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Income Differences, Productivity, and Input-Output Networks American Economic Journal: Macroeconomics (IF 6.718) Pub Date : 2022-04-01 Harald Fadinger,Christian Ghiglino,Mariya Teteryatnikova
We study the importance of input-output (IO) linkages and sectoral productivity (TFP) in determining cross-country income differences. We find that while highly connected sectors are more productive than the typical sector in poor countries, the opposite is true in rich ones. To assess the quantitative role of linkages and sectoral TFP differences in cross-country income differences, we decompose cross-country
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Skewed Idiosyncratic Income Risk over the Business Cycle: Sources and Insurance American Economic Journal: Macroeconomics (IF 6.718) Pub Date : 2022-04-01 Christopher Busch,David Domeij,Fatih Guvenen,Rocio Madera
We provide new evidence on business cycle fluctuations in skewed labor income risk in the United States, Germany, Sweden, and France. We document four results. First, in all countries, the skewness of individual income growth is strongly procyclical, whereas its variance is flat and acyclical. Second, this result also holds for continuously employed, full-time workers, indicating that the hours margin
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A Theory of Structural Change That Can Fit the Data American Economic Journal: Macroeconomics (IF 6.718) Pub Date : 2022-04-01 Simon Alder,Timo Boppart,Andreas Müller
We study structural change in the historical consumption expenditure of the United States, the United Kingdom, Canada, and Australia over more than a century. We characterize the most general class of preferences in a time-additive setting that admits aggregation of the saving decision and allows us to identify preference parameters from aggregate data. We parameterize and estimate such intertemporally
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Asset Price Booms and Macroeconomic Policy: A Risk-Shifting Approach American Economic Journal: Macroeconomics (IF 6.718) Pub Date : 2022-04-01 Franklin Allen,Gadi Barlevy,Douglas Gale
This paper uses a risk-shifting model to analyze policy responses to asset price booms. We show risk shifting leads to inefficient asset and credit booms in which asset prices can exceed fundamentals. However, the inefficiencies associated with risk shifting arise independently of whether the asset is a bubble. Given evidence of risk shifting, policymakers may not need to determine if assets are bubbles
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Agricultural Diversity, Structural Change, and Long-Run Development: Evidence from the United States American Economic Journal: Macroeconomics (IF 6.718) Pub Date : 2022-04-01 Martin Fiszbein
This paper examines the role of agricultural diversity in the process of development. Using data from US counties and exploiting climate-induced variation in agricultural production patterns, I show that mid-nineteenth-century agricultural diversity had positive long-run effects on population density and income per capita. During the Second Industrial Revolution, agricultural diversity fostered industrialization
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Does Consumption Respond to Transitory Shocks? Reconciling Natural Experiments and Semistructural Methods American Economic Journal: Macroeconomics (IF 6.718) Pub Date : 2022-04-01 Jeanne Commault
Studies based on natural experiments find that consumption responds strongly and significantly to a transitory variation in income, while semistructural estimations find no pass-through of transitory shocks to consumption. I develop a more robust semistructural estimator that relaxes the assumption that log consumption is a random walk. The robust pass-through estimate is significant and large, implying
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Credit Spreads, Financial Crises, and Macroprudential Policy American Economic Journal: Macroeconomics (IF 6.718) Pub Date : 2022-04-01 Ozge Akinci,Albert Queralto
