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CORPORATE EARNINGS ANNOUNCEMENTS AND ECONOMIC ACTIVITY International Economic Review (IF 1.418) Pub Date : 2024-03-18 Mirela S. Miescu, Haroon Mumtaz
Are corporate earnings (CE) announcements important for economic activity? We address this question using a novel identification method that combines the valuable information from CE announcements with the heteroscedasticity of shocks experienced on these particular days. Our results demonstrate that CE announcements have a significant impact on the macroeconomy, exhibiting dynamics similar to traditional
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UNCERTAINTY, LONG‐RUN, AND MONETARY POLICY RISKS IN A TWO‐COUNTRY MACRO MODEL International Economic Review (IF 1.418) Pub Date : 2024-03-12 Kimberly A. Berg, Nelson C. Mark
We study the currency risk premium and the forward premium bias in a two‐country New Keynesian model with production, no physical capital, and recursive utility. Monetary policy follows an interest rate feedback rule and exogenous total factor productivity (TFP) growth follows a long‐run risk process with stochastic volatility, which we estimate from data. With cross‐country heterogeneity in TFP and
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INFRAMARGINAL TRAVELERS AND TRANSPORTATION POLICY International Economic Review (IF 1.418) Pub Date : 2024-03-11 Jonathan D. Hall
Structural models of traffic congestion, such as the bottleneck model, are used to answer important, policy‐relevant questions. However, existing models typically assume that no travelers are inframarginal regarding when to travel; that is, given equilibrium travel times, no travelers strictly prefer their ex ante departure time to all others. In this article, I address this shortcoming by incorporating
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STATISTICAL DISCRIMINATION AND DURATION DEPENDENCE IN A SEMISTRUCTURAL MODEL International Economic Review (IF 1.418) Pub Date : 2024-03-08 Ismail Baydur, Jianhuan Xu
This article develops a job‐search model with unobserved worker heterogeneity and learning about worker types from unemployment duration. The model features negative duration dependence that stems from unobserved heterogeneity, skill depreciation, and statistical discrimination. We estimate job‐finding rates implied by our model using microlevel data from the Current Population Survey. We find that
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Source Dependence in Effort Provision International Economic Review (IF 1.418) Pub Date : 2024-03-08 Yiting Chen, Songfa Zhong
We examine source dependence in the setting of effort provision. Our first experiment elicits preference over uncertain piece rate schemes to perform a real‐effort task. Our second experiment elicits effort after receiving an uncertain gift. We vary the probability of winning and the familiarity of natural sources of uncertainty. We show that subjects are averse to unfamiliar sources for moderate or
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MONETARY POLICY UNDER NATURAL DISASTER SHOCKS International Economic Review (IF 1.418) Pub Date : 2024-03-07 Alessandro Cantelmo, Nikos Fatouros, Giovanni Melina, Chris Papageorgiou
With climate change increasing the frequency and intensity of natural disasters, what should central banks do in response to these catastrophic events? Looking at IMF reports for 34 disaster‐years, which occurred in 16 disaster‐prone countries from 1999 to 2017, reveals lack of any systematic approach adopted by monetary authorities in response to climate shocks. Using a small‐open‐economy New‐Keynesian
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THE INS AND OUTS OF SELLING HOUSES: UNDERSTANDING HOUSING‐MARKET VOLATILITY International Economic Review (IF 1.418) Pub Date : 2024-03-05 L. Rachel Ngai, Kevin D. Sheedy
This article documents the role of inflows (new listings) and outflows (sales) in explaining the volatility and comovement of housing‐market variables. An “ins versus outs” decomposition shows that both flows are quantitatively important for housing‐market volatility. The correlations between sales, prices, new listings, and time‐to‐sell are stable over time, whereas the signs of their correlations
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ASSET DIVERSIFICATION VERSUS CLIMATE ACTION International Economic Review (IF 1.418) Pub Date : 2024-03-04 Christoph Hambel, Holger Kraft, Frederick van der Ploeg
