Knowledge that Transforms

This paper shows that the recent evidence that disaggregated prices are volatile does not necessarily challenge the hypothesis of price rigidity used in a large class of macroeconomic models. We document the effect of macroeconomic and sectoral disturbances by estimating a factor-augmented vector autoregression using a large set of macroeconomic indicators and disaggregated prices. Our main finding is that disaggregated prices appear sticky in response to macroeconomic and monetary disturbances, but flexible in response to sector-specific shocks. The observed flexibility of disaggregated prices reflects the fact that sector-specific shocks account on average for 85 percent of their monthly fluctuations.

There is a growing consensus that emissions of greenhouse gases due to human activity will alter the earth’s climate, most notably by causing temperatures, precipitation levels, and weather variability to increase. The design of optimal climate change mitigation policies requires estimates of the health and other benefits of reductions in greenhouse gases; current evidence on the magnitude of the direct and indirect impacts, however, is considered insufficient for reliable conclusions (A. J. McMichael et al. 2003).

This paper examines the efficiency of expectation damages as a breach remedy in a bilateral trade setting with renegotiation and relationship-specific investment by the buyer and the seller. As demonstrated by Edlin and Reichelstein (1996), no contract that specifies only a fixed quantity and a fixed per-unit price can induce efficient investment if marginal cost is constant and deterministic. We show that this result does not extend to more general payoff functions. If both parties face the risk of breaching, the first best becomes attainable with a simple price-quantity contract.

Shocks to the real price of oil may reflect oil supply shocks, shocks to the global demand for all industrial commodities, or demand shocks that are specific to the crude oil market. Each shock has different effects on the real price of oil and on US macroeconomic aggregates. Changes in the composition of shocks help explain why regressions of macroeconomic aggregates on oil prices tend to be unstable. Evidence that the recent surge in oil prices was driven primarily by global demand shocks helps explain why this shock so far has failed to cause a major recession in the United States.

The main goal of this paper is to analyze the differences between immigrant and native households in their volunteer contributions and private transfer behavior, as well as their receipt of assistance from nongovernment sources. In addition, we examine how the immigrant-native differences evolve over time as immigrant households accumulate US experience. Finally, we examine the voluntary contribution behavior of second generation immigrants and children in immigrant households to gain insight into the long-term impact of immigration. We do not find evidence that immigrant households free ride more than native-born households. First, immigrant households, when compared to similar native-born households, are less likely to receive assistance from nongovernment sources. Second, immigrant status has no statistically significant impact on monetary contributions toward public good provision. We also find that the immigrant-native differences in monetary and time contributions tend to diminish over time as immigrants acquire US experience. Finally, we find no significant differences between the second generation of immigrants and third or higher generations of Americans in their voluntary contributions of money and time. We obtain similar results for children in immigrant households: they are not significantly different from children in native households in their time contribution and in their enrollment in federal meal programs. The results are robust to various income and wealth controls. Do Immigrants and Their Children Free Ride More Than Natives?

This paper presents evidence about the effect of individual monetary incentives on English and math teachers in Israel. Teachers were rewarded with cash bonuses for improving their students' performance in high-school matriculation exams. The main identification strategy is based on measurement error in the assignment to treatment variable that produced a randomized treatment sample. The incentives led to significant improvements in test taking rates, conditional pass rates, and mean test scores. Improvements were mediated through changes in teaching methods, enhanced after-school teaching, and increased responsiveness to students' needs. No evidence was found of manipulation of test scores by teachers.

Models of nonexponential time discount ing help to explain a variety of regularities in economic behavior, including contract choice (Stefano DellaVigna and Ulrike Malmendier 2004), procrastination (Ted O'Donoghue and Matthew Rabin 1999; Dan Ariely and Klaus Wertenbroch 2002), and life-cycle consumption patterns (David Laibson, Andrea Repetto and Tobacman 2007). This paper applies the quasi hyperbolic time discounting model to the study of wealth inequality. A large literature analyzes the nature and causes of inequality and poverty traps.1 Here, first I theoretically examine a simple, autarkic mechanism that can cause exogenous dispersion in wealth to persist and grow. Specifically, quasi hyperbolic discount functions endogenously

This paper studies the estate tax in a quantitative framework with business investment, borrowing constraints, estate transmission, and wealth inequality. We find that the estate tax has little effect on the saving and investment decisions of small businesses, but does distort the decisions of larger firms, thereby reducing aggregate output and savings. Removing such distortions by eliminating the estate tax does not necessarily imply that everyone would be better off. If other taxes were raised to reestablish fiscal balance, those at the top of the wealth distribution would experience a large welfare gain, but most of the population would lose.

Why Are Recessions Good for Your Health? by Douglas L. Miller, Marianne E. Page, Ann Huff Stevens and Mateusz Filipski. Published in volume 99, issue 2, pages 122-27 of American Economic Review, May 2009

This short paper argues that the view that monetary policy is ineffective during financial crises is not only wrong, but may promote policy inaction in the face of a severe contractionary shock. To the contrary, monetary policy is more potent during financial crises because aggressive monetary policy easing can make adverse feedback loops less likely. The fact that monetary policy is more potent than during normal times provides a rationale for a risk-management approach to counter the contractionary effects from financial crises, in which monetary policy is far less inertial than would otherwise be typical -not only by moving decisively through conventional or nonconventional means to reduce downside risks from the financial disruption, but also in being prepared to quickly take back some of that insurance in response to a recovery in financial markets or an upward shift in inflation risks.