Credit spreads display occasional spikes and are more strongly countercyclical in times of elevated financial stress. Financial crises are extreme cases of this nonlinear behavior, featuring skyrocketing credit spreads, sharp losses in bank equity, and deep recessions. We develop and estimate a macroeconomic model with a banking sector in which banks’ leverage constraints are occasionally binding and
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Entry Barriers, Idiosyncratic Distortions, and the Firm Size Distribution American Economic Journal: Macroeconomics (IF 6.718) Pub Date : 2022-04-01 Roberto N. Fattal-Jaef
This paper studies the interaction between barriers to firm entry and distortions to allocative efficiency in a standard model of firm dynamics. We derive a strategy to infer entry barriers based on cross-country differences in the firm size distribution and idiosyncratic distortions. The inferred barriers resemble regulation-based indicators in advanced economies but are substantially higher in middle-
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High Marginal Tax Rates on the Top 1 Percent? Lessons from a Life-Cycle Model with Idiosyncratic Income Risk American Economic Journal: Macroeconomics (IF 6.718) Pub Date : 2022-04-01 Fabian Kindermann,Dirk Krueger
This paper argues that high marginal labor income tax rates on top earners are an effective tool for social insurance even when households have high labor supply elasticity, households make dynamic savings decisions, and policies have general equilibrium effects. We construct a large-scale overlapping generations model with uninsurable labor productivity risk, show that it has a realistic wealth distribution
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Sectoral Heterogeneity and Monetary Policy American Economic Journal: Macroeconomics (IF 6.718) Pub Date : 2022-04-01 Jonathan Kreamer
Since sectors differ in their sensitivity to interest rates, monetary policy produces inefficient sectoral fluctuations. In a model with sectoral heterogeneity, I show that policymakers should weight sectors proportionally to their interest elasticities, account for dynamic demand effects from durable goods, and systematically utilize forward guidance to reduce sectoral volatility. A calibrated model
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Optimal Currency Areas with Labor Market Frictions American Economic Journal: Macroeconomics (IF 6.718) Pub Date : 2022-04-01 Rohan Kekre
I study efficiency and optimal monetary policy in a two-country monetary union with frictional labor markets. With heterogeneity in labor market frictions, the constrained efficient allocation generically cannot be achieved even if productivity shocks affecting each country are the same. The second-best optimal policy targets smaller inflation and output gaps in the more sclerotic labor market. A quantitative
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Capital Controls for Crisis Management Policy in a Global Economy American Economic Journal: Macroeconomics (IF 6.718) Pub Date : 2021-12-30 J. Scott Davis, Michael B. Devereux
Capital controls may be justified as a policy to combat a financial crisis. But for large economies, capital controls may have substantial spillovers to the rest of the world. We investigate the case for capital controls in a large open economy, when domestic financial constraints may bind during a crisis. When the crisis country is indebted, it must trade off the desire to tax inflows to improve the
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Slow Debt, Deep Recessions American Economic Journal: Macroeconomics (IF 6.718) Pub Date : 2021-12-30 Joachim Jungherr, Immo Schott
Business credit lags GDP growth by about one year. This contributes to high leverage during recessions and slow deleveraging. We show that a model in which firms use risky long-term debt replicates this slow adjustment of firm debt. In the model, slow-moving debt has important effects for real activity. High levels of firm debt issued during expansions are only gradually reduced during recessions.
