The idea of the Squam Lake Report was to bring together some fifteen leading U.S. financial economists to see what regulatory changes they could jointly agree and thereby influence policy discussions. Seeking to find a consensus, however, meant that many issues were not mentioned in the Report, e.g., structural limitations, Pigovian taxes, procyclicality, and boundary problems between banks and nonbanks. But what is presented is generally, though not invariably, admirable, and the book is beautifully written in good, easily accessible English.

This article documents various demographic factors which influence mutual fund turnover including managerial experience, location, education, and gender. On average, funds in financial centers trade more but this excess turnover declines with experience. While most extra trading is concentrated among less experienced managers in financial centers, they do not outperform inexperienced managers located in smaller towns. Furthermore, managers in financial centers increase trading after good performance. This result is particularly strong for inexperienced, more educated male fund managers investing in growth stocks and located in New York. Our results provide strong evidence that demographic factors influence fund manager trading behavior.

This paper studies the life-cycle consumption and portfolio choice problem taking account of annuity risk at retirement. The study allows for government-provided annuity income. Optimally, households allocate retirement wealth to nominal, inflation-linked and variable annuities, and condition this choice on the state of the economy. The case in which there are limitations in the types of annuities that are available is also considered and the costs of annuity market incompleteness are quantified. Subsequently, the paper determines how investors optimally anticipate annuitization before retirement. The conclusion is that ignoring annuity risk before and at retirement can be economically costly.

The purpose of this paper is to assess the choice between adopting a monetary base or an interest rate setting instrument to maintain financial stability. Our results suggest that the interest rate instrument is preferable, since during times of a panic or financial crisis the Central Bank automatically satisfies the increased demand for money. Thus, it prevents sharp losses in asset values and enhanced asset volatility.

We assess how forms of disagreement among investors affect a firm's cost of capital. Firms experience a lower cost of capital if investors perceive that other investors are ignoring relevant disclosures (perceived errors of omission), but a higher cost of capital if investors perceive that others are responding to irrelevant disclosures (perceived errors of commission). The impact of these two sources of disagreement on the cost of capital is determined by the distribution of opinion and the nature of disclosure. For example, even though aggregated disclosures reveal less to investors, aggregated disclosures may decrease the cost of capital by eliminating disagreement associated with perceived errors of commission. These and additional results arise because the cost of capital is driven not only by investors’ uncertainty about the firm's future earnings performance, but also by investors’ uncertainty about the evolution of beliefs, which partly determines the path of prices.

Over the past thirty years, U.S. manufacturing plants invested heavily in automation machinery. This paper shows these investments substituted for the least-skilled workers and complemented middle-skilled workers at equipment and fabricated metal plants. Specifically, it exploits the fact that some metropolitan areas experienced faster growth in the relative supply of less-skilled labor in the 1980s and 1990s due to an immigration wave and the tendency of immigrants to regionally cluster. Plants in these areas adopted significantly less machinery per unit output, despite having similar adoption plans initially. The results imply that fixed rental rates for automation machinery reduce the effect that immigration has on less-skilled relative wages.

This paper analyses the interaction between internal agency problems within firms and external search frictions when workers have private information. We show that the allocation of resources is determined by a modified Hosios Rule. We then analyze the effect of changes in the macro economic variables on the wage contract and the unemployment rate. We find that private information may increase the responsiveness of the unemployment rate to changes in productivity. The incentive power of the wage contracts is positively related to high productivity, low unemployment benefits and high search frictions.