Micro-level Misallocation and Selection

By Mu-Jeung Yang

American Economic Journal: Macroeconomics, October 2021

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 ma...

Financial Risk Capacity

By Saki Bigio and Adrien d'Avernas

American Economic Journal: Macroeconomics, October 2021

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 informa...

Why Are Banks Exposed to Monetary Policy?

By Sebastian Di Tella and Pablo Kurlat

American Economic Journal: Macroeconomics, October 2021

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 ave...

Agglomeration, Misallocation, and (the Lack of) Competition

By Wyatt J. Brooks, Joseph P. Kaboski, and Yao Amber Li

American Economic Journal: Macroeconomics, October 2021

Industrial agglomeration policies may limit competition. We develop, validate, and apply a novel approach for measuring competition based on the comovement of markups and market shares among firms in the same location and industry. Then we develop a model...

Uncertainty and Business Cycles: Exogenous Impulse or Endogenous Response?

By Sydney C. Ludvigson, Sai Ma, and Serena Ng

American Economic Journal: Macroeconomics, October 2021

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 ine...

The Young, the Old, and the Government: Demographics and Fiscal Multipliers

By Henrique S. Basso and Omar Rachedi

American Economic Journal: Macroeconomics, October 2021

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 ...

MPC Heterogeneity and Household Balance Sheets

By Andreas Fagereng, Martin B. Holm, and Gisle J. Natvik

American Economic Journal: Macroeconomics, October 2021

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...

Long-Term Finance and Investment with Frictional Asset Markets

By Julian Kozlowski

American Economic Journal: Macroeconomics, October 2021

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 ...

Money Mining and Price Dynamics

By Michael Choi and Guillaume Rocheteau

American Economic Journal: Macroeconomics, October 2021

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 reache...

Call for Papers: CSWEP at the Eastern Economic Association (EEA)

[News]

September 28, 2021

The deadline is October 25, 2021.

Call for Papers: CSWEP at the Midwest Economic Association (MEA)

[News]

September 28, 2021

The deadline is October 15, 2021.

Going from gasoline to electric

[Research Highlight]

September 28, 2021

Stephen Holland discusses the best strategy for transitioning to electric vehicles.

The Electric Vehicle Transition and the Economics of Banning Gasoline Vehicles

By Stephen P. Holland, Erin T. Mansur, and Andrew J. Yates

American Economic Journal: Economic Policy, August 2021

Electric vehicles have a unique potential to transform personal transportation. We analyze this transition with a dynamic model capturing falling costs of electric vehicles, decreasing pollution from electricity, and increasing vehicle substitutability. O...

Front Matter

American Economic Review, October 2021

Assortative Matching or Exclusionary Hiring? The Impact of Employment and Pay Policies on Racial Wage Differences in Brazil

By François Gerard, Lorenzo Lagos, Edson Severnini, and David Card

American Economic Review, October 2021

We measure the effects of firm policies on racial pay differences in Brazil. Non-Whites are less likely to be hired by high-wage firms, explaining about 20 percent of the racial wage gap for both genders. Firm-specific pay premiums for non-Whites are also...

Oligopolistic Price Leadership and Mergers: The United States Beer Industry

By Nathan H. Miller, Gloria Sheu, and Matthew C. Weinberg

American Economic Review, October 2021

We study a repeated game of price leadership in which a firm proposes supermarkups over Bertrand prices to a coalition of rivals. Supermarkups and marginal costs are recoverable from data on prices and quantities using the model's structure. In an applica...

Mistakes, Overconfidence, and the Effect of Sharing on Detecting Lies

By Marta Serra-Garcia and Uri Gneezy

American Economic Review, October 2021

Mistakes and overconfidence in detecting lies could help lies spread. Participants in our experiments observe videos in which senders either tell the truth or lie, and are incentivized to distinguish between them. We find that participants fail to detect ...

Neighborhood-Based Information Costs

By Benjamin Hébert and Michael Woodford

American Economic Review, October 2021

We derive a new cost of information in rational inattention problems, the neighborhood-based cost functions, starting from the observation that many settings involve exogenous states with a topological structure. These cost functions are uniformly posteri...

Projection of Private Values in Auctions

By Tristan Gagnon-Bartsch, Marco Pagnozzi, and Antonio Rosato

American Economic Review, October 2021

We explore how taste projection—the tendency to overestimate how similar others' tastes are to one's own—affects bidding in auctions. In first-price auctions with private values, taste projection leads bidders to exaggerate the intensity of competitio...

Jobs for Sale: Corruption and Misallocation in Hiring

By Jeffrey Weaver

American Economic Review, October 2021

Corrupt government hiring is common in developing countries. This paper uses original data to document the operation and consequences of corrupt hiring in a health bureaucracy. Hires pay bribes averaging 17 months of salary, but contrary to conventional w...