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Declining Worker Turnover: The Role of Short-Duration Employment Spells American Economic Journal: Macroeconomics (IF 6.718) Pub Date : 2021-12-30 Michael J. Pries, Richard Rogerson
Using the Quarterly Workforce Indicators database, we document that a significant amount of the decline in labor market turnover during the last two decades is accounted for by the decline in employment spells that last just one or two quarters. This phenomenon is pervasive: short-term employment spells have declined across industries, firm size categories, demographic groups, and geographic regions
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Collateral Shocks American Economic Journal: Macroeconomics (IF 6.718) Pub Date : 2021-12-30 Yvan Becard, David Gauthier
We estimate a macroeconomic model on US data where banks lend to households and businesses and simultaneously adjust lending requirements on the two types of loans. We find that the collateral shock, a change in the ability of the financial sector to redeploy collateral, is the most important force driving the business cycle. Hit by this unique disturbance, our model quantitatively replicates the joint
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The Cyclical Behavior of Unemployment and Wages under Information Frictions American Economic Journal: Macroeconomics (IF 6.718) Pub Date : 2021-12-30 Camilo Morales-Jiménez
I propose a new mechanism for sluggish wages based on workers’ noisy information about the state of the economy. Wages do not respond immediately to a positive aggregate shock because workers do not (yet) have enough information to demand higher wages. The model is robust to two major criticisms of existing theories of sluggish wages and volatile unemployment, namely, that wages are flexible for new
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Knowledge Diffusion, Trade, and Innovation across Countries and Sectors American Economic Journal: Macroeconomics (IF 6.718) Pub Date : 2021-12-30 Jie Cai, Nan Li, Ana Maria Santacreu
This paper provides a unified framework for quantifying the cross-country and cross-sector interactions among trade, innovation, and knowledge diffusion. This framework is used to study the effect of trade liberalization in an endogenous growth model in which comparative advantage and the stock of knowledge are determined by innovation and diffusion. The model is calibrated to match observed cross-country
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On the Macroeconomic Consequences of Over-Optimism American Economic Journal: Macroeconomics (IF 6.718) Pub Date : 2021-12-30 Paul Beaudry, Tim Willems
Analyzing International Monetary Fund (IMF) data, we find that overly optimistic growth expectations for a country induce economic contractions a few years later. To isolate the causal effect, we take an instrumental variable approach—exploiting randomness in the country allocation of IMF mission chiefs. We first document that IMF mission chiefs differ in their individual degrees of forecast optimism
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Offshoring, Automation, Low-Skilled Immigration, and Labor Market Polarization American Economic Journal: Macroeconomics (IF 6.718) Pub Date : 2021-12-30 Federico S. Mandelman, Andrei Zlate
We show that the observed polarization of employment toward the high- and low-skill occupations disappears when only native workers are considered. Instead, low-skilled immigration explains employment growth at the low tail of the skill distribution. Moreover, while employment rose, wages remained subdued in low-skill occupations. A data-disciplined structural model accounts for this evidence: Offshoring
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How Sticky Wages in Existing Jobs Can Affect Hiring American Economic Journal: Macroeconomics (IF 6.718) Pub Date : 2021-12-30 Mark Bils, Yongsung Chang, Sun-Bin Kim
We consider a matching model of employment with flexible wages for new hires but sticky wages within matches. Unlike most models of sticky wages, we allow effort to respond if wages are too high or too low. In the Mortensen-Pissarides model, employment is not affected by wage stickiness in existing matches. But it is in our model. If wages of matched workers are stuck too high, firms require more effort
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The Rise of the Machines: Automation, Horizontal Innovation, and Income Inequality American Economic Journal: Macroeconomics (IF 6.718) Pub Date : 2021-12-30 David Hémous, Morten Olsen
We build an endogenous growth model with automation (the replacement of low-skill workers with machines) and horizontal innovation (the creation of new products). Over time, the share of automation innovations endogenously increases through an increase in low-skill wages, leading to an increase in the skill premium and a decline in the labor share. We calibrate the model to the US economy and show
