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Stepping on a Rake: Replication and Diagnosis -- by John H. Cochrane

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This paper replicates Sims (2011) "stepping on a rake" model. It derives the model, shows how to solve it, offers some extensions, and boils the paper down to its central ingredient. Sims' article is important: it is a simple modern economic model that produces a temporary decline in inflation when the central bank persistently raises interest rates. Inflation then rises. The model's essential feature is long term debt. When interest rates increase, the nominal market value of long-term government debt falls. If fiscal surpluses are unchanged, the price level must fall so that the real value of government debt matches the unchanged real present value of surpluses.

Discrete Adjustment to a Changing Environment: Experimental Evidence -- by Mel Win Khaw, Luminita Stevens, Michael Woodford

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We conduct a laboratory experiment to shed light on the cognitive limitations that may affect the way decision makers respond to changes in their economic environment. The subjects solve a tracking problem: they estimate the probability of a binary event, which changes stochastically. The subjects observe draws and indicate their draw-by-draw estimate. Our subjects depart from the optimal Bayesian benchmark in systematic ways, but these deviations are not simply the result of some boundedly rational, but deterministic rule. Rather, there is a random element in the subjects' response to any given history of evidence. Moreover, subjects adjust their forecast in discrete jumps rather than after each new ring draw, even though there are no explicit adjustment costs. They adjust by both large and small amounts, contrary to the predictions of a simple Ss model of optimal adjustment subject to a fixed cost. Finally, subjects prefer to report "round number" probabilities, even though that requires exerting additional effort. Each of these regularities resembles the behavior of firms setting prices for their products. We develop a model of inattentive adjustment and compare its quantitative fit with alternative models of stochastic discrete adjustment.

Who Benefits Most from SNAP? A Study of Food Security and Food Spending -- by Partha Deb, Christian A. Gregory

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We study the effects of SNAP participation on food insecurity and food spending using finite mixture models that allow for a priori unspecified heterogeneous effects. We identify a low food security subgroup comprising a third of the population for whom SNAP participation increases the probability of high food security by 20-30 percentage points. There is no affect of SNAP on the remaining two-thirds of the population. SNAP increases food spending in the previous week by $50-$65 for a low modal spending subgroup comprising two-thirds of the population, with no effect for the remaining third of the population.

Classification Trees for Heterogeneous Moment-Based Models -- by Sam Asher, Denis Nekipelov, Paul Novosad, Stephen P. Ryan

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A basic problem in applied settings is that different parameters may apply to the same model in different populations. We address this problem by proposing a method using moment trees; leveraging the basic intuition of a classification tree, our method partitions the covariate space into disjoint subsets and fits a set of moments within each subspace. We prove the consistency of this estimator and show standard rates of convergence apply post-model selection. Monte Carlo evidence demonstrates the excellent small sample performance and faster-than-parametric convergence rates of the model selection step in two common empirical contexts. Finally, we showcase the usefulness of our approach by estimating heterogeneous treatment effects in a regression discontinuity design in a development setting.

Populism and the Return of the "Paranoid Style": Some Evidence and a Simple Model of Demand for Incompetence as Insurance against Elite Betrayal -- by Rafael Di Tella, Julio J. Rotemberg

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We present a simple model of populism as the rejection of "disloyal" leaders. We show that adding the assumption that people are worse off when they experience low income as a result of leader betrayal (than when it is the result of bad luck) to a simple voter choice model yields a preference for incompetent leaders. These deliver worse material outcomes in general, but they reduce the feelings of betrayal during bad times. We find some evidence consistent with our model in a survey carried out on the eve of the recent U.S. presidential election. Priming survey participants with questions about the importance of competence in policymaking usually reduced their support for the candidate who was perceived as less competent; this effect was reversed for rural, and less educated white, survey participants.

A Portrait of Trade in Value Added over Four Decades -- by Robert C. Johnson, Guillermo Noguera

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We combine data on trade, production, and input use to document changes in the value added content of trade between 1970 and 2009. The ratio of value-added to gross exports fell by roughly 10 percentage points worldwide. The ratio declined 20 percentage points in manufacturing, but rose in non-manufacturing sectors. Declines also differ across countries and trade partners: they are larger for fast growing countries, for nearby trade partners, and among partners that adopt regional trade agreements. Using a multi-sector structural gravity model with input-output linkages, we show that changes in trade frictions play a dominant role in explaining all these facts.