Asset pricing and climate policy are analyzed in a global economy where consumption goods are produced by both a green and a carbon‐intensive sector. Given that the economy is initially heavily dependent on carbon‐intensive capital, the desire to diversify assets complements the attempt to mitigate economic damages from climate change. In the longer run, however, a trade‐off between diversification
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The International Economic Review 2023 Referees International Economic Review (IF 1.418) Pub Date : 2024-02-22
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DO STRONGER PATENTS LEAD TO FASTER INNOVATION? THE EFFECT OF CLUSTERED SEARCH International Economic Review (IF 1.418) Pub Date : 2024-02-22 Kaustav Das, Nicolas Klein
We analyze a patent race between two firms choosing between an established and an innovative method. The unique Markov‐perfect equilibrium coincides with the cartel solution if and only if firms have the same ability of leveraging a good innovative method or there is no patent protection. Otherwise, equilibrium efforts are clustered too much in the innovative method, as compared to the cartel benchmark
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KILLER ACQUISITIONS AND BEYOND: POLICY EFFECTS ON INNOVATION STRATEGIES International Economic Review (IF 1.418) Pub Date : 2024-02-20 Igor Letina, Armin Schmutzler, Regina Seibel
This article provides a theory of strategic innovation project choice by incumbents and start‐ups which serves as a foundation for the analysis of acquisition policy. We show that, in spite of countervailing incentives on incumbents and entrants, prohibiting acquisitions has a weakly negative overall innovation effect. We provide conditions determining the size of the effect and conditions under which
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FINANCIAL DOLLARIZATION IN EMERGING MARKETS: AN INSURANCE ARRANGEMENT International Economic Review (IF 1.418) Pub Date : 2024-02-15 Husnu C. Dalgic
Households in emerging markets hold significant amounts of dollar deposits whereas firms have significant amount of dollar debt. Motivated by perceived dangers, policymakers consider regulations to limit dollarization. I draw attention to an important benefit of dollarization: it serves as an insurance arrangement in which firms provide income insurance. Emerging market exchange rates tend to depreciate
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THE COST OF TRADE DISRUPTIONS AT DIFFERENT STAGES OF DEVELOPMENT International Economic Review (IF 1.418) Pub Date : 2024-02-14 Juan Carlos Conesa, Matthew J. Delventhal, Pau S. Pujolas, Gajendran Raveendranathan
We study trade disruptions at different stages of development in a two-country, three-sector model of Spain and United Kingdom from 1850 to 2000. The impact of trade disruptions depends on trade openness and the productivity gap between countries. A trade collapse today (more openness, less gap) comparable to the Inter-War Trade Collapse (IWTC) decreases the capital stock threefold (12% instead of
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HIGHER-ORDER INCOME RISK OVER THE BUSINESS CYCLE International Economic Review (IF 1.418) Pub Date : 2023-12-20 Christopher Busch, Alexander Ludwig
We explore the consequences of higher-order risk in a standard incomplete-markets life-cycle model. We calibrate the model using a canonical income process with persistent and transitory risk, extended to feature cyclical shock distributions with left-skewness and excess kurtosis. We estimate this income process for U.S. household data, and find shocks to be highly leptokurtic, with countercyclical
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CAPITAL DEPRECIATION AND INDUSTRY COMPETITION: EVIDENCE AND THEORY International Economic Review (IF 1.418) Pub Date : 2023-12-17 Alicia H. Dang, Roberto M. Samaniego
We argue that the rate of capital depreciation is a determinant of competition. We show that the rate of capital depreciation has a robust positive relationship with market power in U.S. data. Then, we develop a general equilibrium model of industry competition where industries vary in their rate of capital depreciation. In equilibrium, optimal savings decisions imply that rapid depreciation is related
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ENDING WASTEFUL YEAR-END SPENDING: ON OPTIMAL BUDGET RULES IN ORGANIZATIONS International Economic Review (IF 1.418) Pub Date : 2023-12-17 Christoph Siemroth
