Testing-Based Forward Model Selection

By Damian Kozbur

American Economic Review, May 2017

This paper defines and studies a variable selection procedure called Testing-Based Forward Model Selection. The procedure inductively selects covariates which increase predictive accuracy into a working statistical regression model until a stopping criter...

The Sovereign-Bank Diabolic Loop and ESBies

By Markus K. Brunnermeier, Luis Garicano, Philip R. Lane, Marco Pagano, Ricardo Reis, Tano Santos, David Thesmar, Stijn Van Nieuwerburgh, and Dimitri Vayanos

American Economic Review, May 2016

We propose a simple model of the sovereign-bank diabolic loop, and establish four results. First, the diabolic loop can be avoided by restricting banks' domestic sovereign exposures relative to their equity. Second, equity requirements can be lowered if b...

Unemployment in the Great Recession: Did the Housing Market Crisis Prevent the Unemployed from Moving to Take Jobs?

By Henry S. Farber

American Economic Review, May 2012

The labor market in the Great Recession and its aftermath is characterized by great difficulty in escaping unemployment. I present two empirical analyses of a particular explanation for that difficulty, that the housing market crisis has prevented the une...

The World Technology Frontier

By Francesco Caselli and Wilbur John Coleman II

American Economic Review, June 2006

We study cross-country differences in the aggregate production function when skilled and unskilled labor are imperfect substitutes. We find that there is a skill bias in cross-country technology differences. Higher-income countries use skilled labor mo...

Trade Liberalization and Embedded Institutional Reform: Evidence from Chinese Exporters

By Amit K. Khandelwal, Peter K. Schott, and Shang-Jin Wei

American Economic Review, October 2013

If trade barriers are managed by inefficient institutions, trade liberalization can lead to greater-than-expected gains. We examine Chinese textile and clothing exports before and after the elimination of externally imposed export quotas. Both the surg...

The Usefulness of Core Theory in Economics

By Lester G. Telser

Journal of Economic Perspectives, Spring 1994

Core theory furnishes a useful framework for studying a wide variety of economic problems. It has an undeserved reputation of being too abstract owing mainly to the manner in which it is employed in the theory of general equilibrium. In fact, core theory ...

The Composition and Drawdown of Wealth in Retirement

[Symposium: After Retirement]

By James Poterba, Steven Venti, and David Wise

Journal of Economic Perspectives, Fall 2011

This paper presents evidence on the resources available to households as they enter retirement. It draws heavily on data collected by the Health and Retirement Study. We calculate the "potential additional annuity income" that households could purchase, g...

Symposium on Global Climate Change

[Symposium]

By Richard Schmalensee

Journal of Economic Perspectives, Fall 1993

Global climate change, and policies to slow it or adapt to it, may be among the primary forces shaping the world's economy throughout the next century and beyond. Nonetheless, popular treatments of this issue commonly ignore economics. This introductory e...

Reflections on the Economics of Climate Change

[Symposium]

By William D. Nordhaus

Journal of Economic Perspectives, Fall 1993

My purpose here is to provide a non-technical introduction to the economics of climate change. I will sketch the scientific background and uncertainties, survey the results of existing studies of the impacts of climate change, present a summary of a study...

Do Consumers Respond to Marginal or Average Price? Evidence from Nonlinear Electricity Pricing

By Koichiro Ito

American Economic Review, February 2014

Nonlinear pricing and taxation complicate economic decisions by creating multiple marginal prices for the same good. This paper provides a framework to uncover consumers' perceived price of nonlinear price schedules. I exploit price variation at spatia...

The New Demographic Transition: Most Gains in Life Expectancy Now Realized Late in Life

By Karen N. Eggleston and Victor R. Fuchs

Journal of Economic Perspectives, Summer 2012

The share of increases in life expectancy realized after age 65 was only about 20 percent at the beginning of the 20th century for the United States and 16 other countries at comparable stages of development; but that share was close to 80 percent by the ...

The Relative Performance of Real Estate Marketing Platforms: MLS versus FSBOMadison.com

By Igal Hendel, Aviv Nevo, and François Ortalo-Magné

American Economic Review, December 2009

We compare house sales on a For-Sale-By-Owner (FSBO) platform to Multiple Listing Service (MLS) sales and find that FSBO precommission prices are no lower, but that FSBO is less effective in terms of time to sell and probability of a sale. We do not fi...

Unhealthy Insurance Markets: Search Frictions and the Cost and Quality of Health Insurance

By Randall D. Cebul, James B. Rebitzer, Lowell J. Taylor, and Mark E. Votruba

American Economic Review, August 2011

We analyze the effect of search frictions in the market for commercial health insurance. Frictions increase insurance premiums (enough to transfer 13.2 percent of consumer surplus from fully insured employer groups to insurers—approximately $34.4 b...

A Theory of Demand Shocks

By Guido Lorenzoni

American Economic Review, December 2009

This paper presents a model of business cycles driven by shocks to consumer expectations regarding aggregate productivity. Agents are hit by heterogeneous productivity shocks, they observe their own productivity and a noisy public signal regarding aggr...

VAR Analysis and the Great Moderation

By Luca Benati and Paolo Surico

American Economic Review, September 2009

Most analyses of the US Great Moderation are based on structural VARs, and point toward good luck as the main explanation for the recent macroeconomic stability. Based on an estimated New-Keynesian model where the only source of change is the move from pa...

Inequality Aversion, Efficiency, and Maximin Preferences in Simple Distribution Experiments: Comment

By Ernst Fehr, Michael Naef, and Klaus M. Schmidt

American Economic Review, December 2006

Do Private Equity Owned Firms Have Better Management Practices?

By Nicholas Bloom, Raffaella Sadun, and John Van Reenen

American Economic Review, May 2015

Using an innovative survey measure of management practices on over 15,000 firms, we find private equity firms are better managed than government, family, and privately owned firms, and have similar management to publicly listed firms. This is true both in...

Aggregate Demand and the Top 1 Percent

By Adrien Auclert and Matthew Rognlie

American Economic Review, May 2017

There has been a large rise in US top income inequality since the 1980s. We merge a widely studied model of the Pareto tail of labor incomes with a canonical model of consumption and savings to study the consequences of this increase for aggregate demand....

Consensus Building: How to Persuade a Group

By Bernard Caillaud and Jean Tirole

American Economic Review, December 2007

The paper explores strategies that the sponsor of a proposal may employ to convince a qualified majority of members in a group to approve the proposal. Adopting a mechanism design approach to communication, it emphasizes the need to distill information...

Tax Reform Unraveling

[Symposium: U.S. Tax Policy in International Perspective]

By Michael J. Graetz

Journal of Economic Perspectives, Winter 2007

The Tax Reform Act of 1986 was widely heralded as the most significant change in our nation's tax law since the income tax was extended to the masses during World War II. It was the crowning domestic policy achievement of President Ronald Reagan, who proc...