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The Rise and Fall of India’s Relative Investment Price: A Tale of Policy Error and Reform American Economic Journal: Macroeconomics (IF 6.718) Pub Date : 2021-12-30 Alok Johri, Md Mahbubur Rahman
India’s relative price of investment rose 44 percent from 1981 to 1991 and fell 26 percent from 1991 to 2006. We build a simple DGE model, calibrated to Indian data, in order to explore the impact of capital import substitution policies and their reform post-1991 in accounting for this rise and fall. Our model delivers a 23 percent rise before reform and a 31 percent fall thereafter. GDP per effective
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Endogenous Separations, Wage Rigidities, and Unemployment Volatility American Economic Journal: Macroeconomics (IF 6.718) Pub Date : 2021-12-30 Mikael Carlsson, Andreas Westermark
We show that in microdata, as well as in a search and matching model with flexible wages for new hires, wage rigidities of incumbent workers have substantial effects on separations and unemployment volatility. Allowing for an empirically relevant degree of wage rigidities for incumbent workers drives unemployment volatility as well as the volatility of vacancies and tightness to that in the data. Thus
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Uncertainty and Business Cycles: Exogenous Impulse or Endogenous Response? American Economic Journal: Macroeconomics (IF 6.718) Pub Date : 2021-09-28 Sydney C. Ludvigson, Sai Ma, Serena Ng
Uncertainty about the future rises in recessions. But is uncertainty a source of business cycles or an endogenous response to them, and does the type of uncertainty matter? We propose a novel SVAR identification strategy to address these questions via inequality constraints on the structural shocks. We find that sharply higher macroeconomic uncertainty in recessions is often an endogenous response
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The Young, the Old, and the Government: Demographics and Fiscal Multipliers American Economic Journal: Macroeconomics (IF 6.718) Pub Date : 2021-09-28 Henrique S. Basso, Omar Rachedi
We document that government spending multipliers depend on the population age structure. Using the variation in military spending and birth rates across US states, we show that the local fiscal multiplier is 1.5 and increases with the population share of young people, implying multipliers of 1.1–1.9 in the interquartile range. A parsimonious life cycle open economy New Keynesian model with credit market
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Money Mining and Price Dynamics American Economic Journal: Macroeconomics (IF 6.718) Pub Date : 2021-09-28 Michael Choi, Guillaume Rocheteau
We develop a random-matching model to study the price dynamics of monies produced privately according to a time-consuming mining technology. For our leading example, there exists a unique equilibrium where the value of money increases over time and reaches a steady state. There is also a continuum of perfect-foresight equilibria where the price of money inflates and bursts gradually over time. Initially
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Long-Term Finance and Investment with Frictional Asset Markets American Economic Journal: Macroeconomics (IF 6.718) Pub Date : 2021-09-28 Julian Kozlowski
Trading frictions in financial markets affect more long-term than short-term bonds, generating an upward-sloping yield curve. Long-term financing is more expensive in economies with higher trading frictions so firms choose to borrow and invest in shorter horizons and lower productivity projects. The theory guides a new identification of the slope of liquidity spread in the data. We measure and calibrate
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Micro-Level Misallocation and Selection American Economic Journal: Macroeconomics (IF 6.718) Pub Date : 2021-09-28 Mu-Jeung Yang
How large are the aggregate productivity losses from the misallocation of resources across firms? With endogenous selection, microfrictions can induce extensive margin misallocation among firms: too many unproductive firms are active (Zombies), and too many productive firms are inactive (Shadows). Therefore, the same set of measured distortions potentially induces much larger aggregate productivity
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Why Are Banks Exposed to Monetary Policy? American Economic Journal: Macroeconomics (IF 6.718) Pub Date : 2021-09-28 Sebastian Di Tella, Pablo Kurlat
We propose a model of banks’ exposure to movements in interest rates and their role in the transmission of monetary shocks. Since bank deposits provide liquidity, higher interest rates allow banks to earn larger spreads on deposits. Therefore, if risk aversion is higher than one, banks’ optimal dynamic hedging strategy is to take losses when interest rates rise. This risk exposure can be achieved by