What can organizations do to minimize wasteful year-end spending? I introduce a two-period model to derive optimal budget roll-over and audit rules. A principal tasks an agent with using a budget to fulfill the organization's spending needs, which are private information of the agent. The agent can misuse funds for private benefit. The optimal rules allow the agent to roll-over a share of the unused
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INTEREST-ONLY MORTGAGES AND CONSUMPTION GROWTH: EVIDENCE FROM A MORTGAGE MARKET REFORM International Economic Review (IF 1.418) Pub Date : 2023-12-15 Claes Bäckman, Natalia Khorunzhina
We use household-level data to analyze how the introduction of interest-only (IO) mortgages in Denmark affected consumption expenditure and borrowing. Using an ex ante measure of exposure to the IO mortgage reform motivated by mortgage-payment and leverage constraints, we show households more likely to use an IO mortgage to relax their mortgage-payment constraint increased consumption following the
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OPTIMAL STOPPING IN A DYNAMIC SALIENCE MODEL International Economic Review (IF 1.418) Pub Date : 2023-12-06 Markus Dertwinkel-Kalt, Jonas Frey
We study dynamic choice under risk through the lens of salience theory. We derive predictions on salient thinkers' gambling decisions and strategy choices. We test our model experimentally and find support for all of our predictions. We also detect a strong correlation between static and dynamic choices, suggesting that salience theory can coherently explain risky choice in both static and dynamic
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HOUSING MARKET DISCOUNT RATES: EVIDENCE FROM BARGAINING AND BIDDING WARS International Economic Review (IF 1.418) Pub Date : 2023-11-28 Hans R.A. Koster, Jan Rouwendal
When selling a home, through the choice of the list price, sellers make a trade-off between achieving a quick sale at a low price or waiting for higher bids. This list-price setting decision is governed by a discount rate. Using data on housing sales in the Netherlands, we derive gross discount rates under bilateral bargaining and bidding wars. The estimated discount rates are 25%–35%, which are considerably
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SEQUENTIAL PRICE SETTING: THEORY AND EVIDENCE FROM A LAB EXPERIMENT International Economic Review (IF 1.418) Pub Date : 2023-11-27 Tom-Reiel Heggedal, Leif Helland, Espen R. Moen
In the Varian (1980; American Economic Review 70(4) (1980), 651–59) model of price competition, a change from simultaneous to sequential price setting dramatically changes equilibrium strategies, and in the unique symmetric, equilibrium prices are pushed up to the monopoly price. There also exists an asymmetric equilibrium with lower average prices. Our main contribution is to test these predictions
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ESTIMATION OF PRODUCTION TECHNOLOGIES WITH OUTPUT AND ENVIRONMENTAL CONSTRAINTS International Economic Review (IF 1.418) Pub Date : 2023-10-19 Scott E. Atkinson, Rong Luo
Coal-fired power plants minimize costs subject to output and emission constraints. We model the plants' choice of coal quality and emission abatement to minimize costs under these constraints, allowing for heterogeneous unobserved generation productivity and abatement efficiency. We derive and estimate the plants' cost functions to recover the production technologies. Our data set is a balanced panel
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INFORMATION ACQUISITION AND DIFFUSION IN MARKETS International Economic Review (IF 1.418) Pub Date : 2023-10-19 Atabek Atayev, Maarten Janssen
Consumers acquire information through their own search efforts or through word-of-mouth communication within their social network. Information diffusion leads to free-riding and less active search. Free-riding consumers also create important positive externalities, however, as they are more likely to compare prices, imposing competitive pressure on firms. We show how market prices depend on network
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REGULATORY PROTECTION AND THE ROLE OF INTERNATIONAL COOPERATION International Economic Review (IF 1.418) Pub Date : 2023-10-16 Yuan Mei