Depression for Economists -- by Jonathan de Quidt, Johannes Haushofer

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Major depressive disorder (MDD) is one of the most prevalent mental illnesses worldwide. Existing evidence suggests that it has both economic causes and consequences, such as unemployment. However, depression has not received significant attention in the economics literature. In this paper, we present a simple model which predicts the core symptoms of depression from economic primitives, i.e. beliefs. Specifically, we show that when exogenous shocks cause an agent to have pessimistic beliefs about the returns to her effort, this agent will exhibit depressive symptoms such undereating or overeating, insomnia or hypersomnia, and a decrease in labor supply. When these effects are strong enough, they can generate a poverty trap. We present descriptive evidence that illustrates the predicted relationships.

Beliefs about Gender -- by Pedro Bordalo, Katherine B. Coffman, Nicola Gennaioli, Andrei Shleifer

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We conduct a laboratory experiment on the determinants of beliefs about own and others' ability across different domains. A preliminary look at the data points to two distinct forces: miscalibration in estimating performance depending on the difficulty of tasks and gender stereotypes. We develop a theoretical model that separates these forces and apply it to analyze a large laboratory dataset in which participants estimate their own and a partner's performance on questions across six subjects: arts and literature, emotion recognition, business, verbal reasoning, mathematics, and sports. We find that participants greatly overestimate not only their own ability but also that of others, suggesting that miscalibration is a substantial, first order factor in stated beliefs. Women are better calibrated than men, providing more accurate estimates of ability both for themselves and for others. Gender stereotypes also have strong predictive power for beliefs, particularly for men's beliefs about themselves and others' beliefs about the ability of men. Our findings help interpret evidence on gender gaps in self-confidence.

Adjustment to Small, Large, and Sunspot Shocks in Open Economies With Stock Collateral Constraints -- by Stephanie Schmitt-Grohe, Martin Uribe

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This paper characterizes analytically the adjustment of an open economy with a stock collateral constraint to fundamental and nonfundamental shocks. In the model, external borrowing is limited by the value of physical capital. Three results are established: (1) Adjustment to external shocks is nonlinear. In response to small negative output shocks, the economy adjusts as prescribed by the intertemporal approach to the current account, with increases in debt, deficits in the trade and current account balances, and no significant movement in the price of collateral. By contrast, in response to large negative output shocks the economy experiences a sudden stop with debt deleveraging, trade and current account reversals, and a Fisherian deflation of asset prices. (2) Generically, weak fundamentals (low output and high external debt) give rise to multiple equilibria. (3) In this case, the economy is prone to self-fulfilling sudden stops driven by downward revisions of expectations about the value of collateral.

The Hidden Resources of Women Working Longer: Evidence from Linked Survey-Administrative Data -- by C. Adam Bee, Joshua Mitchell

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Despite women's increased labor force attachment over the lifecycle, household surveys such as the Current Population Survey Annual Social and Economic Supplement (CPS ASEC) do not show increases in retirement income (pensions, 401(k)s, IRAs) for women at older ages. We use linked survey-administrative data to demonstrate that retirement incomes are considerably underreported in the CPS ASEC and that women's economic progress at older ages has been substantially understated over the last quarter century. Specifically, the CPS ASEC shows median household income for women age 65-69 rose 21 percent since the late 1980s, while the administrative records show an increase of 58 percent. Survey biases in women's own incomes appear largest for women with the longest work histories. We also exploit the panel dimension of our data to follow a cohort of women and their spouses (if present) as they transition into retirement in recent years. In contrast to previous work, we find that most women do not experience noticeable drops in income up to five years after claiming social security, with retirement income playing an important role in maintaining their overall standard of living. Our results pose a challenge to the literature on the "retirement consumption puzzle" and suggest total income replacement rates are high for recent retirees.

