Knowledge that Transforms

Committees always seem to have chairmen, and monetary policy committees (MPCs) are no exception. But some MPCs are dominated by their chairmen, who are definitely first among unequals, while others come closer to making decisions by true consensus or even by major? ity vote. Does it matter? Is strong leadership an important ingredient in good monetary policy? With no real-world observations on leaderless

An earlier study (Barro 2006) applied the Thomas A. Rietz (1988) insight on rare eco? nomic disasters to explain the equity premium and related asset-pricing puzzles. Key param? eters were the probability, p, of disaster and the distribution of disaster sizes, b. In the main analysis, p and the ?-distribution were assumed to be time invariant. An extension to time-vary? ing p is in Xavier Gabaix (2008). Because large macroeconomic disasters are rare, pinning down p and the ?-distribution from historical data requires long time series for many countries, along with the assumption of rough parameter stability over time and across countries. Barro (2006) relied on the long-term international GDP data for 35 countries from Angus Maddison (2003). Using the definition of an economic disaster as a peak-to-trough fall in per capita GDP by at least 15 percent, 60 disas? ters were found, corresponding to p ?* 0.017 per year. The average disaster size was 29 percent, and the empirical size distribution was used to calibrate a model of asset pricing. The underlying asset-pricing theory relates to consumption, C, rather than GDP. This distinc? tion is especially important for wars. For exam? ple, in the United Kingdom during the two world wars, GDP increased while C fell sharply?the difference representing mostly added military spending. Maddison (2003) provides national-accounts information only for GDP. Our initial idea was to add consumption, C, which we measure by personal consumer expenditure because of diffi? culties in separating durables from nondurables in the long-term data. We have not assembled data on government consumption, some of which may substitute for C and, thereby, affect asset pricing. However, this substitution is prob? ably unimportant for military outlays, which are the type of government spending that moves a lot during some disaster events. Maddison (2003) represents a monumental contribution for international studies using long term GDP data. However, although much of the information is sound, close examination revealed many problems. Specifically, Maddison tends to fill in missing data with doubtful assumptions, and this practice is often significant for major crises. As examples, Maddison assumed that Belgium's GDP during WWI and WWII moved with France's; that Mexico's GDP between 1910 and 1920, including the Revolution and Civil War, followed a smooth trend (with no crisis); that GDP for Colombia and Peru over more than a decade moved with the average of Brazil and Chile; and that GDP in Germany for the crucial years 1944-1946 followed a linear trend. There are also some mismatches between original works and published series for GDP in Japan at the end of WWII and Greece during WWII and its Civil War. Given these difficulties, our project expanded to estimating long-term GDP for many countries. The Maddison informa? tion was often usable, but superior estimates can be constructed in many cases. Also, results from recent major long-term national-accounts projects for some countries are now available, including Argentina, Brazil, Chile, Colombia, Greece, Norway, Spain, Sweden, and Taiwan. We are dealing with long-term national accounts data for 41 countries, but the current study applies to the 21 for which we have, thus far, assembled annual data on C and GDP from before WWI to 2006. (See Table 1 for a list of included countries and starting years.) We begin + Discussant: John Campbell, Harvard University.

The intertemporal elasticity of investment for long-lived capital goods is nearly infinite. Consequently, investment prices should fully reflect temporary tax subsidies, regardless of the investment supply elasticity. Since prices move one-for-one with the subsidy, elasticities can be inferred from quantities alone. This paper uses a recent tax policy—bonus depreciation—to estimate the investment supply elasticity. Investment in qualified capital increased sharply. The estimated elasticity is high—between 6 and 14. There is no evidence that market prices reacted to the subsidy, suggesting that adjustment costs are internal, or that measurement error masks the price changes. (JEL G31, H32)

Modeling Competition and Market Equilibrium in Insurance: Empirical Issues by Pierre-Andre Chiappori and Bernard Salanie. Published in volume 98, issue 2, pages 146-50 of American Economic Review, May 2008

Research across a number of disciplines has highlighted the role of early life health and circumstance in determining health and economic outcomes at older ages. Nutrition in utero and in infancy may set the stage for the chronic disease burden that an individual will face in middle age (David J. Barker, 1998; Barker et al. 1989; Johann Eriksson et al. 2001). Childhood health may also have significant effects on economic outcomes in adulthood. Collectively, a set of childhood health measures can account for a large fraction of the explained variance in employment and social status observed among a British cohort followed from birth into adulthood (Anne Case, Angela Fertig and Christina Paxson 2005).

Hurricane Katrina displaced approximately 650,000 people and destroyed or severely damaged 217,000 homes along the Gulf Coast. Damage was especially severe in New Orleans, and the return of displaced residents to this city has been slow. The fraction of households receiving mail (which, in the absence of reliable population estimates, is a good indicator for returns) was 49.5 percent in August 2006, and 66.0 percent in June 2007 (Greater New Orleans Community Data Center, 2007). Low-income minority families appear to have been slower than others to return (William H. Frey and Audrey Singer, 2006). In this paper, we examine the determinants of returning to New Orleans in the 18 months after the hurricane. The data come from a study of low-income parents, mainly African American women, who were enrolled in a community college intervention prior to the hurricane. Although the sample is not representative of the pre-Katrina population of the city, it nonetheless is of great interest. The relatively slow return of low income, primarily African American, residents is a politically charged issue. One (extreme) view is that the redevelopment plans are designed to discourage low-income minority residents from returning. A quite different view is that members of this group have found better opportunities outside of New Orleans, and do not want to return. Because few data sets trace individuals from before to after the hurricane, this debate has taken place largely without the benefit of evidence.

This paper explores the relationship between adult heights and the distribution of income across populations of individuals. There is a long literature that examines the relationship between mean adult heights and living standards. If adult height is set by the balance between food intake and charges to disease in early childhood, it is informative about economic and epidemiological conditions in childhood. Because taller populations are better-off, more productive, and live longer, the relationship between childhood conditions and adult height has become an important focus in the study of the relationship between health and wealth. Here I follow one of the tributaries of this main stream. A relationship between income and height at the individual level has implications for the effects of income inequality on the distribution of heights. These relationships parallel, but are somewhat more concrete than, the various relationships between income inequality and health that have been debated in the economic and epidemiological literatures, Richard G. Wilkinson (1996), Angus Deaton (2003).

We investigate the sources of the important shifts in the volatility of US macroeconomic variables in the postwar period. To this end, we propose the estimation of DSGE models allowing for time variation in the volatility of the structural innovations. We apply our estimation strategy to a large-scale model of the business cycle and find that shocks specific to the equilibrium condition of investment account for most of the sharp decline in volatility of the last two decades. (JEL C51, E32)

Information Aggregation and Strategic Abstention in Large Laboratory Elections by Marco Battaglini, Rebecca B. Morton and Thomas R. Palfrey. Published in volume 98, issue 2, pages 194-200 of American Economic Review, May 2008

Who Chooses Annuities? An Experimental Investigation of the Role of Gender, Framing, and Defaults by Julie R. Agnew, Lisa R. Anderson, Jeffrey R. Gerlach and Lisa R. Szykman. Published in volume 98, issue 2, pages 418-22 of American Economic Review, May 2008