Knowledge that Transforms

This paper analyzes optimal monetary policy in a sticky price model with Calvo-type staggered price-setting. In the paper, the optimal monetary policy maximizes the expected utility of a representative household without having to rely on a set of linearly approximated equilibrium conditions, given the distortions associated with the staggered price-setting. It shows that the complete stabilization of the price level is optimal in the absence of initial price dispersion, while optimal inflation targets respond to changes in the level of relative price distortion in the presence of initial price dispersion.

Explaining the Short Careers of High-Achieving Teachers in Schools with Low-Performing Students by Donald Boyd, Hamilton Lankford, Susanna Loeb and James Wyckoff. Published in volume 95, issue 2, pages 166-171 of American Economic Review, May 2005

U.S. research universities are increasingly populated by postdoctoral fellows. Two dimensions of the postdoctoral training have led to this increase. One is the increasing number of new Ph.D. s taking a first postdoc position, and the other involves a lengthening of the duration of an individual’s postdoc experience. In this paper, we examine factors contributing to both of these trends. We find that the increased propensity to take a postdoctoral position can be attributed to the increased proportion of Ph.D.s being awarded in the life sciences and the increased proportion of temporary and permanent residents in the graduate population. The increased propensity to take a postdoc position also relates to adverse job market conditions experienced by Ph.D. s during the period. Our postdoc duration results suggest that increased duration can be explained in part by the increasing proportion of Ph.D. s awarded to temporary residents and the increased number of degrees being awarded in the life sciences. Adverse job market conditions also appear to play a role. We also find the duration of the postdoc experience to be positively related to the provision of fringe benefits. We would like to thank Grant Black of the Andrew Young School for his assistance. We also thank Science Resources Statistics, National Science Foundation for providing U.S. access to the Survey of Doctorate Recipients and the Survey of Earned Doctorates. We have benefited from the comments of Robert Clark, Richard Freeman, Bill Amis, Michael Rothchild and participants at the November 2004 NBER Education meeting. Stephan would like to acknowledge the financial support provided by the TIAA-CREF Institute for this project and from the Andrew W. Mellon Foundation for support of work with the Survey of Earned Doctorates.

The Sensitivity of Long-Term Interest Rates to Economic News: Evidence and Implications for Macroeconomic Models by Refet S. Gürkaynak, Brian Sack and Eric Swanson. Published in volume 95, issue 1, pages 425-436 of American Economic Review, March 2005

The equilibrium relationship between trade and the spatial distribution of economic activity is fundamental to the analysis of national and regional trade patterns, as well as to the effect of trade frictions. We study this relationship using a trade model with a continuum of regions, transport costs, and agglomeration effects caused by production externalities. We analyze the equilibrium specialization and trade patterns for different levels of transport costs and externality parameters. Understanding trade via the distribution of economic activity in space naturally rationalizes the evidence on border effects and the “gravity equation.”

Academic journal publishing has evolved rapidly in the past two decades. Prices, ownership concentration, the number of journals, and the means of distribution have all changed dramatically. Substantial price increases have been the norm. Average prices have risen severalfold over this period, with prices climbing the most at forprofit journals, where these prices are now as much as 500 percent higher than nonprofits (Gail Yokote, 2003). The price difference between forprofit and nonprofit academic journals is particularly striking, given that these journals are generally similar in format and editorial processes, and that for-profit journals do not appear to be of higher quality (Theodore C. Bergstrom, 2001 p. 183). Increased concentration provides one possible explanation for why prices of for-profit journals are so high. To take one example, measured by revenue, in 2001 Elsevier Science had a 22.9percent share of the Science, Technology, and Medicine (STM) industry, with Kluwer at 11.7 percent, and Thomson at 10.7 percent. But concentration offers at best only a partial answer. Bundling offers another, potentially more significant explanation, particularly for recent increases. The prices of for-profit journals could not be high and increasing without significant structural barriers to entry. Recently, however, a new strategic barrier has emerged. Major publishers have been offering libraries packages of journals that are bundled across journals and across print and electronic versions. The exact terms have varied from publisher to publisher, but a contract (sometimes called a “Big Deal” by librarians) typically involves a library entering into a long-term arrangement to get access to a large electronic library of journals at a substantial discount, in exchange for a promise not to cut print subscriptions (whose prices will increase over time); in this sense print and electronic are bundled. Since the electronic library becomes much less expensive when ordered in quantity, there is likewise bundling across electronic journals. Bundling can be seen as a device that erects a strategic barrier to entry. At a simple level of analysis, the Big Deal contracts leave libraries few budgetary dollars with which to purchase journals from new entrants. Looking one level deeper, we see that bundling entails average prices that exceed marginal prices, and this creates a barrier to entry if entrants compete with the marginal journal. Other things equal, bundling practices are likely to be anticompetitive to the extent that they allow for the maintenance of supracompetitive average prices that limit usage of academic journals by scholars and/or distort library choices between journals and monographs and books. There are, however, pro-competitive benefits associated with bundling. Recent deals have provided scholars with extra access to journals; moreover, when electronic databases contain journals not included in the libraries’ print collections, the collections expand. Finding an economic approach that analyzes a range of bundling practices and evaluates them by appropriately balancing benefits and costs † Discussants: V. Kerry Smith, North Carolina State University; Robert Hall, Stanford University.

Since 1950, housing prices have risen regularly by almost two percent per year. Between 1950 and 1970, this increase reflects rising housing quality and construction costs. Since 1970, this increase reflects the increasing difficulty of obtaining regulatory approval for building new homes. In this paper, we present a simple model of regulatory approval that suggests a number of explanations for this change including changing judicial tastes, decreasing ability to bribe regulators, rising incomes and greater tastes for amenities, and improvements in the ability of homeowners to organize and influence local decisions. Our preliminary evidence suggests that there was a significant increase in the ability of local residents to block new projects and a change of cities from urban growth machines to homeowners' cooperatives.

State "Currencies" and the Transition to the U.S. Dollar: Reply-Including a New View from Canada by Farley W. Grubb. Published in volume 95, issue 4, pages 1341-1348 of American Economic Review, September 2005

Two issues dominate the school choice de-bate: whether competition would make schools more productive, and whether choice would re-sult in sorting or stratification. In trying to an-swer these questions, economists have generally focused on the consequences of voucher sys-tems, yet inter-district or Tiebout choice is, and is likely to remain, the main form of school choice in the United States. Surprisingly, we know comparatively little about its effects. This paper focuses on whether inter-district choice leads to sorting, an issue on which there is no consensus. In recent work, for instance, Charles T. Clotfelter (1999) argues that district availability does influence chil-