Exchange Rates and Employment Instability: Evidence from Matched CPS Data by Linda Goldberg, Joseph Tracy and Stephanie Aaronson. Published in volume 89, issue 2, pages 204-210 of American Economic Review, May 1999
Examining the correlation between trade and income cannot identify the direction of causation between the two. Countries' geographic characteristics, however, have important effects on trade, and are plausibly uncorrelated with other determinants of income. This paper therefore constructs measures of the geographic component of countries' trade, and uses those measures to obtain instrumental variables estimates of the effect of trade on income. The results provide no evidence that ordinary least-squares estimates overstate the effects of trade. Further, they suggest that trade has a quantitatively large and robust, though only moderately statistically significant, positive effect on income.
Wages are positively related to firm size. This relation was discovered by Henry L. Moore (1911) and later confirmed by, among others, Charles Brown and James Medoff (1989). The wage premium associated with working at a larger firm or plant is ubiquitous, but its magnitude varies across countries and over time. The reason for a size-related wage premium is harder to pin down. Paying supernormal wages to deter shirking, thereby saving monitoring costs, seems plausible, but a closer examination has led us to reject this explanation (Oi and Idson, 1999). At a big firm, the workplace is safer, and fringes are superior, so that these factors cannot be the source of a positive premium. It must be something else such as work effort. The theory that we advance is that employees at larger firms are more productive and hence command higher wages in a competitive labor market. The shape of the size–wage relation depends on technology, worker preferences, and working conditions other than size. It will change over time and across occupations.
The Economic Performance of African-American-Owned Banks: The Role of Loan Loss Provisions by Christopher C. Henderson. Published in volume 89, issue 2, pages 372-376 of American Economic Review, May 1999
This paper provides a new explanation of why inflation is sluggish in response to aggregate demand shocks and why aggregate output changes as result of such shocks. We argue that these phenomena are related to between inputs and outputs in the process, production lags for short. The broad intuition is that activities in a modern economy are interconnected through complex input-output relations, with within individual firms, and that it takes considerable time for cost and price changes to penetrate the entire input-output system. Our analysis provides a rationale for a prolonged inverse relation between inflation and unemployment. The paper suggests that the interaction of inflation persistence and unemployment persistence may offer a possible explanation of high and prolonged European unemployment. (This abstract was borrowed from another version of this item.)
The Impact of Global Warming on Agriculture: A Ricardian Analysis: Comment by John Quiggin and John K. Horowitz. Published in volume 89, issue 4, pages 1044-1045 of American Economic Review, September 1999
We examine strategic interactions between firms and planners in China, comparing behavior between: (i) students and managers with field experience with this situation, (ii) standard versus increased monetary incentives, and (iii) sessions conducted “in context,” making explicit reference to interactions between planners and managers, and those without any such references. The dynamics of play are similar across treatments with play only gradually, and incompletely, converging on a pooling equilibrium. A fivefold increase in incentives significantly increases initial levels of strategic play. Games played in context generated greater levels of strategic play for managers, with minimal impact on students.
In most member states of the European Union (EU), issues concerning sound and sustainable finances are high on the political agenda. This paper briefly reports the findings of 12 country studies that investigate the impact of the demographic transition on the intergenerational stance of current fiscal policy within EU, using the device of generational accounting as first developed by Alan J Auerbach et al. (1991).
Zipf's law is a very tight constraint on the class of admissible models of local growth. It says that for most countries the size distribution of cities strikingly fits a power law: the number of cities with populations greater than S is proportional to 1/ S . Suppose that, at least in the upper tail, all cities follow some proportional growth process (this appears to be verified emperically). This automatically leads their distribution to converge to Zipf's law.
In an earlier article in this Review, Christopher J. Waller and Carl E. Walsh (1996) (hereafter, WW the greater this influence, the weaker is the independence of the central bank. Institutional arrangements designed to overcome the time-inconsistency problem and political uncertainty constitute another dimension of central-bank independence, since these legal arrangements are ex ante choices which should not be dismissed ex post. W&W examine two legal arrangements, the length of the central banker’s term in office and the degree of conservativeness expressed as the weight attached to the inflation target. While partisanship and the degree of conservativeness are assumed to be exogenous, W&W only allow the length of the term in office to be optimally determined. They successfully obtain a finite optimal term length by introducing persistent shifts in long-run social preferences of inflation. Furthermore, they conclude that the appointment of a conservative central banker increases the optimal term length and results in lower average inflation, but need not necessarily increase output volatility. The obvious question is then: Why should a conservative central banker be appointed? As shown in many studies (e.g., Kenneth Rogoff, 1985), the highest degree of conservativeness is actually not optimal from the point of view of social welfare maximization. Moreover, since several types of economic distortions exist in W&W’s economy, that is heterogeneity of the preferred inflation rate, political uncertainty over the short-run median voter’s preferred inflation rate, persistent shifts in social preferences of inflation, and discretionary ways of implementing monetary policy, social welfare would further increase if more “instruments” were available to society. In this Comment, I extend W&W’s study by endogenizing the determination of the optimal degree of conservativeness. A simplified W&W model is set up in Section I, and some of the arguments in W&W are then clarified in Section II. Concluding remarks are given in Section III.