I develop a general equilibrium framework to analyze the welfare consequences of product regulations and their international harmonization. In my model, raising product standards reduces a negative consumption externality, but also increases the marginal and fixed costs of production. When product standards are set noncooperatively, the effects of standards on other countries' wages and number of firms
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REGULARIZED GMM FOR TIME-VARYING MODELS WITH APPLICATIONS TO ASSET PRICING International Economic Review (IF 1.418) Pub Date : 2023-10-16 Liyuan Cui, Guanhao Feng, Yongmiao Hong
We propose a regularized generalized method of moments (RegGMM) approach to estimating time-varying coefficient models via a ridge fusion penalty with a high-dimensional set of moment conditions. RegGMM only requires a mild condition on the oscillations between consecutive parameter values, accommodating abrupt structural breaks and smooth changes throughout the sample period. RegGMM offers an alternative
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MONETARY ASYMMETRIES WITHOUT (AND WITH) PRICE STICKINESS International Economic Review (IF 1.418) Pub Date : 2023-10-16 IVAN JACCARD
The evidence suggests that monetary policy transmission is asymmetric over the business cycle. Interacting financing frictions with a preference for liquidity provides an explanation for this fact. Our model reproduces a set of asset market and business cycle facts. Accounting for the joint dynamics of asset prices and business cycle fluctuations is key; in a variant of the model that is unable to
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INVESTMENT HOUSING TAX CONCESSIONS AND WELFARE: A QUANTITATIVE STUDY FOR AUSTRALIA International Economic Review (IF 1.418) Pub Date : 2023-10-15 Yunho Cho, Shuyun May Li, Lawrence Uren
This article builds a general equilibrium overlapping generations (OLG) model with heterogeneous agents to study the welfare implications of investment housing tax concessions in Australia. Removing these concessions substantially reduces the landlord rate and the use of debt. There is a steady-state welfare gain equivalent to a 0.13% increase in lifetime consumption if the additional tax revenue from
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AN EQUILIBRIUM LABOR MARKET MODEL WITH INTERNAL AND EXTERNAL REFERRALS International Economic Review (IF 1.418) Pub Date : 2023-10-14 Youze Lang, Youzhi Yang
About 40% of workers find their jobs through referrals. We distinguish between two types of referrals based on whether the referrer works at the hiring firm (internal referrals) or not (external referrals). Interestingly, jobs found through internal (external) referrals pay more (less) than those found through formal methods. An equilibrium labor market model is then built by introducing an incentive-compatible
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CAPITAL TAX REFORMS WITH POLICY UNCERTAINTY International Economic Review (IF 1.418) Pub Date : 2023-09-02 Árpád Ábrahám, Pavel Brendler, Eva Cárceles-Poveda
One important feature of capital tax reforms is the uncertainty regarding their duration. In a standard heterogeneous firm framework with financial frictions, we model policy uncertainty by assuming that reforms may be either repealed or maintained with some probability every period. We illustrate the effects of policy uncertainty in the context of the 2003 Bush tax cuts (2003 Job Growth Tax Relief
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UNEMPLOYMENT DURATION UNDER FLEXIBLE INFORMATION ACQUISITION International Economic Review (IF 1.418) Pub Date : 2023-09-02 Jeong Ho (John) Kim, Kyungmin Kim, Marilyn Pease
We consider a worker's job search problem in which firms arrive sequentially, observe the worker's unemployment duration, and conduct an interview to learn about her unobservable productivity. Firms engage in fully flexible information acquisition subject to a uniformly posterior-separable cost function. We provide a closed-form characterization of equilibrium job search dynamics and demonstrate that
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INVENTORY MANAGEMENT IN DECENTRALIZED MARKETS International Economic Review (IF 1.418) Pub Date : 2023-09-02 Fei Li, Charles Murry, Can Tian, Yiyi Zhou
We present a directed search model of intermediaries' dynamic inventory and revenue management. Search frictions hinder instantaneous replenishment, prompting intermediaries to utilize dynamic inventory-based pricing and ordering strategies. In equilibrium, when inventory is high, an intermediary posts a lower retail price to speed up sales and depresses wholesale price to slow down purchases. We characterize
