Rewriting Monetary Policy 101: What's the Fed's Preferred Post-Crisis Approach to Raising Interest Rates?

By Jane E. Ihrig, Ellen E. Meade, and Gretchen C. Weinbach

Journal of Economic Perspectives, Fall 2015

For many years prior to the global financial crisis, the Federal Open Market Committee set a target for the federal funds rate and achieved that target through small purchases and sales of securities in the open market. In the aftermath of the finan...

Why Does Misallocation Persist?

By Abhijit V. Banerjee and Benjamin Moll

American Economic Journal: Macroeconomics, January 2010

Recent papers argue that the misallocation of resources can explain large cross-country TFP differences. This argument is underpinned by empirical evidence documenting substantial dispersion in the marginal products of resources, particularly capital, in ...

Electronic Trading in Stock Markets

By Hans R. Stoll

Journal of Economic Perspectives, Winter 2006

Modern trading technology clashes with the traditional organization of a stock exchange, where transactions were consummated via face-to-face negotiation. The modern trading facility is no longer a place. Rather, it is a computer system over which transac...

Trade Liberalization and Markup Dispersion: Evidence from China's WTO Accession

By Yi Lu and Linhui Yu

American Economic Journal: Applied Economics, October 2015

In this paper, we empirically investigate whether trade liberalization affects markup dispersion, a potential source of resource misallocation. The identification uses China's WTO accession at the end of 2001. We show that trade liberalization reduces mar...

On the (Ir)Relevance of Distribution and Labor Supply Distortion to Government Policy

By Louis Kaplow

Journal of Economic Perspectives, Fall 2004

Should the assessment of government policies, such as the provision of public goods and the control of externalities, deviate from first-best principles to account for distributive effects and the distortionary cost of labor income taxation? For example, ...

Cap and Escape in Trade Agreements

By Mostafa Beshkar and Eric W. Bond

American Economic Journal: Microeconomics, November 2017

We propose a model of flexible trade agreements in which verifying the prevailing contingencies is possible but costly. Two types of flexibility emerge: contingent protection, which requires governments to verify the state of the world, and discretionary ...

Optimal Pricing Mechanisms with Unknown Demand

By Ilya Segal

American Economic Review, June 2003

The standard profit-maximizing multiunit auction intersects the submitted demand curve with a preset reservation supply curve, which is determined using the distribution from which the buyers' valuations are drawn. However, when this distribution is unkno...

The Effect of Health Risk on Housing Values: Evidence from a Cancer Cluster

By Lucas W. Davis

American Economic Review, December 2004

An Economic Theory of GATT

By Kyle Bagwell and Robert W. Staiger

American Economic Review, March 1999

The authors propose a unified theoretical framework within which to interpret and evaluate the foundational principles of GATT. Working within a general equilibrium trade model, they represent government preferences in a way that is consistent with nation...

Free to Leave? A Welfare Analysis of Divorce Regimes

By Raquel Fernández and Joyce Cheng Wong

American Economic Journal: Macroeconomics, July 2017

During the 1970s, the United States switched from mutual consent to a unilateral divorce regime. Who benefited/lost from this change? We develop a dynamic life cycle model in which agents make consumption, saving, work, and marital-status decisions under ...

Economists as Public Policy Advisers

[Symposium: Economists as Policy Advocates]

By Lee H. Hamilton

Journal of Economic Perspectives, Summer 1992

As a member of the Joint Economic Committee for over 15 years I have had ample occasion to observe economists testifying. When I was Chairman of the Committee in the last Congress, for example, we held over 100 hearings and heard from at least that many d...

Generational Accounting: A Meaningful Way to Evaluate Fiscal Policy

[Symposium: Generational Accounting]

By Alan J. Auerbach, Jagadeesh Gokhale, and Laurence J. Kotlikoff

Journal of Economic Perspectives, Winter 1994

This paper illustrates the technique of generational accounting, a new way to evaluate fiscal policy that overcomes the inherent ambiguities of traditional deficit accounting. The authors illustrate why there is no 'correct' measure of the deficit and how...

Conventional and Unconventional Monetary Policy with Endogenous Collateral Constraints

By Aloísio Araújo, Susan Schommer, and Michael Woodford

American Economic Journal: Macroeconomics, January 2015

We consider the effects of central bank purchases of a risky asset as an additional dimension of policy alongside "conventional" interest rate policy in a general-equilibrium model of asset pricing with endogenous collateral constraints. The effects of as...

How Much of South Korea's Growth Miracle Can Be Explained by Trade Policy?

By Michelle Connolly and Kei-Mu Yi

American Economic Journal: Macroeconomics, October 2015

This paper assesses the importance of trade policy reforms in South Korea, as well as the General Agreement on Tariffs and Trade (GATT) tariff reductions, in explaining Korea's growth miracle. We develop a model of neoclassical growth and trade in which l...

Individual Behavior and Group Membership

By Gary Charness, Luca Rigotti, and Aldo Rustichini

American Economic Review, September 2007

People who are members of a group and identify with it behave differently from people who perceive themselves as isolated individuals. This paper shows that group membership affects preferences over outcomes, and saliency of the group affects the perce...

Follow the Money: Quantifying Domestic Effects of Foreign Bank Shocks in the Great Recession

By Nicola Cetorelli and Linda S. Goldberg

American Economic Review, May 2012

Foreign banks pulled significant funding from their US branches during the Great Recession. We estimate that the average-sized branch experienced a twelve percent net internal fund "withdrawal," with the fund transfer disproportionately bigger for larger ...

Avoiding Invalid Instruments and Coping with Weak Instruments

By Michael P. Murray

Journal of Economic Perspectives, Fall 2006

Archimedes said, "Give me the place to stand, and a lever long enough, and I will move the Earth." Economists have their own powerful lever: the instrumental variable estimator. The instrumental variable estimator can avoid the bias that ordinary least s...

Does Culture Affect Economic Outcomes?

[Symposium: Cultural Economics]

By Luigi Guiso, Paola Sapienza, and Luigi Zingales

Journal of Economic Perspectives, Spring 2006

Until recently, economists have been reluctant to rely on culture as a possible determinant of economic phenomena. Much of this reluctance stems from the very notion of culture: it is so broad and the channels through which it can enter the economic disco...

Melioration: A Theory of Distributed Choice

By Richard J. Herrnstein and Drazen Prelec

Journal of Economic Perspectives, Summer 1991

In this paper, we develop a theory of individual choice called melioration, which implies that choices distributed over a period of time may be reliably and predictably suboptimal, in terms of the person's own preferences. Consider some typical examples o...

Verifying the Solution from a Nonlinear Solver: A Case Study: Reply

By B. D. McCullough and H. D. Vinod

American Economic Review, March 2004