The US government is the dominant supplier of global safe assets and faces a downward sloping demand for its debt. In this paper, we ask if the US exercises its market power when issuing debt, and we study its macroeconomic consequences. We develop a model of the global economy in which US public debt generates a nonpecuniary value for its holders, analyze the equilibrium in which the US government is themonopoly provider of this safe asset, and contrast this casewith the one inwhich the US government acts as a price taker. We use variation in estimated demand elasticities for US debt during highand low-volatility regimes to empirically distinguish between these two models and find that the data reject the price-taking behavior in favor of the monopoly one. We then quantify the distortions due to market power and find that it generates a significant underprovision of safe assets, a sizable markup in the convenience yield, and large welfare benefits for the US to the detriment of the rest of the world. Finally, we study the implications of increasing competition in safe assets from other sovereigns and private institutions. ∗Aprevious draft of this paper circulated under the title “TheMacroeconomic Implications of USMarket Power in Safe Assets.” We thank Manuel Amador, Andy Atkeson, Anmol Bhandari, V. V. Chari, Chris Conlon, Marco Duarte, Simon Gilchrist, Oleg Itskhoki, Rohan Kekre, Arvind Krishnamurthy, Zhengyang Jiang, Ricardo Lagos, Hyunju Lee, Hanno Lustig, Matteo Maggiori, Lorenzo Magnolfi, Dmitry Mukhin, Chris Sullivan, and Venky Venkateswaran, as well as numerous seminar and conference participants, for helpful comments and suggestions. We also thank Duong Dang for superb research assistance.

In the U.S. airline industry, independent regional airlines fly passengers on behalf of several national airlines across different markets, giving rise to common subcontracting. On the one hand, we find that subcontracting is associated with lower prices, consistent with the notion that regional airlines tend to fly passengers at lower costs than major airlines. On the other hand, we find that common subcontracting is associated with higher prices. These two countervailing effects suggest that the growth of regional airlines can have anticompetitive implications for the industry.

This paper investigates the weekly evolution of skills as measured by unique data from a widely-emulated early childhood home-visiting program in rural China. The design of the study avoids input endogeneity issues and lack of comparable measures of skills that plague previous studies. Skills, nominally classified as the same, in fact, do not appear to share a common unit scale across levels. They are produced by skill-lifecycle-stage-specific learning processes. A novel dynamic stochastic skill production model for multiple skills is developed, aligning with empirical evidence. The model explains the "fadeout" of measures of learning through forgetting or depreciation of skills.

The FASB recently issued ASU 2024-03, which requires disaggregation of significant expenses, like cost of goods sold (COGS) and selling, general, and administrative (SG&A) expenses. Proponents argue disaggregation will improve decision usefulness, whereas opponents suggest the information will be costly and provide little value. We provide large-sample evidence on the pre-ASU state of expense disaggregation, analyze whether it appears to provide decision-useful information, and explore differences across disaggregation components. Our findings suggest that disaggregation is relatively common, increasing over time, and correlated with demand for disclosure, disclosure incentives, and firm economics. Further, our evidence is consistent with COGS, but not SG&A, disaggregation providing decision-useful information for investors and analysts, and these benefits accrue via improved processing of expense-related news. Overall, our evidence suggests that not all disaggregation is equal. We also identify novel, large-sample expense disaggregation measures for U.S. firms, which are likely useful for evaluating other implications of disaggregation. Data Availability: Data are available from the public sources cited in the text.

We embed diagnostic expectations in a workhorse neoclassical model with heterogeneous firms and risky debt. A realistic degree of overreaction estimated from US firms’ earnings forecasts generates realistic credit cycles. Good times produce economic and financial fragility, predicting future disappointment of expectations, low bond returns, and investment declines. To generate the size of spread increases observed during 2007–2009, the model requires only moderate negative shocks. Diagnostic expectations offer a realistic, parsimonious way to produce financial reversals in business cycle models.