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A THEORY OF ECONOMIC DISINTEGRATION International Economic Review (IF 1.418) Pub Date : 2023-09-02 Eckhard Janeba, Karl Schulz
We study the impact of unilateral economic disintegration, such as Brexit, on national and international policies. We introduce firm mobility and business-tax policies into a general-equilibrium trade model and analyze the effects of disintegration on tax policies of asymmetric countries. Although the disintegrating country taxes less, business taxes converge in the remaining economic area. We highlight
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THE FULL RECESSION: PRIVATE VERSUS SOCIAL COSTS OF COVID-19 International Economic Review (IF 1.418) Pub Date : 2023-08-29 Juan-Carlos Cordoba, Marla Ripoll, Siqiang Yang
2020 official recession figures ignore the costs associated with the loss of human life due to COVID-19. This article constructs full recession measures that consider the death toll. Our model features nonexpected utility, leisure, age-specific survival rates, and tractable heterogeneity. We find an average full recession of 10.7%, which reflects the net value of an aggregate drop in consumption of
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Government Expenditure on the Public Education System International Economic Review (IF 1.418) Pub Date : 2023-07-27 Chao Fu, Shoya Ishimaru, John Kennan
We investigate equilibrium impacts of federal policies such as free-college proposals, taking into account that human capital is cumulative and that state governments have resource constraints. In our model, a state government cares about household welfare and aggregate educational attainment. The government chooses income tax rates, per-student expenditures on K-12 and college education, college tuition
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CONSUMPTION TAX CUTS IN A RECESSION International Economic Review (IF 1.418) Pub Date : 2023-07-27 Francesca Parodi
I study the effectiveness of temporary cuts to consumption tax rates as fiscal stimulus instruments during recessions using a structural life-cycle model with multiple consumption categories. I find tax elasticities of 0.4 for nondurable luxuries and of 10.5 for durables. I show that the tax cut on nondurables has an intratemporal substitution effect, whereas the tax cut on durables acts through an
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ACCOUNTING FOR SOCIAL SECURITY CLAIMING BEHAVIOR International Economic Review (IF 1.418) Pub Date : 2023-07-27 Svetlana Pashchenko, Ponpoje Porapakkarm
We study why Social Security benefit claiming is concentrated at two ages, 62 and the full retirement age, and provide three main findings. First, we show that claiming behavior can be well explained by a parsimonious life-cycle model with fully rational agents. The two key mechanisms are (i) the strong unwillingness to hold annuities and (ii) the effects of the earnings test. Second, we show that
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FOUR STYLIZED FACTS ABOUT COVID-19 International Economic Review (IF 1.418) Pub Date : 2023-07-27 Andrew G. Atkeson, Karen A. Kopecky, Tao Zha
We develop a Bayesian method for estimating the dynamics of COVID-19 deaths and discover four key findings that expose the limitations of current structural epidemiological models . (i) Death growth rates declined rapidly from high levels during the initial 30 days of the epidemic worldwide. (ii) After this initial period, these rates fluctuated substantially around 0%. (iii) The cross-location standard
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SPENDING A WINDFALL International Economic Review (IF 1.418) Pub Date : 2023-07-26 Nuno Palma, André C. Silva
We study the effect of the discovery of precious metals in America from 1500 to 1810 on international trade. Around 1500, there was a simultaneous discovery of precious metals and new trading routes. We construct a counterfactual of new routes but no precious metals. The discovery of precious metals increased the stock of precious metals more than 10-fold. We show that Euro-Asian trade at its peak
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COSTLY INFORMATION AND SOVEREIGN RISK International Economic Review (IF 1.418) Pub Date : 2023-07-12 Grace Weishi Gu, Zachary R. Stangebye