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Financial Risk Capacity American Economic Journal: Macroeconomics (IF 6.718) Pub Date : 2021-09-28 Saki Bigio, Adrien d’Avernas
Financial crises are particularly severe and lengthy when banks fail to recapitalize after bearing large losses. We present a model that explains the slow recovery of bank capital and economic activity. Banks provide intermediation in markets with information asymmetries. Large equity losses force banks to tighten intermediation, which exacerbates adverse selection. Adverse selection lowers bank profit
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MPC Heterogeneity and Household Balance Sheets American Economic Journal: Macroeconomics (IF 6.718) Pub Date : 2021-09-28 Andreas Fagereng, Martin B. Holm, Gisle J. Natvik
We use sizable lottery prizes in Norwegian administrative panel data to explore how transitory income shocks are spent and saved over time and how households’ marginal propensities to consume (MPCs) vary with household characteristics and shock size. We find that spending peaks in the year of winning and gradually reverts to normal within five years. Controlling for all items on households’ balance
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Consumption Inequality and the Frequency of Purchases American Economic Journal: Macroeconomics (IF 6.718) Pub Date : 2021-09-28 Olivier Coibion, Yuriy Gorodnichenko, Dmitri Koustas
We document a decline in the frequency of shopping trips in the United States since 1980 and consider its implications for the measurement of consumption inequality. A decline in shopping frequency as households stock up on storable goods (i.e., inventory behavior) will lead to a rise in expenditure inequality when the latter is measured at high frequency, even when underlying consumption inequality
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Household Search and the Marital Wage Premium American Economic Journal: Macroeconomics (IF 6.718) Pub Date : 2021-09-28 Laura Pilossoph, Shu Lin Wee
We develop a model where selection into marriage and household search generate a marital wage premium. Beyond selection, married individuals earn higher wages for two reasons. First, income pooling within a joint household raises risk-averse individuals’ reservation wages. Second, married individuals climb the job ladder faster, as they internalize that higher wages increase their partner’s selectivity
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The Extensive Margin of Exporting Products: A Firm-Level Analysis American Economic Journal: Macroeconomics (IF 6.718) Pub Date : 2021-09-28 Costas Arkolakis, Sharat Ganapati, Marc-Andreas Muendler
To quantify trade frictions, we examine multiproduct exporters. We build a flexible general-equilibrium model and estimate market entry costs using Brazilian firm-product-destination data under rich demand and market access cost shocks. Our estimates show that additional products farther from a firm’s core competency come at higher production costs, but there are substantive economies of scope in market
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Fewer but Better: Sudden Stops, Firm Entry, and Financial Selection American Economic Journal: Macroeconomics (IF 6.718) Pub Date : 2021-06-29 Sina T. Ates, Felipe E. Saffie
We develop a tractable quantitative framework to study the productivity effects of financial crises. The model features endogenous productivity, heterogeneous firm dynamics, and aggregate risk. Selection of the most promising ideas gives rise to a trade-off between mass (quantity) and composition (quality) in the entrant cohort. Chilean plant-level data from the sudden stop triggered by the Russian
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Higher Taxes at the Top: The Role of Entrepreneurs American Economic Journal: Macroeconomics (IF 6.718) Pub Date : 2021-06-29 Bettina Brüggemann
This paper computes optimal top marginal tax rates in Bewley-Huggett-Aiyagari–type economies that include entrepreneurs. Consistent with the data, entrepreneurs are overrepresented at the top of the income distribution and are thus disproportionately affected by an increase in the top marginal income tax rate. The top marginal tax rate that maximizes welfare is 60 percent. While average welfare gains
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Tight Money-Tight Credit: Coordination Failure in the Conduct of Monetary and Financial Policies American Economic Journal: Macroeconomics (IF 6.718) Pub Date : 2021-06-29 Julio A. Carrillo, Enrique G. Mendoza, Victoria Nuguer, Jessica Roldán-Peña