The Response of Consumer Spending to Changes in Gasoline Prices -- by Michael Gelman, Yuriy Gorodnichenko, Shachar Kariv, Dmitri Koustas, Matthew D. Shapiro, Dan Silverman, Steven Tadelis

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This paper estimates how overall consumer spending responds to changes in gasoline prices. It uses the differential impact across consumers of the sudden, large drop in gasoline prices in 2014 for identification. This estimation strategy is implemented using comprehensive, daily transaction-level data for a large panel of individuals. The estimated marginal propensity to consume (MPC) is approximately one, a higher estimate than estimates found in less comprehensive or well-measured data. This estimate takes into account the elasticity of demand for gasoline and potential slow adjustment to changes in prices. The high MPC implies that changes in gasoline prices have large aggregate effects.

The Political Economy of Weak Treaties -- by Marco Battaglini, Bard Harstad

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In recent decades, democratic countries have signed hundreds of international environmental agreements (IEAs). Most of these agreements, however, are weak: they generally do not include effective enforcement or monitoring mechanisms. This is a puzzle in standard economic models. To study this phenomenon, we propose a positive theory of IEAs in which the political incumbents negotiate them in the shadow of reelection concerns. We show that, in these environments, incumbents are prone to negotiate treaties that are simultaneously overambitious (larger than what they would be without electoral concerns) and weak (might not be implemented in full). The theory also provides a new perspective for understanding investments in green technologies, highlighting a channel through which countries are tempted to rely too much on technology instead of sanctions to make compliance credible. We present preliminary evidence consistent with these predictions.

Where Do Students Go when For-Profit Colleges Lose Federal Aid? -- by Stephanie R. Cellini, Rajeev Darolia, Lesley J. Turner

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Recent federal investigations and new regulations have resulted in restrictions on for-profit institutions' access to federal student aid. We examine the enrollment effects of similar restrictions imposed on over 1,200 for-profit colleges in the 1990s. Using variation in regulations linked to student loan default rates, we estimate the impact of the loss of federal aid on the enrollment of Pell Grant recipients in sanctioned institutions and their local competitors. Enrollment in a sanctioned for-profit college declines by 53 percent in the five years following a sanction. For-profit sanctions result in negative spillovers on unsanctioned competitor for-profit colleges in the same county, which experience modest enrollment declines. These enrollment losses in the for-profit sector are offset by gains in enrollment in local community colleges, suggesting that the loss of federal student aid for poor-performing for-profit colleges does not reduce overall college-going but instead shifts students across higher education sectors. Finally, we provide suggestive evidence that students induced to enroll in community colleges following a for-profit competitor's sanction are less likely to default on their federal loans.

Public Sector Personnel Economics: Wages, Promotions, and the Competence-Control Trade-off -- by Charles M. Cameron, John M. de Figueiredo, David E. Lewis

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We model personnel policies in public agencies, examining how wages and promotion standards can partially offset a fundamental contracting problem: the inability of public sector workers to contract on performance, and the inability of political masters to contract on forbearance from meddling. Despite the dual contracting problem, properly constructed personnel policies can encourage intrinsically motivated public sector employees to invest in expertise, seek promotion, remain in the public sector, and develop policy projects. However, doing so requires internal personnel policies that sort "slackers" from "zealots." Personnel policies that accomplish this task are quite different in agencies where acquired expertise has little value in the private sector, and agencies where acquired expertise commands a premium in the private sector. Finally, even with well-designed personnel policies, there remains an inescapable trade-off between political control and expertise acquisition.

Disaggregating the Matching Function -- by Peter A. Diamond, Ayseguel sahin

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The aggregate matching (hiring) function relates gross hires to labor market tightness. Decompositions of aggregate hires show how the hiring process differs across different groups of workers and of firms. Decompositions include employment status in the previous month, age, gender and education. Another separates hiring between part-time and full-time jobs, which show different patterns in the current recovery. Shift-share analyses are done based on industry, firm size and occupation to show what part of the residual of the aggregate hiring function can be explained by the composition of vacancies. The hiring process appears to shift as a recovery starts, coinciding with shifts in the Beveridge curve. The paper also discusses some issues in the modeling of the labor market.

