THE THICK VOLUME under review, by Richard Layard, Stephen Nickell, and Richard Jackman, is an extensive econometric and theoretical study, using time-series and cross section data, of the central tendency of the unemployment rate and its fluctuations in 19 OECD countries since the mid-50s. It thus joins the company of several recent macroeconometric studies of employment determination using international time-series data. Of these it is easily the most far-ranging study to date though in its microscopic examination of social legislation it has somehow neglected a range of macro factors right under its nose. Readers will find an abundance of arresting claims and provocative positions to keep the critical juices flowing. For me the volume is significant not (or hardly at all) as an assemblage of particular modelings and findings but primarily as an early econometric expression of the paradigm shift we are now witnessing in macroeconomics. Once nearly made extinct by a neoclassical winter, a school of economists are today furiously at work on unemployment considered as an equilibrium phenomenon' springing from en-

PRICES AND QUANTITIES iS the brilliant and disturbing last work of Arthur M. Okun (1928-1980). For more than a decade Okun was the foremost practitioner of macroeconomics in the United States. His critical intelligence at both the theoretical and empirical ends of economics was unsurpassed. These facts were virtually a manufacturer's warranty that the book, whatever its argumentation and evidence, would be significant; we want to know what Okun thought. But this background was no guarantee of an important treatise, and it must have taken some courage to venture a big theoretical work, in an accessible style, on urgent questions. In fact, Okun has delivered a creative and virtuosic study in economic theory. The book's contribution is to provide a complete description of an economy in which rational economic agents consider the distributional consequences of wage and price decisions. The perspective adopted, one which is winning growing favor of late, is contract-theoretic. Because they wish to economize on their costly transactions with one another, people trade repeatedly with the same agent; so trust and fidelity to understandings are important. The ensuing analysis lodges some basic dissents from the informational-expectational paradigm developed over the last score of years. It is particularly stimulating, and troubling, on the main policy controversy of the decade, the question of disinflation.

Abstract The causes and consequences of the 2008 mortgage meltdown and 2020 COVID-19 crisis are quite different: the 2008 mortgage meltdown reflected infection of the financial system due to excess leverage and poor-quality mortgage loans, and the recent crisis reflects a substantial global economic shock to contain the viral outbreak of the coronavirus. Yet the financial and medical systems share many elements, such as opacity and interconnectedness as well as adequate buffers and reserves. We examine these themes as well as asset pricing, moral hazard (though it was at the root of the crisis only in the Great Recession), the consequences for government as a systemic actor, economic concentration, and capital market regulation in the two crises. In both crises, interventions in financial markets and disruptions in the housing market played important, but differing, roles. The recent crisis elucidates open questions about the foundation of financial economics and risk sharing.

Abstract Proxy advisory firms developed due to market failures underlying voting and corporate governance more broadly. However, these firms, which have not been subject to mandatory regulation, reflect their own market failures, emphasizing challenges underlying corporate governance. We highlight underlying frictions, such as economies of scale and public goods aspects to information production, the import of incentive conflicts faced by the advisory firms, their power, and the implications of their recommendations and votes by different types of investors. Asset managers emphasizing stewardship are more supportive of management than are proxy advisors. We highlight the evolving regulatory environment and limitations of one-size-fits-all recommendations. (JEL G34, G38, G24, H4) Received October 31, 2019; editorial decision October 17, 2020 by Editor Andrew Ellul.

Abstract We investigate intraday return dynamics in currency markets around FOMC announcements. Using comprehensive high-frequency exchange rate data, we reveal that post-FOMC announcement returns are significantly low, cancelling out approximately 65% of positive pre-FOMC announcement drifts. These post-announcement reversals mainly result from uncertainty resolution and are mostly realized between 12 and 24 hours after FOMC announcements. This return behavior is significantly related to the negative jump volatilities driven by FOMC announcements. Our findings suggest that our signed jump volatility measures capture informational shocks and uncertainty resolutions and tend to be high under illiquid market conditions. (JEL G14, G15)

We examine the stock market reaction to announcements of formal supervisory actions. We find that the variation in the quality and timeliness of disclosure by U.S. banks explains much of the variation in the market's reactions. We also find that these announcements can cause spillover effects. However, rather than representing contagion, these spillover effects are consistent with enhanced transparency. Only banks in the same region as the announcing bank, with similar exposures, are affected. Thus, enhanced disclosure can improve the allocation of resources in the banking system. Journal of Economic Literature Classification Numbers: G21, G28.

What are the causes and consequences of commonality in liquidity? We examine this issue using a model of liquidity trading in which liquidity shocks are decomposed into common (systematic) and idiosyncratic components. We show that common liquidity shocks do not give rise to commonality in trading volume. Indeed, trading volume is independent of systematic liquidity risk, and this risk is always priced irrespective of market liquidity. In contrast, idiosyncratic liquidity shocks create liquidity demand and volume, and investors can diversify their risk by trading. Hence, pricing of the risk of idiosyncratic liquidity shocks depends on market liquidity, with idiosyncratic liquidity risk being fully priced only in perfectly illiquid markets. While trading volume increases with the variance of idiosyncratic liquidity shocks, price volatility increases with the variance of both idiosyncratic and systematic liquidity shocks. Surprisingly, our results are largely independent of the number of different securities traded in the market. When asset returns are uncorrelated, there is no transmission of liquidity across assets even when investors experience common liquidity shocks, suggesting that such liquidity shocks may not be the source of commonality in liquidity across assets detected in the literature. However, under limited conditions, more liquid securities can act as substitutes for less liquid securities. Overall, our findings suggest that common factors in liquidity may be the outcome of covariation in investor heterogeneity (e.g., as measured by co-movements in the volatility of idiosyncratic liquidity shocks) rather than of common liquidity shocks. Moreover, we find that different liquidity proxies measure different things, which has implications for future empirical analysis.