Knowledge that Transforms

This paper investigates the effects of shocks to U. S. monetary policy on exchange rates. We consider three measures of these shocks: orthogonalized shocks to the federal funds rate, orthogonalized shocks to the ratio of nonborrowed to total reserves and changes in the Romer and Romer index of monetary policy. In sharp contrast to the literature, we find substantial evidence of a link between monetary policy and exchange rates. Specifically, according to our results a contractionary shock to U. S. monetary policy leads to (i) persistent, significant appreciations in U. S. nominal and real exchange rates and (ii) significant, persistent deviations from uncovered interest rate parity in favor of U. S. interest rates.

This paper demonstrates that the behavior of the conventional Phelps-Taylor model of overlapping wage contracts stands in stark contrast with important features of U. S. macro data for inflation and output. In particular, the Phelps-Taylor specification implies far too little inflation persistence. We present a new contracting model, in which agents are concerned with relative real wages, that is data-consistent. In a specification that nests both models, we resoundingly reject the conventional contracting model, but cannot reject the new contracting model.

This paper documents the fundamental role played by factor accumulation in explaining the extraordinary postwar growth of Hong Kong, Singapore, South Korea, and Taiwan. Participation rates, educational levels, and (excepting Hong Kong) investment rates have risen rapidly in all four economies. In addition, in most cases there has been a large intersectoral transfer of labor into manufacturing, which has helped fuel growth in that sector. Once one accounts for the dramatic rise in factor inputs, one arrives at estimated total factor productivity growth rates that are closely approximated by the historical performance of many of the OECD and Latin American economies. While the growth of output and manufacturing exports in the newly industrializing countries of East Asia is virtually unprecedented, the growth of total factor productivity in these economies is not.

Wholesale trade in used cars is conducted by ascending bid auctions, with sale subject to the seller's acceptance of the winning bid. One out of three times the seller rejects the bid, and no trade takes place. I model the seller's decision as the outcome of search, and thus determined by the winning bid distribution, and a reported retail price. This market is ideal for testing search theory since all offers, whether or not accepted, are observed. Qualitative predictions of the theory, in particular the role of the variance, are confirmed. The quantitative results are more ambiguous. One out of every three times, seller and buyer fail to trade at wholesale auto auctions. Instead, the seller exercises his right to refuse the winning bid. This paper shows how search theory can explain the sale rate and its variation across different types of automobiles. Few readers will find intrinsic interest in wholesale auto auctions. The value to studying them lies instead in the opportu-nity to observe all offers to trade in an environment that neatly

This paper presents a simple model of trade in the housing market. The crucial feature is that a minimum down payment is required for the purchase of a new home. The model has direct implications for the volatility of house prices, as well as for the correlation between prices and trading volume. The model can also be extended to address the correlation between prices and time-to-sale, as well as certain aspects of the cyclical behavior of housing starts.

Many young men commit crime, and many are arrested. I estimate the effect of arrests on the employment and earnings of arrestees, using a large longitudinal data set constructed by merging police records with UI earnings data. I find that the effects of arrests are moderate in magnitude and rather short-lived. I.

A panel data approach is advocated and implemented for studying growth convergence. The familiar equation for testing convergence is reformulated as a dynamic panel data model, and different panel data estimators are used to estimate it. The main usefulness of the panel approach lies in its ability to allow for differences in the aggregate production function across economies. This leads to results that are significantly different from those obtained from single cross-country regressions. In the process of identifying the individual “country effect,” we can also see the point where neoclassical growth empirics meets development economics.

This paper studies the determinants of the value of voting rights in U. S. corporations. Results support the hypothesis that the price of a vote is determined by the expected additional payment vote holders will receive for their votes in case of a control contest. The size of this differential payment is a function of the probability that a vote is pivotal in a control contest and the magnitude of the private benefits obtainable by controlling the company. Simple proxies for these two factors explain up to 30 percent of the variation of the voting premium across companies and through time. My findings also suggest that the value of managerial perquisites are, at least partially, reflected in the price of votes.

We examine daily prices of eight goods at seventeen retail stores collected in Ann Arbor, Michigan, over a four-month period from November 1 to February 28. We focus on weekly and seasonal price patterns, and on the frequency of price markdowns or “sales.” There were frequent markdowns in the intensive shopping period prior to Christmas, and a tendency for such sales to occur on weekends. We interpret these findings as evidence that a significant number of markdowns are timed to occur when shopping intensity is exogenously high. We complement the imperfect information-based motives for sales in the literature by contributing an additional element based on the role of bulk shopping and increasing returns in the shopping technology.

The paper investigates, both theoretically and empirically, the private demand for STD testing and for protection against infection with emphasis on testing for the AIDS virus (HIV) and on the effects of public subsidies for such testing on the incidence of sexually transmitted diseases. We discuss the theoretical conditions under which subsidizing testing either increases or decreases disease incidence and provide evidence on the empirical significance of those conditions.