An Energy-centric Theory of Agglomeration -- by Juan Moreno-Cruz, M. Scott Taylor

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This paper sets out a simple spatial model of energy exploitation to ask how the location and productivity of energy resources affects the distribution of economic activity across geographic space. By combining elements from energy economics and economic geography we link the productivity of energy resources to the incentives for economic activity to agglomerate. We find a novel scaling law links the productivity of energy resources to population sizes, while rivers and roads effectively magnify productivity. We show how our theory's predictions concerning a single core, aggregate to predictions over regional landscapes and city size distributions at the country level.

Empowering Mothers and Enhancing Early Childhood Investment: Effect on Adults Outcomes and Children Cognitive and Non-Cognitive Skills -- by Victor Lavy, Giulia Lotti, Zizhong Yan

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Empowering women and enhancing children's early development are two important goals that are often pursued via independent policy initiatives in developing countries. In this paper we study a unique approach that pursues both goals at the same time: empowering mothers through tools that also advance their children's development. A program operated by AVSI, an Italian NGO, in a poor neighborhood of Quito, Ecuador, targets parents of children from birth to age 5. It provides family advisor-guided parent training sessions once every two weeks for groups of six to eight mothers and their children. We find that the program empowered women in various dimensions, including higher labor force participation and employment, higher likelihood of a full-time job in the formal-sector and higher wages. Treated mothers are also more likely to continue their education, make independent decisions regarding their own finances, have greater role in intra-household decisions, especially on issues involving children's education and discipline and increase parental inputs into their children's development. We find that treated children improve their cognitive and non-cognitive skills, for example, they are less likely to repeat a grade or temporarily drop-out from schooling, are less absent from and have improved behaviors in school, have better attitudes towards learning, and achieve higher scores on cognitive tests. Applying a recently suggested factor model of children's relative non-cognitive skills reaffirms our finding of significant gains in children non-cognitive skills. All results hold when we estimate aggregate treatment impacts, use summary indices instead of individual outcomes in order to account for multiple inference, when we use entropy balancing to adjust for differences in pre-treatment covariates, and when we use other robustness checks.

Industrial Productivity in a Hotter World: The Aggregate Implications of Heterogeneous Firm Investment in Air Conditioning -- by Joshua Graff Zivin, Matthew E. Kahn

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How will a nation's aggregate urban productivity be affected by climate change? The joint distribution of climate conditions and economic activity across a nation's cities will together determine industrial average exposure to climate risk. Air conditioning (AC) can greatly reduce this heat exposure. We develop a simple model of air conditioning adoption by heterogeneous firms within an industry. Our analysis suggests that high productivity firms are more likely to adopt AC since they suffer larger productivity losses when it is hot. Given that the most productive firms produce a disproportionate share of industry-level output, we present aggregation results highlighting how the industry's output is insulated from the heat. Our empirical analysis of the impacts of heat on total factor productivity in U.S manufacturing yields findings broadly consistent with our model's predictions.

Knowing When to Ask: The Cost of Leaning In -- by Christine L. Exley, Muriel Niederle, Lise Vesterlund

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Gender differences in the propensity to negotiate are often used to explain the gender wage gap, popularizing the push for women to "lean-in." We use a laboratory experiment to examine the effect of leaning-in. Despite men and women achieving similar and positive returns when they must negotiate, we find that women avoid negotiations more often than men. While this suggests that women would benefit from leaning-in, a direct test of the counterfactual proves otherwise. Women appear to positively select into negotiations and to know when to ask. By contrast, we find no significant evidence of a positive selection for men.

The Economic Structure of International Trade-in-Services Agreements -- by Robert W. Staiger, Alan O. Sykes

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The existing economics literature on international trade agreements focuses on tariff agreements covering trade in goods, and offers an explanation for core features of the GATT. Tariffs play almost no role in services markets, however, and the existing models cannot account for the dramatically different approach to trade liberalization in agreements such as the WTO General Agreement on Trade in Services (GATS). We develop a model through which key features of GATS, including its emphasis on "deep integration" - sector-by-sector negotiations on behind the border policy instruments - can be understood. And we use this model to suggest that there may also be a middle ground for services trade liberalization between the GATS deep-integration approach and the traditional border-policy focused "shallow integration" approach of GATT.




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