The consequences of costly information acquisition for sovereign risk are explored in a quantitative sovereign default model. We identify information costs empirically using Bloomberg news-heat data. The calibrated model microfounds heteroskedasticity in the country risk spread as measured by a novel metric we call the Crisis Volatility Ratio (CVR). Crises are endogenously more volatile because more
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Generational Distribution of Fiscal Burdens: A Positive Analysis International Economic Review (IF 1.418) Pub Date : 2023-07-04 Yuki Uchida, Tetsuo Ono
This study presents an overlapping generations model to analyze the impact of population aging on fiscal policy and intergenerational fiscal burden. Aging populations incentivize governments to increase capital and labor income tax rates and the public debt-to-GDP ratio, consistent with OECD evidence. Our model-based simulation for Japan and the United States (2000–2070) reveals that Japan will experience
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BUSINESS CYCLES WITH CYCLICAL RETURNS TO SCALE International Economic Review (IF 1.418) Pub Date : 2023-07-04 Jay Hyun, Ryan Kim, Byoungchan Lee
We study business cycles with cyclical returns to scale. Contrary to tightly parameterized conventional production functions, we empirically identify strong input complementarity that leads to procyclical returns to scale. We, therefore, propose a flexible translog production function that allows complementarity-induced procyclical returns to scale. We integrate this function into a standard medium-scale
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HOUSEHOLD INVENTORY, TEMPORARY SALES, PRICE INDICES International Economic Review (IF 1.418) Pub Date : 2023-07-04 Kozo Ueda, Kota Watanabe, Tsutomu Watanabe
This study addresses the large bias in chained price indices that persists even at lower frequencies. The bias arises from intertemporal substitution caused by consumer hoarding, and is problematic for purchase-based data. In order to resolve this issue, we propose a method for calculating changes in inventories and consumption using retailer scanner data. We construct a partial equilibrium model to
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LABOR SUPPLY IN THE EXTENDED HOUSEHOLD: ECONOMIES OF SCALE, SELF-SELECTION, AND THE INTRAHOUSEHOLD DISTRIBUTION OF RESOURCES IN SOUTH AFRICA International Economic Review (IF 1.418) Pub Date : 2023-07-01 Olivier Donni, Eliane El Badaoui
This article studies labor supply in the extended household (composed of two families living together). The extended household structure affects the incentives to work of household members for at least three reasons: economies of scale, cash transfers between the families living in the extended household, and easier childcare arrangements. We develop a structural model incorporating these components
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ELECTORAL MALDISTRICTING International Economic Review (IF 1.418) Pub Date : 2023-06-15 Andrei Gomberg, Romans Pancs, Tridib Sharma
We introduce a framework to theoretically and empirically examine electoral maldistricting—the intentional drawing of electoral districts to advance partisan objectives, compromising voter welfare. We identify the legislatures that maximize voter welfare and those that maximize partisan goals, and incorporate them into a maldistricting index. This index measures the intent to maldistrict by comparing
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CREDIT CONSTRAINTS, ENDOGENOUS INNOVATIONS, AND PRICE SETTING IN INTERNATIONAL TRADE International Economic Review (IF 1.418) Pub Date : 2023-06-05 Carsten Eckel, Florian Unger
This article analyzes the role of credit frictions in a trade model where producers differ in their capabilities to conduct process and quality innovations and require external finance for investments. Accounting for cost-based and quality-based sorting of firms in a unified framework allows us to demonstrate that the reactions of prices and commonly used productivity measures do not necessarily reflect
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LEARNING AND EVIDENCE IN INSURANCE MARKETS International Economic Review (IF 1.418) Pub Date : 2023-06-01 Kym Pram
