Knowledge that Transforms

Most analyses of the U.S. Great Moderation have been based on structural VAR methods, and have consistently pointed towards good luck as the main explanation for the greater macroeconomic stability of recent years. Based on an estimated New-Keynesian model in which the only source of change is the move from passive to active monetary policy, we show that VARs may misinterpret good policy for good luck. First, the policy shift is sufficient to generate decreases in the theoretical innovation variances for all series, and decreases in the variances of inflation and the output gap, without any need of sunspot shocks. With sunspots, the estimated model exhibits decreases in both variances and innovation variances for all series. Second, policy counterfactuals based on the theoretical structural VAR representations of the model under the two regimes fail to capture the truth, whereas impulse-response functions to a monetary policy shock exhibit little change across regimes. Since these results are in line with those found in the structural VARbased literature on the Great Moderation, our analysis suggests that existing VAR evidence is compatible with the 'good policy' explanation of the Great Moderation.

A number of labor markets and student placement systems can be modeled as many-to-one matching markets. We analyze the scope for manipulation in many-to-one matching markets under the student-optimal stable mechanism when the number of participants is large. Under some regularity conditions, we show that the fraction of participants with incentives to misrepresent their preferences when others are truthful approaches zero as the market becomes large. With an additional condition, truthful reporting by every participant is an approximate equilibrium under the student-optimal stable mechanism in large markets. (JEL C78)

The Israeli matriculation certificate is a prerequisite for most postsecondary schooling. In a randomized trial, we attempted to increase certification rates among low-achievers with cash incentives. The experiment used a school-based randomization design offering awards to all who passed their exams in treated schools. This led to a substantial increase in certification rates for girls but had no effect on boys. Affected girls had a relatively high ex ante chance of certification. The increase in girls' matriculation rates translated into an increased likelihood of college attendance. Female matriculation rates increased partly because treated girls devoted extra time to exam preparation. (JEL I21, I28, J16)

ABSTRACT The average cash‐to‐assets ratio for U.S. industrial firms more than doubles from 1980 to 2006. A measure of the economic importance of this increase is that at the end of the sample period, the average firm can retire all debt obligations with its cash holdings. Cash ratios increase because firms' cash flows become riskier. In addition, firms change: They hold fewer inventories and receivables and are increasingly R&D intensive. While the precautionary motive for cash holdings plays an important role in explaining the increase in cash ratios, we find no consistent evidence that agency conflicts contribute to the increase.