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 a separate financial rule targeting spreads. ATR and STR are tight money-tight credit regimes responding too much (little) to inflation (spreads). The Nash equilibrium of monetary and financial policies is also tight money-tight credit but it dominates ATR and STR. (JEL E12, E31, E44, E43, E52, E63)
{"title":"Tight Money-Tight Credit: Coordination Failure in the Conduct of Monetary and Financial Policies","authors":"Julio A. Carrillo, Enrique G. Mendoza, Victoria Nuguer, Jessica Roldán-Peña","doi":"10.1257/mac.20180321","DOIUrl":"https://doi.org/10.1257/mac.20180321","url":null,"abstract":"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 a separate financial rule targeting spreads. ATR and STR are tight money-tight credit regimes responding too much (little) to inflation (spreads). The Nash equilibrium of monetary and financial policies is also tight money-tight credit but it dominates ATR and STR. (JEL E12, E31, E44, E43, E52, E63)","PeriodicalId":47991,"journal":{"name":"American Economic Journal-Macroeconomics","volume":"28 2","pages":""},"PeriodicalIF":6.0,"publicationDate":"2021-06-29","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"138520837","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":1,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
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 in commodities and trade deficits in manufactures, while sectoral trade flows are balanced in developed economies. We find that these differences amplify the response of emerging economies to commodity price fluctuations. We show evidence consistent with this mechanism using cross-country data. (JEL E23, E32, F14, F41, F44)
{"title":"Trade in Commodities and Business Cycle Volatility","authors":"David Kohn, Fernando Leibovici, Håkon Tretvoll","doi":"10.1257/mac.20180131","DOIUrl":"https://doi.org/10.1257/mac.20180131","url":null,"abstract":"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 in commodities and trade deficits in manufactures, while sectoral trade flows are balanced in developed economies. We find that these differences amplify the response of emerging economies to commodity price fluctuations. We show evidence consistent with this mechanism using cross-country data. (JEL E23, E32, F14, F41, F44)","PeriodicalId":47991,"journal":{"name":"American Economic Journal-Macroeconomics","volume":"45 4","pages":""},"PeriodicalIF":6.0,"publicationDate":"2021-06-29","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"138520830","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":1,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
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 firm R&D intensity and growth and firm size. In the calibrated model, about half of the deviation from proportional firm growth is attributed to our novel advertising channel. In addition, R&D and advertising are substitutes, a prediction for which we find evidence in the data. (JEL D22, E23, H25, L25, M37, O32)
{"title":"Advertising, Innovation, and Economic Growth","authors":"Laurent Cavenaile, Pau Roldan-Blanco","doi":"10.1257/mac.20180461","DOIUrl":"https://doi.org/10.1257/mac.20180461","url":null,"abstract":"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 firm R&D intensity and growth and firm size. In the calibrated model, about half of the deviation from proportional firm growth is attributed to our novel advertising channel. In addition, R&D and advertising are substitutes, a prediction for which we find evidence in the data. (JEL D22, E23, H25, L25, M37, O32)","PeriodicalId":47991,"journal":{"name":"American Economic Journal-Macroeconomics","volume":"27 3","pages":""},"PeriodicalIF":6.0,"publicationDate":"2021-06-29","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"138520834","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":1,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
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 and long run. The difference between short- and long-run spending responses has important implications for the efficacy of using sales taxes for countercyclical policy and for the design of an optimal tax framework. Interestingly, households adjust spending similarly for both taxable and tax-exempt goods. We embed an inventory problem into a continuous-time consumption-savings model and demonstrate that this behavior is optimal in the presence of shopping trip fixed costs. The model successfully matches estimated short-run and long-run tax elasticities. We provide additional evidence in favor of this new shopping complementarity mechanism. (JEL E21, E32, G51, H21, H25, H71)
{"title":"Shopping for Lower Sales Tax Rates","authors":"Scott R. Baker, Stephanie Johnson, Lorenz Kueng","doi":"10.1257/mac.20190026","DOIUrl":"https://doi.org/10.1257/mac.20190026","url":null,"abstract":"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 and long run. The difference between short- and long-run spending responses has important implications for the efficacy of using sales taxes for countercyclical policy and for the design of an optimal tax framework. Interestingly, households adjust spending similarly for both taxable and tax-exempt goods. We embed an inventory problem into a continuous-time consumption-savings model and demonstrate that this behavior is optimal in the presence of shopping trip fixed costs. The model successfully matches estimated short-run and long-run tax elasticities. We provide additional evidence in favor of this new shopping complementarity mechanism. (JEL E21, E32, G51, H21, H25, H71)","PeriodicalId":47991,"journal":{"name":"American Economic Journal-Macroeconomics","volume":"18 3","pages":""},"PeriodicalIF":6.0,"publicationDate":"2021-06-29","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"138520832","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":1,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
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 sovereign default in 1998 confirm the model’s main mechanism, as firms born during the credit shortage are fewer but better in terms of idiosyncratic productivity. The quantitative analysis shows that at the end of the crisis, total output is permanently 0.9 percent lower. (JEL D22, E32, F41, G01, O11, O14, O33)
{"title":"Fewer but Better: Sudden Stops, Firm Entry, and Financial Selection","authors":"Sina T. Ates, Felipe E. Saffie","doi":"10.1257/mac.20180014","DOIUrl":"https://doi.org/10.1257/mac.20180014","url":null,"abstract":"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 sovereign default in 1998 confirm the model’s main mechanism, as firms born during the credit shortage are fewer but better in terms of idiosyncratic productivity. The quantitative analysis shows that at the end of the crisis, total output is permanently 0.9 percent lower. (JEL D22, E32, F41, G01, O11, O14, O33)","PeriodicalId":47991,"journal":{"name":"American Economic Journal-Macroeconomics","volume":"196 3","pages":""},"PeriodicalIF":6.0,"publicationDate":"2021-06-29","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"138520839","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":1,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