Violations of Tinbergen’s rule and strategic interaction undermine stabilization policies in a New Keynesian model with the Bernanke-Gertler accelerator. Welfare costs of risk shocks are large because of efficiency losses and income effects of costly monitoring, but they are much larger under a simple Taylor rule (STR) or a Taylor rule augmented with credit spreads (ATR) than with a Taylor rule and
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Comparative Advantage in Innovation and Production American Economic Journal: Macroeconomics (IF 6.718) Pub Date : 2021-06-29 Mariano Somale
This paper develops a dynamic model of innovation and international trade in which agents can direct their research efforts to specific goods in the economy. Trade affects the direction of innovation through its impact on the expected market size for an invention, leading to a two-way relationship between trade and technology absent in standard quantitative Ricardian models. Following a theory-consistent
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Trade in Commodities and Business Cycle Volatility American Economic Journal: Macroeconomics (IF 6.718) Pub Date : 2021-06-29 David Kohn, Fernando Leibovici, Håkon Tretvoll
This paper studies the role of differences in the patterns of production and international trade on the business cycle volatility of emerging and developed economies. We study a multisector small open economy in which firms produce and trade commodities and manufactures. We estimate the model to match key cross-sectional and time-series differences across countries. Emerging economies run trade surpluses
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Advertising, Innovation, and Economic Growth American Economic Journal: Macroeconomics (IF 6.718) Pub Date : 2021-06-29 Laurent Cavenaile, Pau Roldan-Blanco
This paper analyzes the implications of advertising for firm dynamics and economic growth through its interaction with R&D. We develop a model of endogenous growth with firm heterogeneity that incorporates advertising decisions and calibrate it to match several empirical regularities across firm size. Our model provides microfoundations for the empirically observed negative relationship between both
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The Transmission of Monetary Policy Shocks American Economic Journal: Macroeconomics (IF 6.718) Pub Date : 2021-06-29 Silvia Miranda-Agrippino, Giovanni Ricco
Commonly used instruments for the identification of monetary policy disturbances are likely to combine the true policy shock with information about the state of the economy due to the information disclosed through the policy action. We show that this signaling effect of monetary policy can give rise to the empirical puzzles reported in the literature, and propose a new high-frequency instrument for
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Macro and Micro Dynamics of Productivity: From Devilish Details to Insights American Economic Journal: Macroeconomics (IF 6.718) Pub Date : 2021-06-29 G. Jacob Blackwood, Lucia S. Foster, Cheryl A. Grim, John Haltiwanger, Zoltan Wolf
Firm-level, revenue-based productivity measures are ubiquitous in studies of firm dynamics and aggregate outcomes. One common measure is increasingly interpreted as reflecting “distortions” since in distortions’ absence, equalization of marginal revenue products should yield no dispersion in this measure. Another common but distinct measure is the residual of the firm-level revenue function, which
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Optimal Inflation Target in an Economy with Menu Costs and a Zero Lower Bound American Economic Journal: Macroeconomics (IF 6.718) Pub Date : 2021-06-29 Andrés Blanco
I study the optimal inflation target in a quantitative menu cost model with a zero lower bound on interest rates. I find that the optimal inflation target is 3.5 percent, which is higher than in models commonly used for monetary policy analysis. Key to this result is that inflation has a small effect on resource misallocation when the model features firm-level shocks, which are necessary to match the
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Shopping for Lower Sales Tax Rates American Economic Journal: Macroeconomics (IF 6.718) Pub Date : 2021-06-29 Scott R. Baker, Stephanie Johnson, Lorenz Kueng
Using comprehensive high-frequency state and local sales tax data, we show that shopping behavior responds strongly to changes in sales tax rates. Even though sales taxes are not observed in posted prices and have a wide range of rates and exemptions, consumers adjust in many dimensions. They stock up on storable goods before taxes rise and increase online and cross-border shopping in both the short
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Evaluating the Economic Cost of Coastal Flooding American Economic Journal: Macroeconomics (IF 6.718) Pub Date : 2021-03-30 Klaus Desmet, Robert E. Kopp, Scott A. Kulp, Dávid Krisztián Nagy, Michael Oppenheimer, Esteban Rossi-Hansberg, Benjamin H. Strauss
