modigliani was born in Rome, Italy. He was the son of Enrico Modigliani, pediatrician, a Jew, and Olga (nee Flashel) Modigliani, a specialist in child development. After graduating from the Lyceum Visconti, M. entered the Medical Faculty of the University of Rome. Convinced that he could not endure the sight of blood, he went on to study law and received a doctorate in law in 1939. at the University of Rome. In an effort to understand the causes of the Great Depression, he also studied economics. His passion for the economy deepened after the receipt in 1939. first prize at the national competition of university students on the effectiveness of price controls.
Since the anti-fascist beliefs M. and his Jewish origins made it impossible for him to find in Italy, in 1939. He fled first to France and then in the United States. The following year he resumed his studies economies in New York at the New School for Social Research, then the leading center of research for emigrants. Working under the guidance of Jacob Marshak, he joined the long Keynesian macroeconomics and the use of formalized models in economic analysis.
Complete their studies in graduate school at the New School in 1942, M. At the same time taught at the Women's College of New Jersey, and in 1942 ... 1944. an assistant in the department of economics and statistics at Bard College at Columbia University. In 1943 ... 1944. He also lectured at the New School. In 1944, Mr.. He received his doctorate in social sciences, and since 1946,. became an assistant professor of mathematical economics and econometrics at the New School. This position he retained for two years. From 1945 to 1948. He also worked as a researcher and chief statistician at the Institute of the world's problems in New York.
Moving in 1949. to work at the University of Chicago, M. Coles came into the Commission of Economic Research as a researcher, consultant and remained there until 1954. At the same time he was first an Associate Professor of Economics (1949), and then complete (valid) Professor of Economics (1950 ... 1952) at the University of Illinois.
Between 1952 and 1960. M. was a professor of economics and industrial management at Carnegie Institute of Technology and a visiting professor at Harvard University (1957 - 1958). In 1960, Mr.. He became a professor at Northwestern University, but two years later left this position, enrolling in the Massachusetts Institute of Technology (MIT) for the post of Professor of Economics and Finance. In 1970. He was appointed the institute professor at MIT.
Throughout its activities M. acted as the leader of the direction, . seeks to integrate the Keynesian political economy in the neoclassical economic theory and monetary analysis, . reconciling the Keynesian macroeconomic theory with the theories, . according to which individual persons are acting effectively to maximize their welfare,
. In his early works M. explained the complexity of periods of economic depression and high unemployment, resorting to Keynesian concept of 'rigidity of wages' (hypothesis, which asserts that wages are not immediately adapt to changes in demand).
. In his article, 1944
. "Liquidity Preference and the Theory of Interest and Money '(" Liquidity Preference and the Theory of Interest and Money "), he showed, . what, . If wages are not adjusting, . immediately to changes in market conditions, . labor of the workers may be overrated in comparison to the situation of a weakened economy, . which leads to unemployment,
. Thus, he submitted a monetary problem of financial markets to unemployment and the fall of real economic activity.
In the long debate between monetarists and Keynesians M. never irreconcilable. He clearly saw the role of money, but in contrast to Milton Friedman, he simultaneously sought the knowledge of the impact that money has on economic activity through various mechanisms of financial markets. He worked on these issues during the construction of the financial section of an econometric model at MIT and therefore could not accept the reduced form fridmenovskogo simplified method. Nevertheless, in general, M. close to the modern version of Keynesian theory and policy conclusions. He expressed his credo in the 60-ies. these words: 'If a private market economy needs to stabilize, it should and can be stabilized. "
. In an effort to improve the 'consumers' function' Keynes and finding a rational basis for macroeconomic behavior in the actions of individuals, M
. was the first who described the creation of models 'life cycle', which should explain the laws governing the personal savings. He argued that 'the main motive (for savings) is to be able to maintain a sufficiently constant living standard'.
. Savings, . he said, . reflect the difference between the stable desired level of consumption and changing income, . which during the working life has been systematically increased from the original low-to maximum, . then decreased to very low when the output of his retirement,
. Referring to the human desire to maintain a constant level of consumption, despite fluctuations in their income, M. derived his formula: 'save the young, old wasted'.
For the first time his model of savings, based on the life cycle, M. published in 1949. article 'Fluctuations savings rate - income' ( "Fluctuations in the Saving - Income Ratio") and then it deepened in 1954. article 'Analysis of utility and consumer functions' ( "Utility Analysis and the Consumption Function"), which he wrote together with his student Richard Brumberg.