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 monetary policy shocks that accounts for informational rigidities. We find that a monetary tightening is unequivocally contractionary, with deterioration of domestic demand, labor and credit market conditions as well as of asset prices and agents’ expectations. (JEL D82, D84, E32, E43, E52, E58, G12)
{"title":"The Transmission of Monetary Policy Shocks","authors":"Silvia Miranda-Agrippino, Giovanni Ricco","doi":"10.1257/mac.20180124","DOIUrl":"https://doi.org/10.1257/mac.20180124","url":null,"abstract":"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 monetary policy shocks that accounts for informational rigidities. We find that a monetary tightening is unequivocally contractionary, with deterioration of domestic demand, labor and credit market conditions as well as of asset prices and agents’ expectations. (JEL D82, D84, E32, E43, E52, E58, G12)","PeriodicalId":47991,"journal":{"name":"American Economic Journal-Macroeconomics","volume":"494 1","pages":""},"PeriodicalIF":6.0,"publicationDate":"2021-06-29","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"138520833","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":1,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
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 strategy to estimate the extent of endogenous adjustments in technology, I find that they can account for about half of the observed variance in comparative advantage in production in a sample of 29 countries and 18 manufacturing industries. In addition, the model suggests that standard Ricardian models overestimate the reductions in real income from increases in trade costs and underestimate the rise in real income due to trade liberalizations. (JEL F11, F14, L60, O31, O32)
{"title":"Comparative Advantage in Innovation and Production","authors":"Mariano Somale","doi":"10.1257/mac.20180295","DOIUrl":"https://doi.org/10.1257/mac.20180295","url":null,"abstract":"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 strategy to estimate the extent of endogenous adjustments in technology, I find that they can account for about half of the observed variance in comparative advantage in production in a sample of 29 countries and 18 manufacturing industries. In addition, the model suggests that standard Ricardian models overestimate the reductions in real income from increases in trade costs and underestimate the rise in real income due to trade liberalizations. (JEL F11, F14, L60, O31, O32)","PeriodicalId":47991,"journal":{"name":"American Economic Journal-Macroeconomics","volume":"15 4","pages":""},"PeriodicalIF":6.0,"publicationDate":"2021-06-29","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"138520872","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":1,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
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 reflects “fundamentals.” Using micro-level US manufacturing data, we find these alternative measures are highly correlated, exhibit similar dispersion, and have similar relationships with growth and survival. However, the distinction between these alternative measures is critically important for quantitative assessment of the level and decline of allocative efficiency. (JEL D21, D22, D24, G32, L60)
{"title":"Macro and Micro Dynamics of Productivity: From Devilish Details to Insights","authors":"G. Jacob Blackwood, Lucia S. Foster, Cheryl A. Grim, John Haltiwanger, Zoltan Wolf","doi":"10.1257/mac.20170282","DOIUrl":"https://doi.org/10.1257/mac.20170282","url":null,"abstract":"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 reflects “fundamentals.” Using micro-level US manufacturing data, we find these alternative measures are highly correlated, exhibit similar dispersion, and have similar relationships with growth and survival. However, the distinction between these alternative measures is critically important for quantitative assessment of the level and decline of allocative efficiency. (JEL D21, D22, D24, G32, L60)","PeriodicalId":47991,"journal":{"name":"American Economic Journal-Macroeconomics","volume":"5 4","pages":""},"PeriodicalIF":6.0,"publicationDate":"2021-06-29","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"138520825","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":1,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
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 blunts the impact of the rising college premium. In the absence of improved college readiness, our quantitative results suggest that continuing long-standing trends in skill-biased technological change can be expected primarily to increase earnings inequality rather than college attainment. (JEL E24, I22, I23, J24, J31, O33)
{"title":"Risk, the College Premium, and Aggregate Human Capital Investment","authors":"Kartik B. Athreya, Janice C. Eberly","doi":"10.1257/MAC.20160396","DOIUrl":"https://doi.org/10.1257/MAC.20160396","url":null,"abstract":"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 blunts the impact of the rising college premium. In the absence of improved college readiness, our quantitative results suggest that continuing long-standing trends in skill-biased technological change can be expected primarily to increase earnings inequality rather than college attainment. (JEL E24, I22, I23, J24, J31, O33)","PeriodicalId":47991,"journal":{"name":"American Economic Journal-Macroeconomics","volume":"29 1","pages":"168-213"},"PeriodicalIF":6.0,"publicationDate":"2021-04-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"90682178","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":1,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
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 elasticity that is low in the short run but high in the long run. We show the effects of each of these candidate resolutions analytically and evaluate them quantitatively. We find that while (i) and (ii) fall short of the data, (iii) goes a long way toward resolving the puzzle. (JEL E32, F14, F44)
{"title":"The Trade-Comovement Puzzle","authors":"Lukasz A. Drozd, Sergey Kolbin, Jaromir B. Nosal","doi":"10.1257/mac.20170386","DOIUrl":"https://doi.org/10.1257/mac.20170386","url":null,"abstract":"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 elasticity that is low in the short run but high in the long run. We show the effects of each of these candidate resolutions analytically and evaluate them quantitatively. We find that while (i) and (ii) fall short of the data, (iii) goes a long way toward resolving the puzzle. (JEL E32, F14, F44)","PeriodicalId":47991,"journal":{"name":"American Economic Journal-Macroeconomics","volume":"93 1","pages":""},"PeriodicalIF":6.0,"publicationDate":"2021-03-30","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"138520841","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":1,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
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