Knowledge that Transforms

This paper develops a simple general-equilibrium framework to study the effect of the exchange-rate system on trade and welfare. An important feature of the model is deviations from purchasing-power parity, caused by rigid price setting in buyers' currency. In a benchmark model with separable preferences and only monetary shocks, trade is unaffected by the exchange-rate system, consistent with most evidence. In general, both trade and welfare can be higher under either exchange-rate system, depending on preferences and on the monetary-policy rules followed under each system. There is no one-to-one relationship between the levels of trade and welfare across exchange-rate systems.

This paper explores a monetary-policy model with habit formation for consumers, in which consumers' utility depends in part on current consumption relative to past consumption. The empirical tests developed in the paper show that one can reject the hypothesis of no habit formation with tremendous confidence, largely because the habit-formation model captures the gradual hump-shaped response of real spending to various shocks. The paper then embeds the habit-consumption specification in a monetary-policy model and finds that the responses of both spending and inflation to monetary-policy actions are significantly improved by this modification.

We study a Lucas asset-pricing model that is standard in all respects, except that the representative agent's subjective beliefs about endowment growth are distorted. Using constant relative risk-aversion (CRRA) utility, with a CRRA coefficient below 10; fluctuating beliefs that exhibit, on average, excessive pessimism over expansions; and excessive optimism over contractions (both ending more quickly than the data suggest), our model is able to match the first and second moments of the equity premium and risk-free rate, as well as the persistence and predictability of excess returns found in the data.

PUR 6403 Crisis and Risk Management focuses on practical applications of theory and research to identify and strategically manage issues and operational risks that can materially affect the continuity of global organizations. Emphasis is placed on preparing managers for ethical and effective risk and crisis communication, as well as the formulation of strategic crisis communication plans. Class information: PUR 6403 §1219 meets 8th-10th periods (3-6 p.m.) on Thursdays in Weimer 3020. Course goals: The goal of PUR 6403 is for students to understand and appreciate how issues impact organizational continuity, how issues and operational risks are strategically managed and crises averted, and the importance of ethical, effective risk and crisis communication.

We demonstrate that a simple model, constructed on the premise that people are motivated by both their pecuniary payoff and their relative payoff standing, organizes a large and seemingly disparate set of laboratory observations as one consistent pattern. The model is incomplete information but nevertheless posed entirely in terms of directly observable variables. The model explains observations from games where equity is thought to be a factor, such as ultimatum and dictator, games where reciprocity is thought to play a role, such as the prisoner's dilemma and gift exchange, and games where competitive behavior is observed, such as Bertrand markets.

This paper considers propagation of aggregate shocks in a dynamic general-equilibrium model with labor-market matching and endogenous job destruction. Cyclical fluctuations in the job-destruction rate magnify the output effects of shocks, as well as making them much more persistent. Interactions between capital adjustment and the job-destruction rate play an important role in generating persistence. Propagation effects are shown to be quantitatively substantial when the model is calibrated using job-flow data. Incorporating costly capital adjustment leads to significantly greater propagation.

The national income accounts, together with the source data which they use, form the core of our economic measurement system. The development of the concepts and measurements of national income are among the most important achievements of modern

Why Are Women Such Reluctant Economists? Evidence from Liberal Arts Colleges by Elizabeth J. Jensen and Ann L. Owen. Published in volume 90, issue 2, pages 466-470 of American Economic Review, May 2000

Whether welfare benefits affect marriage and fertility decisions of the low-income population has been the subject of much research. The substantial bias in the U.S. welfare system toward female-headed families, relative to either married couples or single childless individuals, provides a clear financial incentive for early nonmarital childbearing, postponement of marriage, divorce, postponement of remarriage, and other behaviors that make eligibility for welfare benefits more likely or that avoid the loss of eligibility after it has been achieved. The findings in the cross-sectional research literature through 1995, summarized in Moffitt (1998), exhibit a clear central tendency pointing toward an effect of welfare on some aspects of family structure, namely, marriage and fertility. However, there is also agreement that the time-series evidence is inconsistent with that from crosssectional data, for real benefits have been falling for over 20 years, while female headship has been rising. Moreover, bringing other programs such as Food Stamps and Medicaid into the picture helps explain rising female headship increases in the late 1960's and early 1970's, when those programs were introduced and solidified, but does less well in explaining the