. The model he developed further in a series of publications, . written with Albert Aldo, . among which are: 'Testing the hypothesis of savings over the life cycle' ( "Tests of the Life Cycle Hypothesis of Savings", . 1957), . 'Permanent income hypothesis and conduct during the life cycle on savings' ( "The Permanent Income and the Life Cycle Hypothesis of Saving Behavior", . 1960) and 'hypothesis of savings in the life cycle: the aggregate of its application and testing' ( "The Life Cycle Hypothesis of Saving: Aggregate Implications and Tests", . 1963).,
. In these publications M
. shows that the savings rate is closely linked to population growth, because the rate affects the ratio of young adults and retirees and the population in most working-age adults. It also shows, . that high rates of economic growth and increase the savings rate, . because they increase the income of employees (as income from these savings are carried out) without increasing the consumption of people, . retired, . because their costs represent a lower level of income in the past period of time,
. M. exercises discoveries, . particularly, . in the 'hypothesis of savings in the life cycle and cross-country differences in the coefficients of savings' ( "The Life Cycle Hypothesis of Saving and Intercountry Differences in the Saving Ratio"), . published in 1970, . to explain the changes in international standards of savings,
. The theory of savings, considering them in the long term, it is also used to test alternative schemes.
The interest shown by M. to monetary theory and financial markets, led him to a new work related to the so-called theorem of Modigliani - Miller. This theorem, developed by M. with Merton Miller, . who was then working at Carnegie - Mellon, . was outlined in their work 'cost of capital, . corporate finance and investment theory ' "The Cost of Capital, . Corporation Finance, . and the Theory of Investment "), . published in 1958,
. In it they proceeded from the assumption that a rational investor takes into account only the future profitability of the company, not the size and structure of its debt.
. This theory puts forward new ideas in the overall cost of capital and revising the model of investment decisions individual firms so that they become distinct from its solutions in the financial field
. First, this theorem is rejected by many. Now it is considered self-evident and is one of the cornerstones of the modern theory of corporate financing. M. and Miller showed that the individual investor should always keep in its portfolio different securities to balance the possible risks and expected revenue from companies of different levels and reliability. They have developed the methodology for calculating the expected future income from securities now become the norm. However, the simplest version of the theorem of Modigliani - Miller is based on several simplifying assumptions, such as the existence of perfect markets, securities, and these assumptions need to remember.
Since 40-ies. M. was one of the leading figures in the development of macroeconomic theory and economic policy. In his theoretical work he showed the highest examples of abstraction, applying economic theory of maximization of welfare to macroeconomic behavior. This work has contributed to its spread in the late 60's and 70-ies. Schools 'rational expectations' in the theory of macroeconomics. Some attribute the emergence of this approach to the article 'Opportunities anticipate developments in the social sphere' ( "The Predictability of Social Evants"), written in 1954. M. with Emily Grundberg.
Subsequently, the academic economics that accepted the concept of rational expectations, went into the development of the argument M. Grundberg and much farther than intended, these authors. They argued that government policy can never improve the functioning of the economy, because rational thinking and acting people will always anticipate government actions and to take measures to neutralize them. But he M. treated these allegations ostrokriticheski and refused to accede to similar conclusions. In his applied work, written with Lawrence Klein and others and explained the Keynesian econometric model MIT-Pennsylvania, as well as in its regular economic reviews in the Italian newspaper 'Corriere dellasera' M. argued that the persistent stiffness to adapt prices and expectations limits the value of rational expectations models when they are applied to the interpretation of macroeconomic events.
M. received the Nobel Memorial Award in Economics for 1985. 'for the analysis of human behavior in regard to savings', ie. for the work of major practical importance in the establishment of national pension programs, 'and for the work on the financial structure of companies regard to the assessment of its shares by investors'.
In 1939, Mr.. M. married Serena Calabi. They have two sons. M. - Small, stocky man with a shock of gray hair - lives in Belmont, Mass.. During the holidays, he engaged in tennis, skiing, sailing and swimming. He is a naturalized American citizen.
In addition to the Nobel Prize, M. received the Badge of Honor Graham and Dodd Federation financiers analysts (1974.1979) and James Killian Jr. Award for achievement, awarded by a member of staff MIT (1985). He is a member of the American Economic Association. American Finance Association, Econometric Society and the Italian Economic Society. He was awarded an honorary degree from the universities of Chicago and the Catholic of Louvain, University Institute of Bergamo and Bard College. Since 1966. he is scientific consultant for the Board of Governors of the Federal Reserve System, and since 1971 - senior adviser to the Brookings Committee on economic activity. He holds several other important professional positions

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