Investment spending by US public firms is highly concentrated. The 100 largest spenders account for 60% of total capital expenditures and drive most of the variation in aggregate investment. This high concentration creates a disconnect between the average public firm and macroeconomic aggregates. For large firms, cash flow remains the primary driver of investment spending and has not declined in importance as it has for smaller public firms. The cash flowing to big spenders provides a better forecast of future investment opportunities than noisy proxies for Tobin's q even though these firms are not financially constrained. These results suggest that, at least for the largest spenders, it is unlikely that measurement error drives the significance of cash flow. Our results are also inconsistent with recent models that predict higher investment-cash flow sensitivity for small young growth firms and suggest that cash flow is still the most important determinant of macroeconomic fluctuations in investment spending.

Virtually from its founding the United States has not followed a free-trade policy. Tariffs were the principal source of federal revenue in the nineteenth century and protection of domestic industries was a significant factor as well from the first tariff act of 1789 onward (see Frank Taussig, pp. 14-15). One of the more interesting (and controversial, at least in the antebellum period) questions in American economic history as well as in international trade and development is what the effects of such a protective policy in fact were. It is well known that a country with monopoly power in international trade can improve its lot over the free-trade equilibrium. Up to some point by increasing its tariff, it should be able by improving its terms of trade also to increase national welfare. The antebellum United States may well have had such power due to its position as the major world supplier of raw cotton. In the period between 1840 and 1860, the United States produced almost two-thirds of world cotton output, while the United Kingdom, the major customer of new cotton, purchased

In contrast to the twentieth century, over the nineteenth century economic fluctuations became increasingly severe. This paper uses a structural vector autoregression estimated on ante- and postbellum data to distinguish the influences of changes in the nature or magnitude of the disturbances from those of changes in the response of the system to shocks (i.e., changes in structure) in contributing to this increased economic instability. The increased cyclical severity in the postbellum period is found to have been the result of greater sensitivity to monetary disturbances, rather than of larger or more volatile shocks.

Many experiments have found that participants take more investment risk if they see less frequent returns, portfolio-level returns (rather than each individual asset's returns), or long-horizon (rather than one-year) historical return distributions. In contrast, we find that such information aggregation treatments do not affect total equity investment when we make the investment environment more realistic than in prior experiments. Previously documented aggregation effects are not robust to changes in the risky asset's return distribution or to the introduction of a multiday delay between portfolio choice and return realizations.

This paper develops a tractable econometric model of optimal migration, focusing on expected income as the main economic influence on migration. The model improves on previous work in two respects: it covers optimal sequences of location decisions (rather than a single once-for-all choice) and it allows for many alternative location choices. The model is estimated using panel data from the National Longitudinal Survey of Youth on white males with a high-school education. Our main conclusion is that interstate migration decisions are influenced to a substantial extent by income prospects. The results suggest that the link between income and migration decisions is driven both by geographic differences in mean wages and by a tendency to move in search of a better locational match when the income realization in the current location is unfavorable.

Data from recent years indicate that employers are especially unlikely to cut the nominal wage rate paid for a job. Adjustments to real or relative wages that require absolute cuts in money wages are very rare, relative to the frequency one might expect to observe based on distributions of wage changes that do not require money wage cuts (Erica L. Groshen and Mark E. Schweitzer, 1995, 1997; David E. Lebow et al., 1999). A worker who remains with the same employer from one year to the next is accordingly unlikely to report an absolute reduction in the nominal wage he receives (David Card and Dean Hyslop, 1997; Shulamit Kahn, 1997; Joseph G. Altonji and Paul J. Devereux, 1999). The existence and causes of “downward nominal wage rigidity” have implications for macroeconomic outcomes and for practical issues in monetary policy. Presumably, efficient operation of labor markets requires many downward adjustments of relative wages, and occasional decreases in the overall wage level relative to product prices. If the average rate of wage inflation were close to zero, some of these relative or real wage adjustments would be blocked by a floor under current levels of nominal wage rates. George A. Akerlof et al. (1996) assert that downward nominal wage rigidity reflects fundamental preferences of workers, and argue that it implies a central bank should target a rate of price inflation greater than zero because “a target of zero inflation will impose permanent real costs on the economy” (p. 2). The notion that downward nominal wage rigidity is a fundamental constraint, so that inflation serves to “grease the wheels of the labor market,” is controversial even among those who accept the possibility of nominal rigidities in general. It has been argued that downward nominal wage rigidity, as distinct from such phenomena as “menu costs” [which would discourage adjustment of a wage in either direction (David Romer, 1993)], may be an artifact of an inflationary monetary regime, and would disappear in the absence of persistent inflation. “Nominal wage reductions would no longer be seen as unusual if the average nominal wage was not growing. Workers would not see them as unfair, and firms would not shy away from imposing them” (Robert J. Gordon, 1996, p. 62; see also N. Gregory Mankiw, 1996; William Poole, 1998; William B. English, 2000). To see whether downward nominal wage rigidity would exist in a noninflationary regime, it may be useful to examine data from times and places where there was no persistent wage inflation. For the United States, at least, that excludes data from years since the Second World War: throughout the postwar period, price inflation or real wage growth has been sufficient to keep average wage inflation above zero. Before the Second World War, on the other hand, long-run trend rates of price inflation were often close to zero or negative (Robert B. Barsky, 1987). If wage inflation was correspondingly low, U.S. historical data may offer tests of the proposition that downward nominal wage rigidity exists even in noninflationary

The Political Economy of the US Monetary Union: The Civil War Era as a Watershed by David F. Weiman and John A. James. Published in volume 97, issue 2, pages 271-275 of American Economic Review, May 2007