I analyze a model of monopoly insurance contracting where the consumer has access to endogenous, costly evidence of his risk type. I characterize when the consumer is worse off if the insurer is allowed to condition contracts on evidence and when the ability to contract on evidence leads to a Pareto improvement. I compare the results to an analogous setting with perfect competition: Under perfect competition
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UK INFLATION DYNAMICS SINCE THE THIRTEENTH CENTURY International Economic Review (IF 1.418) Pub Date : 2023-05-30 James M. Nason, Gregor W. Smith
Historians have suggested that there were waves of inflation or price revolutions in the United Kingdom (and earlier England) in the 13th, 16th, and 18th centuries, prior to the ongoing inflation since 1935. We study retail price inflation since 1251 and model its dynamics. The model is an AR(n) but allows for gradually evolving or drifting parameters and stochastic volatility. The long-horizon forecasts
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A THREE-STATE RATIONAL GREATER-FOOL BUBBLE MODEL WITH INTERTEMPORAL CONSUMPTION SMOOTHING International Economic Review (IF 1.418) Pub Date : 2023-05-27 Feng Liu, Joseph S. White, John R. Conlon
We construct a simple rational greater-fool bubble model, where the motive for trade is intertemporal consumption smoothing. This yields an easy-to-understand bubble model with three states of the world, instead of the five required previously. Bubbles are more likely when asset sellers have profitable investment opportunities, but little wealth, so they sell shares in those opportunities to wealthier
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ON THE DISTRIBUTIONAL EFFECTS OF INTERNATIONAL TARIFFS International Economic Review (IF 1.418) Pub Date : 2023-05-25 Daniel Carroll, Sewon Hur
We provide a quantitative analysis of the distributional effects of the 2018 increase in tariffs by the United States and its major trading partners. We build a trade model with incomplete asset markets and households that are heterogeneous in their age, income, wealth, and labor skill. When tariff revenues are used to reduce distortionary taxes on consumption, labor, and capital income, the average
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HIGHWAYS AND GLOBALIZATION International Economic Review (IF 1.418) Pub Date : 2023-05-23 Taylor Jaworski, Carl Kitchens, Sergey Nigai
This article quantifies the value of U.S. highways. We develop a multisector general equilibrium model with many locations in the United States (i.e., counties) and many countries. In the model, producers choose shipping routes subject to domestic and international trade costs, endogenous congestion, and port efficiency at international transshipment points. Applying the model, we find that removing
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CATCHMENT AREAS, STRATIFICATION, AND ACCESS TO BETTER SCHOOLS International Economic Review (IF 1.418) Pub Date : 2023-05-08 Caterina Calsamiglia, Antonio Miralles
School Choice provides students with the opportunity to attend better schools than those in their neighborhood. This is crucial for students from disadvantaged areas where schools may be of lower quality. Our theoretical model and numerical simulations show that the widely used Deferred Acceptance (DA) algorithm has limitations in providing access to better schools (ABS). When schools have varying
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STRUCTURAL INTERVENTIONS IN NETWORKS International Economic Review (IF 1.418) Pub Date : 2023-05-02 Yang Sun, Wei Zhao, Junjie Zhou
Two types of interventions are commonly implemented in networks: characteristics interventions, which influence individuals' intrinsic incentives, and structural interventions, which target the social links among individuals. In this article, we provide a general framework to evaluate the distinct equilibrium effects of both types of interventions. We show that any structural intervention is outcome-equivalent
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DRIVEN BY INSTITUTIONS, SHAPED BY CULTURE: HUMAN CAPITAL AND THE SECULARIZATION OF MARRIAGE IN ITALY International Economic Review (IF 1.418) Pub Date : 2023-04-20 David de la Croix, Fabio Mariani, Marion Mercier
We show that in Italy the legalization of divorce unleashed the forces of secularization, making educated persons more likely to contract a civil instead of a religious marriage. This process, ignited by institutional change, is also shaped by culture: higher social capital or weaker family ties make the choice of civil marriage more responsive to education. These results emerge from both aggregate
