We propose a new model for measuring uncertainty and its effects on the economy, based on a large vector autoregression with stochastic volatility driven by common factors representing macroeconomic and financial uncertainty. The uncertainty measures reflect changes in both the conditional mean and volatility of the variables, and their impact on the economy can be assessed within the same framework. Estimates with U.S. data show substantial commonality in uncertainty, with sizable effects of uncertainty on key macroeconomic and financial variables. However, historical decompositions show a limited role of uncertainty shocks in macroeconomic fluctuations.

After World War II, international capital flowed into slow-growing Latin America rather than fast-growing Asia. This is surprising as, everything else equal, fast growth should imply high capital returns. This paper develops a capital flow accounting framework to quantify the role of different factor market distortions in producing these patterns. Surprisingly, we find that distortions in labor markets, rather than domestic or international capital markets, account for the bulk of these flows. Labor market distortions that indirectly depress investment incentives by lowering equilibrium labor supply explain two-thirds of observed flows, while improvement in these distortions over time accounts for much of Asia's rapid growth.

While researchers and practitioners alike estimate firms' exposures to systematic risk factors, the disclosure literature typically assumes that exposures are common knowledge. We develop a model where the firm's exposure to a factor is unknown, and analyze the effects of factor-exposure uncertainty on share price and the effects of disclosure about the exposure. We find that: (1) factor-exposure uncertainty introduces skewness and excess kurtosis in the cash flow distribution relative to the commonly used normal distribution; (2) risk-factor disclosure affects all moments of that distribution; and (3) the pricing of higher moments affects the price response of disclosure and the incentives to disclose. For example, factor-exposure uncertainty may actually increase price when the uncertainty implies positive skewness in the cash flow distribution. Hence, a reduction in uncertainty through disclosure may increase cost of capital. We also extend our model to multiple firms and show that factor-exposure uncertainty manifests as uncertainty about a firm's CAPM beta.

We use a rich new body of data on the experiences of unemployed job seekers to determine the sources of wage dispersion and to create a search model consistent with the acceptance decisions the job seekers made. We identify the distributions of four key variables: offered wages, offered nonwage job values, job seekers’ nonwork alternatives, and job seekers’ personal productivities. We find that, conditional on personal productivity, the standard deviation of offered log wages is moderate, at 0.24, whereas the dispersion of the offered nonwage component is substantially larger, at 0.34. The resulting dispersion of offered job values is 0.38.

Medicare's prospective payment system for long-term acute-care hospitals (LTCHs) provides modest reimbursements at the beginning of a patient's stay before jumping discontinuously to a large lump-sum payment after a prespecified number of days. We show that LTCHs respond to the financial incentives of this system by disproportionately discharging patients after they cross the large-payment threshold. We find this occurs more often at for-profit facilities, facilities acquired by leading LTCH chains, and facilities colocated with other hospitals. Using a dynamic structural model, we evaluate counterfactual payment policies that would provide substantial savings for Medicare.

Small accounting firms represent important participants in the audit market, yet details of how they operate and develop competencies remain unexplored. Small firms often join forces through accounting associations and networks (AANs), which may help them overcome significant challenges commonly faced by smaller firms. We interview 37 partners from 18 firms representing nine AANs to examine how small firms leverage their AAN membership and to understand the related implications for audit quality. Our findings indicate that small firms acquire needed resources and enhance their market legitimacy through AAN membership; however, the nature and extent to which they do so varies by AAN type. Importantly, we also find that the majority of respondents perceive AAN resources, especially access to expertise, as critical to their firms' audit quality. Our research, informed by a theoretical lens based on resource dependence and legitimacy, enriches existing auditing literature, provides a new perspective for member firms and regulators, and responds to recent calls to understand factors affecting accounting firms' competencies.

We investigate whether PCAOB-identified audit deficiencies lead to higher audit fees or turnover likelihood for clients of Big 4 auditors. To examine this, we identify areas of GAAP related to PCAOB deficiencies for each auditor. We then use textual analysis to identify how important the deficiencies are to clients to measure each client's exposure to deficient auditing. We find that this measure positively relates to audit fees and that this association is moderated by client bargaining power. Auditor turnover is also higher when deficiency exposure is high relative to what it would be for peer auditors, but we only observe this relation for smaller clients and do not find it is affected by client bargaining power. Finally, we find that companies switching Big 4 auditors tend to select an auditor resulting in lower deficiency exposure. These results have implications for understanding how PCAOB inspection reports affect the market for audit services. JEL Classifications: M41; M42. Data Availability: We obtain all data from publicly available sources.

We provide evidence that choices over small-stakes bets are consistent with assumptions of some payoff calibration paradoxes. We then exploit the existence of detailed information on individual wealth of our experimental subjects in Denmark and directly estimate risk attitudes and the degree of asset integration. We discover that behavior is consistent with partial, rather than full, asset integration. The implied risk attitudes from estimating these specifications indicate risk premiums and certainty equivalents that are a priori plausible. This theory and evidence suggest one constructive solution to payoff calibration paradoxes.

Short sellers face unique risks, such as the risk that stock loans become expensive and the risk that stock loans are recalled. We show that short‐selling risk affects prices among the cross‐section of stocks. Stocks with more short‐selling risk have lower returns, less price efficiency, and less short selling.

We examine the effects of a quasi-experimental unconditional household income transfer on child emotional and behavioral health and personality traits. Using longitudinal data, we find that there are large beneficial effects on children's emotional and behavioral health and personality traits during adolescence. We find evidence that these effects are most pronounced for children who start out with the lowest initial endowments. The income intervention also results in improvements in parental relationships which we interpret as a potential mechanism behind our findings.