Knowledge that Transforms

We develop a bottom-up approach to estimate the slope of the primitive form of the New Keynesian Phillips curve, which features marginal cost as the real activity variable. Using quarterly micro data on prices, costs, and output, we estimate dynamic pass-through regressions that identify the slope as a function of primitive parameters. We find a high slope for the cost-based Phillips curve, which contrasts with the low estimates of the conventional output gap–based formulation found in the literature. We reconcile by showing that the output elasticity of marginal cost is low, at least during moderate inflation periods (e.g., pre-pandemic). (JEL C51, E12, E23, E31, E32, L60)

This paper provides an economic perspective on data-driven innovation in digital products, focusing on the role of complex experiments in measuring and improving social impact. The discussion highlights how tools and insights from economics contribute to each stage of the innovation process. Key contributions include identifying problems, developing theoretical frameworks, translating goals into measurable outcomes, analyzing historical data, and estimating counterfactual outcomes. The paper also surveys recently developed tools designed to address challenges in designing and analyzing data from complex experiments. (JEL A11, D83, D91, I20, L80, O31, Q16)

We analyze a monetary quasi–experiment in Sweden from 2010–2011, when the Riksbank raised the interest rate substantially. We argue that this increase was beyond what labor market conditions warranted, driven instead by new concerns about financial stability. Using a battery of specifications that rule out domestic or international confounders, we show that this monetary tightening led to a substantial economic contraction, raising unemployment by 1–2 percentage points. Using administrative microdata, we find that sectors with nominal wage rigidity drove much of the response and that the monetary contraction was more regressive than the typical business cycle. (JEL E24, E32, E43, E52, E58)

We construct a dataset of firms’ discount rates (i.e., required returns to capital) and perceived cost of capital using corporate conference calls. The relation between discount rates and the cost of capital is far below the one-to-one mapping assumed in standard theory, as it takes many years for changes in the cost of capital to be incorporated into discount rates. This pattern leads to large and time-varying discount rate wedges that affect firm investment. Moreover, increasing discount rate wedges can account for the recent puzzle of “missing investment.” Cross-firm variation in market power and riskiness explains the evolution of wedges. (JEL D22, E43, G12, G31, G32)

Children spend years in foster care, and bureaucratic hurdles can unnecessarily prolong their stays. The Mi Abogado program was introduced in Chile to enhance legal aid for foster children and accelerate family reunification. In a novel approach, the Chilean government randomized the introduction of the program for children living in institutions to evaluate effects on child well-being. Using registry data, we find the program significantly reduced the duration of foster care without increasing subsequent maltreatment and placements. The exposure also decreased criminal justice involvement and improved school attendance. Results suggest that strengthening foster care services can cost-effectively improve child well-being. (JEL I21, I31, J13, K36, O15, O17)

We study a prominent energy regulation affecting large Chinese manufacturers that are part of broader conglomerates. Using detailed firm-level data and difference-in-differences research designs, we show that regulated firms cut output and shifted some production to unregulated firms within their conglomerate instead of improving their energy efficiency. To account for conglomerate and market spillovers, we interpret these results through the lens of an industry equilibrium model featuring conglomerate production. The policy raises welfare if the per ton benefits of carbon reduction exceed $161. Alternative policies that exploit public information on business networks can increase aggregate energy savings by 10 percent. (JEL D22, L22, L51, L60, P28, P31, Q48)

We develop a linear GMM estimator of the discrete-time mixed proportional hazard (MPH) model of duration with an arbitrary distribution of unobserved heterogeneity. We allow for competing risks, observable characteristics, and censoring. We prove our estimator is consistent and apply it to the duration of price spells. We find substantial unobserved heterogeneity with economically meaningful implications for the response of output to a monetary policy shock in a model with time-dependent pricing rules and for the degree of state dependence in a model of price plans. (JEL C24, C41, E23, E31, E52, L11)

The child mental health crisis has been described as the “defining public health crisis of our time.” This article addresses three myths about the crisis: (i) the idea that the crisis is new; (ii) the belief that increases in youth suicide mainly reflect deterioration in children’s underlying mental health; and (iii) the myth that investments in children have little impact on children’s mental health. In fact, the crisis has existed for decades, youth suicides vary asynchronously with other mental health measures and are impacted by external factors such as firearms legislation, and investments can improve child mental health and prevent suicide. (JEL I12, I18, J13, J16)

Firms posting job openings in an online labor market were randomly assigned minimum hourly wages. When facing a minimum wage, fewer firms hired, but those they did hire paid higher wages. Hoursworked fell substantially. Treated firms shifted to hiring more productive workers. Using the platform's imposition of a market-wide minimum wage after the experiment, I find that many of the experimental results also hold in equilibrium, including the substitution towards more productive workers. However, there was also a large reduction in the number of jobs posted for which the minimum wage would likely bind. (JEL J22, J23, J31, J38)

This paper studies the impact of quid pro quo (technology for market access) in facilitating knowledge spillovers and quality upgrading in the Chinese automobile industry. The identification strategy exploits within-product quality variation across a rich set of quality dimensions. We find affiliated domestic automakers adopt more similar quality strengths of their joint venture partners, consistent with knowledge spillovers. Additional analysis suggests worker flows and supplier networks mediate knowledge spillovers. Knowledge spillovers due to ownership affiliation under quid pro quo contributed 8.3 percent of the quality improvement experienced by affiliated domestic models from 2001 to 2014, relative to nonaffiliated domestic models. (JEL F23, L15, L24, L62, O14, O33, P23)