Sea level rise will cause spatial shifts in economic activity over the next 200 years. Using a spatially disaggregated, dynamic model of the world economy, this paper estimates the consequences of probabilistic projections of local sea level changes. Under an intermediate scenario of greenhouse gas emissions, permanent flooding is projected to reduce global real GDP by 0.19 percent in present value
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Sovereign Debt Restructurings American Economic Journal: Macroeconomics (IF 6.718) Pub Date : 2021-03-30 Maximiliano Dvorkin, Juan M. Sánchez, Horacio Sapriza, Emircan Yurdagul
Sovereign debt crises involve debt restructurings characterized by a mix of face value haircuts and maturity extensions. The prevalence of maturity extensions has been hard to reconcile with economic theory. We develop a model of endogenous debt restructuring that captures key facts of sovereign debt and restructuring episodes. While debt dilution pushes for negative maturity extensions, three factors
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History Dependence in the Housing Market American Economic Journal: Macroeconomics (IF 6.718) Pub Date : 2021-03-30 Philippe Bracke, Silvana Tenreyro
Using data on the universe of housing transactions in England and Wales over a 20-year period, we document that sale prices and selling propensities are affected by house prices prevailing in the period in which properties were previously bought. Using administrative data on mortgages, we show that cognitive frictions explain most of the history dependence in sale prices, whereas credit frictions are
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The Trade-Comovement Puzzle American Economic Journal: Macroeconomics (IF 6.718) Pub Date : 2021-03-30 Lukasz A. Drozd, Sergey Kolbin, Jaromir B. Nosal
Standard international transmission mechanism of productivity shocks predicts a weak endogenous linkage between trade and business cycle synchronization: a problem known as the trade-comovement puzzle. We provide the foundational analysis of the puzzle, pointing to three natural candidate resolutions: (i) financial market frictions, (ii) Greenwood-Hercowitz-Huffman preferences, and (iii) dynamic trade
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Oil, Equities, and the Zero Lower Bound American Economic Journal: Macroeconomics (IF 6.718) Pub Date : 2021-03-30 Deepa D. Datta, Benjamin K. Johannsen, Hannah Kwon, Robert J. Vigfusson
From late 2008 to 2014, oil and equity returns were more positively correlated than in other periods. In addition, we show that both oil and equity returns became more responsive to macroeconomic news. We provide empirical evidence that these changes resulted from the zero lower bound (ZLB) on nominal interest rates, consistent with the theoretical predictions of a model that includes the ZLB. Although
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Monetary Policy and Inequality under Labor Market Frictions and Capital-Skill Complementarity American Economic Journal: Macroeconomics (IF 6.718) Pub Date : 2021-03-30 Juan J. Dolado, Gergő Motyovszki, Evi Pappa
We provide a new channel through which monetary policy has distributional consequences at business cycle frequencies. We show that an unexpected monetary easing increases labor income inequality between high-skilled and less-skilled workers. To rationalize these findings, we build a New Keynesian DSGE model with asymmetric search-and-matching (SAM) frictions and capital-skill complementarity (CSC)
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Monetary Policy and Bubbles in a New Keynesian Model with Overlapping Generations American Economic Journal: Macroeconomics (IF 6.718) Pub Date : 2021-03-30 Jordi Galí
I analyze an extension of the New Keynesian model that features overlapping generations of finitely lived agents and (stochastic) transitions to inactivity. In contrast with the standard model, the proposed framework allows for the existence of rational expectations equilibria with asset price bubbles. I study the conditions under which bubble-driven fluctuations may emerge and the type of monetary
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The Choice Channel of Financial Innovation American Economic Journal: Macroeconomics (IF 6.718) Pub Date : 2021-03-30 Felipe S. Iachan, Plamen T. Nenov, Alp Simsek
Financial innovation in recent decades has expanded portfolio choice. We investigate how greater choice affects investors’ savings and asset returns. We establish a choice channel by which greater portfolio choice increases investors’ savings—by enabling them to earn the aggregate risk premium or take speculative positions. In equilibrium, portfolio customization (access to risky assets beyond the
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Transmission of Monetary Policy with Heterogeneity in Household Portfolios American Economic Journal: Macroeconomics (IF 6.718) Pub Date : 2021-03-30 Ralph Luetticke