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OPTIMAL PAYMENT CONTRACTS IN TRADE RELATIONSHIPS International Economic Review (IF 1.418) Pub Date : 2023-04-19 Christian Fischer-Thöne
In buyer–seller relationships, offering trade credit to buyers fosters long-term collaboration but seller provision varies systematically as relationships evolve. We study the optimal provision dynamics of trade credit when the seller's information about the buyer is incomplete. We show how the interaction of self-enforcing relational contracts and formal contracts determines optimal payment contract
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THE FEDERAL RESERVE'S IMPLICIT INFLATION TARGET AND MACROECONOMIC DYNAMICS: AN SVAR ANALYSIS International Economic Review (IF 1.418) Pub Date : 2023-04-17 Haroon Mumtaz, Konstantinos Theodoridis
This article identifies shocks to the Federal Reserve's inflation target as vector autoregression innovations that make the largest contribution to future movements in long-horizon inflation expectations. The effectiveness of this scheme is documented via Monte-Carlo experiments. The estimated impulse responses indicate that a positive shock to the target is associated with a large increase in inflation
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MODELING INTERREGIONAL PATIENT MOBILITY: THEORY AND EVIDENCE FROM SPATIALLY EXPLICIT DATA International Economic Review (IF 1.418) Pub Date : 2023-03-25 Michael Irlacher, Dieter Pennerstorfer, Anna-Theresa Renner, Florian Unger
This article provides theory and evidence on the spatial determinants of regional patient flows. We develop a theoretical model that explains a patient's choice to consult a general practitioner by a measure of spatial accessibility. We empirically test this gravity-type model using regional patient flows and detailed data on the spatial distribution of residents and physicians in Austria. Our measure
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ENTREPRENEUR–INVESTOR INFORMATION DESIGN International Economic Review (IF 1.418) Pub Date : 2023-03-22 Oleg Muratov
I consider an environment in which an entrepreneur generates information about the quality of his project prior to contracting with an investor. The investor faces a moral-hazard problem since the entrepreneur may divert the funding for private consumption. I find that the efficient amount of information is generated if and only if the bargaining power of the entrepreneur is high enough. I interpret
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GOODHART'S LAW AND MACHINE LEARNING: A STRUCTURAL PERSPECTIVE International Economic Review (IF 1.418) Pub Date : 2023-03-21 Christopher A. Hennessy, Charles A. E. Goodhart
We develop a simple structural model to illustrate how penalized regressions generate Goodhart bias when training data are clean but covariates are manipulated at known cost by future agents. With quadratic (extremely steep) manipulation costs, bias is proportional to Ridge (Lasso) penalization. If costs depend on absolute or percentage manipulation, the following algorithm yields manipulation-proof
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2022 KLEIN LECTURE PARENTAL EDUCATION AND INVENTION: THE FINNISH ENIGMA International Economic Review (IF 1.418) Pub Date : 2023-02-16 Philippe Aghion, Ufuk Akcigit, Ari Hyytinen, Otto Toivanen
Why is invention strongly positively correlated with parental income not only in the United States but also in Finland, which displays low income inequality and high social mobility? Using data on 1.45 M Finnish individuals and their parents, we find the following: (i) the positive association between parental income and off-spring probability of inventing is greatly reduced when controlling for parental
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ERRATUM: OPTIMAL CHECKS AND BALANCES UNDER POLICY UNCERTAINTY International Economic Review (IF 1.418) Pub Date : 2023-02-16 Gabriele Gratton, Massimo Morelli
In Gratton, G. and Morelli, M. (2022), Optimal Checks and Balances Under Policy Uncertainty, International Economic Review, 63: 549–569 (https://doi.org/10.1111/iere.12547): p. 559: In Proposition 4, substitute “≤” with “≥.” p. 566: In Proof of Proposition 4, substitute the last “≤” with “≥.” We apologize for this error.