We analyze how countercyclical liquidity policy—via reserve requirements (RRs)—affects the credit cycle. For identification, we exploit supervisory credit register data and RR changes in Brazil made for monetary and macroprudential purposes and affecting banks differently. We find that countercyclical liquidity policy smooths credit supply cycles at the loan and firm levels. The effects of easing during crises are three times stronger than are those of tightening during booms, particularly for low-risk firms. We also explore interest rate policy. Credit supply effects are stronger among high-risk firms and during tightening, when interest rates are more effective than RRs.

Joseph R. Mason of Louisiana State University and BVA Group reviews “Private Finance, Public Power: A History of Bank Supervision in America” by Peter Conti-Brown and Sean H. Vanatta. The Econlit abstract of this book begins: “Presents a positive theory of how bank supervision works today, explaining how through experimentation, error, and the slow building of sometimes redundant, often warring institutions the American system of bank supervision came to be.”

We study the influence of multi-sector conglomerate firms on sectoral comovement. Using an innovative network model of firms and industries, we derive a novel measure of the co-concentration of industries in which two industries are more co-concentrated if they share greater exposure to the same conglomerate firms. Using time-series, cross-sectional, and longitudinal tests on establishment-level data from nearly all US firms over 1991 to 2019, we find that industries with higher co-concentration exhibit stronger comovement in employment, sales, and asset growth. Controlling for alternative explanations, a one-standard deviation increase in co-concentration corresponds to a 0.32-standard deviation increase in the comovement of employment growth. In variance-covariance decompositions, we find that firm-specific shocks explain nearly half of aggregate volatility and industry comovement and that conglomerates play a significant role in sectoral comovement. Our framework helps explain how idiosyncratic, firm-level shocks contribute to aggregate fluctuations and influence business cycles.

In the Australian real estate market, about a third of properties are sold at auction. Properties that fail auctions sell later for a 1.3 percent discount. Consistent with a causal channel, the effect holds with property-level fixed effects and when auction failure is instrumented by adverse weather or seller overvaluation. Prices cluster below round numbers, and the discount fades over time, inconsistent with our effects reflecting unobserved property characteristics. The evidence suggests that there are behavioral factors affecting the valuations of buyers and sellers.

Employers often give employees general pay increases that are not tied to individual performance. These pay increases can either be unconditional fixed pay raises such as cost-of-living adjustments or be tied to risky firm-level measures of performance (e.g., profit-sharing). We use two experiments and a survey to investigate how employees' position in the firm's value chain affects their psychological ownership of the firm and subsequently their preferences for different types of pay increases. We find theory-consistent evidence that employees exhibit higher levels of psychological ownership of their organization when they add value to their firm's products and services directly (i.e., are primary workers who produce goods or services) rather than indirectly (i.e., are support workers such as janitorial or safety staff) and that this in turn increases their preferences for a profit-sharing pay increase relative to an unconditional pay increase. We discuss the implications of adopting a “value chain” perspective when designing employee compensation packages.

This article reconsiders the question of optimal labour income taxes for the very rich in the context of a flexible moral hazard model. In this setting, risk is not exogenous. Rather, each agent can affect the probabilities of all possible income outcomes by allocating a fixed time endowment across a variety of distinct tasks. I prove that the optimal income tax rates on high-end earners and the optimal Pareto tail index of the pre-tax labour income distribution are both endogenously determined by agent preferences. In particular, a society with less risk-averse agents will find it optimal to impose a lower tax rate on the rich, even though its members’ choices give rise to a smaller Pareto right tail index. In contrast, this kind of negative co-movement between inequality and optimal tax rates is a suboptimal response in the classical Mirrlees (1971)–Diamond (1998)–Saez (2001) setup to changes in the exogenous distribution of skills.

This study explores the effects of COVID-19 school closures on labor market outcomes of Canadian parents of school-age children. Using newly collected data on grade level–specific school closures across 141 Canadian cities along with individual-level panel data from the Labour Force Survey, difference-in-differences estimates provide robust evidence that restrictions on in-person schooling reduced employment among partnered mothers of school-age children by approximately 2 percentage points. For fathers, labor supply adjustments are much weaker and concentrated on single fathers. Finally, auxiliary analyses using administrative tax records provide suggestive evidence that school closures increased public benefit receipt among single parents.

We use administrative data to measure sibling spillovers on academic performance before and after the introduction of Free Secondary Education (FSE) in Tanzania. Prior to FSE, students whose older siblings narrowly passed the secondary school entrance exam were less likely to go to secondary school themselves; with FSE, the effect became positive. A triple-differences analysis, using geographic variation in FSE exposure, shows that FSE caused the reversal. Mechanism analyses suggest that changes in parental investments were a more likely channel for this reversal than direct sibling interactions. By alleviating financial constraints, FSE allowed households to invest in more children.