This paper assesses the importance of heterogeneity in household portfolios for the transmission of monetary policy in a New Keynesian business cycle model with uninsurable income risk and assets with different liquidity. In this environment, monetary transmission works through investment, but redistribution lowers the elasticity of investment via two channels: (i) heterogeneity in marginal propensities
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Risk, the College Premium, and Aggregate Human Capital Investment American Economic Journal: Macroeconomics (IF 6.718) Pub Date : 2021-03-30 Kartik Athreya, Janice Eberly
Despite increases in the college earnings premium to persistently high levels, investment in college education remains low. We can understand this apparent puzzle by considering the risk of attending college and, in particular, the possibility of failing to graduate. Students with a reasonable probability of completing college already enroll, and for those who do not enroll, the low chance of completion
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How Do Mortgage Refinances Affect Debt, Default, and Spending? Evidence from HARP American Economic Journal: Macroeconomics (IF 6.718) Pub Date : 2021-03-30 Joshua Abel, Andreas Fuster
We use quasi-random access to the Home Affordable Refinance Program (HARP) to identify the causal effect of refinancing into a lower-rate mortgage on borrower balance sheet outcomes. Refinancing substantially reduces borrower default rates on mortgages and other debt. Refinancing also causes borrowers to expand their use of debt instruments, such as auto loans, home equity lines, and other consumer
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The Productivity J-Curve: How Intangibles Complement General Purpose Technologies American Economic Journal: Macroeconomics (IF 6.718) Pub Date : 2020-12-30 Erik Brynjolfsson, Daniel Rock, Chad Syverson
General purpose technologies (GPTs) like AI enable and require significant complementary investments. These investments are often intangible and poorly measured in national accounts. We develop a model that shows how this can lead to underestimation of productivity growth in a new GPTs early years and, later, when the benefits of intangible investments are harvested, productivity growth overestimation
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Ten Facts on Declining Business Dynamism and Lessons from Endogenous Growth Theory American Economic Journal: Macroeconomics (IF 6.718) Pub Date : 2020-12-30 Ufuk Akcigit, Sina T. Ates
In this paper, we review the literature on declining business dynamism and its implications in the United States and propose a unifying theory to analyze the symptoms and the potential causes of this decline. We first highlight 10 pronounced stylized facts related to declining business dynamism documented in the literature and discuss some of the existing attempts to explain them. We then describe
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Interactions and Coordination between Monetary and Macroprudential Policies American Economic Journal: Macroeconomics (IF 6.718) Pub Date : 2020-12-30 Alejandro Van der Ghote
I study monetary and macroprudential policy intervention in a general equilibrium economy with recurrent boom-bust cycles. forward-looking variables to also react to policy intervention during phases in which the intervention is inactive. Macroprudential policies that contain systemic risk in financial markets during booms, therefore, relax market-based funding constraints during busts, which helps
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Are We Approaching an Economic Singularity? Information Technology and the Future of Economic Growth American Economic Journal: Macroeconomics (IF 6.718) Pub Date : 2020-12-30 William D. Nordhaus
What are the prospects for long-run economic growth? One prominent line of economic thinking is the trend toward stagnation. Stagnationism has a long history in economics, beginning prominently with Malthus and occasionally surfacing in different guises. Prominent themes here are the following: Will economic growth slow and perhaps even reverse under the weight of resource depletion? Will overpopulation
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The Labor Market Impact of Immigration: Job Creation versus Job Competition American Economic Journal: Macroeconomics (IF 6.718) Pub Date : 2020-12-30 Christoph Albert
This paper studies the labor market effects of both documented and undocumented immigration in a search model featuring nonrandom hiring. As immigrants accept lower wages, they are preferably chosen by firms and therefore have higher job finding rates than natives, consistent with evidence found in US data. Immigration leads to the creation of additional jobs but also raises competition for natives