Knowledge that Transforms

We report on the design of the new clearinghouse adopted by the National Resident Matching Program, which annually fills approximately 20,000 jobs for new physicians. Because the market has complementarities between applicants and between positions, the theory of simple matching markets does not apply directly. However, computational experiments show the theory provides good approximations. Furthermore, the set of stable matchings, and the opportunities for strategic manipulation, are surprisingly small. A new kind of "core convergence" result explains this; that each applicant interviews only a small fraction of available positions is important. We also describe engineering aspects of the design process.

The “NAIRU ” view of the relationship between inflation and the unemployment rate is that there is a value of the unemployment rate (the NAIRU) below which the price level forever accelerates and above which the price level forever decelerates. 1 This view imposes two important restrictions on the dynamics of the price process. This can be seen by examining a simple version of the NAIRU equation: πt − πt−1 = β(ut − u ∗ ) + γst +ɛt, β < 0, γ> 0, (1) where t is the time period, πt is the rate of inflation, ut is the unemployment rate, st is a cost shock variable, ɛt is an error term, and u ∗ is the NAIRU. If ut equals u ∗ for all t, the rate of inflation will not change over time aside from the short-run effects of st and ɛt (assuming st and ɛt have zero means). Otherwise, the rate of inflation will increase over time (the price level will accelerate) if ut is less than u ∗ for all t and will decrease over time (the price level will decelerate) if ut is greater than u ∗ for all t.

Anomalous Behavior in a Traveler's Dilemma? by C. Monica Capra, Jacob K. Goeree, Rosario Gomez and Charles A. Holt. Published in volume 89, issue 3, pages 678-690 of American Economic Review, June 1999

Nobel Lecture

The frequency of job loss among workers in late career has risen disproportionately in recent years. The effects of job loss on these workers are potentially severe: their earnings capacity, savings, and retirement expectations are likely to be dramatically affected and they may take substantially longer to be re-employed. However, despite these reasons for heightened concern, relatively little is known about the economic consequences of late career job loss among recent cohorts of workers. This paper presents findings from an ongoing research project using the Health and Retirement Study that focuses on the economic impacts of late career job loss on employment and retirement patterns, as well as on earnings and assets.(This abstract was borrowed from another version of this item.)

This paper examines the historical evolution of the relationship between population growth, technological change, and the standard of living.It considers several unified models that encompass the transition between three distinct regimes that have characterized the process of economic development: ``The Malthusian Regime," ``The Post-Malthusian Regime," and the ``Modern Growth Regime".We view the unified modeling of this long transition process -from thousand of years of Malthusian stagnation through the demographic transition to modern growth -as one of the most significant research challenges facing economists interested in growth and development.

The World Trade Organization (WTO) lacks the power to directly enforce agreements. It is therefore important to understand what role the WTO can play to facilitate international cooperation, and whether a multilateral institution can offer distinct advantages over a web of bilateral agreements. This paper examines two potential benefits of a multilateral trade institution: first, verifying violations of the agreements and informing third parties, thus facilitating multilateral reputation mechanisms; second, promoting multilateral trade negotiations rather than a web of bilateral negotiations. The model suggests that a multilateral approach is particularly important when there are strong imbalances in bilateral trading relationships. (JEL F13)

Fifty Years of U.S. Income Data from the Current Population Survey: Alternatives, Trends, and Quality by Daniel H. Weinberg, Charles T. Nelson, Marc I. Roemer and Edward J. Welniak. Published in volume 89, issue 2, pages 18-22 of American Economic Review, May 1999

In the wake of the Mexican and Asian currency turmoil, the subject of financial crises has come to the forefront of academic and policy discussions. This paper analyzes the links between banking and currency crises. We find that: problems in the banking sector typically precede a currency crisis—the currency crisis deepens the banking crisis, activating a vicious spiral; financial liberalization often precedes banking crises. The anatomy of these episodes suggests that crises occur as the economy enters a recession, following a prolonged boom in economic activity that was fueled by credit, capital inflows, and accompanied by an overvalued currency. (JEL F30, F41)

If college seniors who have taken an economics course were asked questions that test their knowledge of basic economics, what would the results show? Would seniors give correct answers to most questions, or would they show significant deficiencies? Students are exposed to many ideas during their undergraduate education, so one would not expect them to retain all of the economic content they were taught, but one would hope that they would retain at least a knowledge of basic economics. This study investigates whether that is the case. Two data sources were used for the study. The first was from a Gallup survey of a national random sample of 300 college seniors (Walstad and Max Larsen, 1992). The survey includes 15 multiple-choice questions testing economic knowledge. The responses from that survey can be separated according to whether students took economics. The second data set came from the economics scores for 12,854 students who took the Major Field Test in Business II (MFTB) sponsored by Higher Education Assessment of the Educational Testing Service (ETS, 1998). The MFTB covers content typically taught in an undergraduate program in business and contains about 20 multiple-choice questions on basic economics. Although there are differences between the two data sets, we viewed this as an advantage for our study. Our hypothesis is that most college seniors would show relatively limited knowledge of basic economics, no matter what questions were asked or how the data were collected. We expected students responding to the Gallup questions to score higher than students taking the MFTB because the Gallup questions were simpler and designed for telephone interviews. The MFTB, by contrast, is a standardized achievement test with definitions and analytical questions of the type that would be used in course exams for Principles of Economics. With both sets of test data, however, we expected to find significant gaps in the economic knowledge of college seniors.