public employment and the business cycle we add a public employment sector to the basic search and matching model in order to study the business cycle impact of public wage and employment policies the government is assumed to follow exogenous rules for public wages and employment calibrated to match some cyclical features of us policies these features include a positive public wage premium and mildly procyclical public wages and employment we find that the presence of the public sector increases the volatility of employment and output

democracy volatility and economic development growth stability is an important objective because development requires sustained increases in income because volatility is costly for the poor and because volatility deters growth we study the determinants of average growth and its volatility as a two equation system and find that higher levels of democracy and diversification lower volatility whereas volatility itself reduces growth muslim countries instrument for democracy and measures of diversification identify volatility in contrast to the lack of consensus on the democracy growth relationship the democracy stability link is robust rather than focus on growth this paper forges an alternative link between democracy and development through the volatility channel

the hiring subsidy cum firing tax in a search model of unemployment abstract we study the macroeconomic and welfare effects of a tax subsidy scheme on labour in a model with search unemployment in a second best world welfare increases if unemployment is inefficiently high or if there are pre existing fiscal distortions

smooth it like the joneses estimating peer group effects in intertemporal consumption choice recent theoretical contributions have suggested peer group effects as a potential explanation for several puzzles in macroeconomics but their empirical relevance for intertemporal consumption choice is an open question we derive an extension of the standard life cycle model that allows for consumption externalities in this framework we propose a social multiplier approach to distinguish true externalities from merely correlated effects estimating our model using us panel data we find strong predictable co movement of household consumption within peer groups although much of this co movement reflects correlated effects only there is statistically significant evidence for moderate consumption externalities across several plausible peer group specifications

labour markets liquidity and monetary policy regimes dans leur etude les auteurs elaborent un modele d equilibre du mecanisme de transmission de la politique monetaire qui fait ressortir les elements de friction relatifs a l acquisition d information sur le marche de la monnaie et a la recherche d emploi

what makes growth sustained abstract we identify structural breaks in economic growth in 140 countries and use these to define growth spells periods of high growth preceded by an upbreak and ending either with a downbreak or with the end of the sample growth spells tend to be shorter in african and latin american countries than elsewhere we find evidence that growth duration is positively related to the degree of equality of the income distribution democratic institutions export orientation with higher propensities to export manufactures greater openness to fdi and avoidance of exchange rate overvaluation favorable for duration and macroeconomic stability

evaluating unemployment policies what do the underlying theories tell us the paper surveys unemployment policies for advanced market economies and evaluates them by examining the predictions of the underlying macroeconomic theories the basic idea is that for the most part different unemployment policy prescriptions rest on different macroeconomic theories and our confidence in the prescriptions should depend at least in part on theories ability to predict some salient stylized facts about unemployment behavior the paper considers four types of policies laissez faire demand management policies supply side policies and structural policies copyright 1995 by oxford university press

has consumption inequality mirrored income inequality we revisit to what extent the increase in income inequality since 1980 was mirrored by consumption inequality we do so by constructing an alternative measure of consumption expenditure using a demand system to correct for systematic measurement error in the consumer expenditure survey our estimation exploits the relative expenditure of high and low income households on luxuries versus necessities this double differencing corrects for measurement error that can vary over time by good and income we find consumption inequality tracked income inequality much more closely than estimated by direct responses on expenditures jel d31 d63 e21

endogenous gentrification and housing price dynamics in this paper we begin by documenting substantial variation in house price growth across neighborhoods within a city during citywide housing price booms we then present a model which links house price movements across neighborhoods within a city and the gentrification of those neighborhoods in response to a citywide housing demand shock a key ingredient in our model is a positive neighborhood externality individuals like to live next to richer neighbors this generates an equilibrium where households segregate based upon their income in response to a citywide demand shock higher income residents will choose to expand their housing by migrating into the poorer neighborhoods that directly abut the initial richer neighborhoods the in migration of the richer residents into these border neighborhoods will bid up prices in those neighborhoods causing the original poorer residents to migrate out we refer to this process as endogenous gentrification using a variety of data sets and using bartik variation across cities to identify city level housing demand shocks we find strong empirical support for the model s predictions

tax disturbances and real economic activity in the postwar united states abstract this paper investigates the macroeconomic effects of cyclical fluctuations in marginal tax rates it finds that systematically including tax variables in a standard real business cycle model substantially improves the model s ability to reproduce basic facts about postwar u s business cycle fluctuations in particular modeling fluctuations in personal and corporate income tax rates increases the model s predicted relative variability of hours and decreases its predicted correlation between hours and average productivity fluctuations in tax rates produce large substitution effects that alter the leisure labor supply decision

optimal monetary policy in a phillips curve world abstract in this paper we study optimal monetary policy in a model that integrates the modern theory of unemployment with a liquidity model of monetary transmission two policy environments are considered period by period optimization time consistency and full commitment ramsey allocation when the economy is subject to productivity shocks the optimal policy is pro cyclical we also characterize the long term properties of monetary policy and show that with commitment the optimal inflation rate is inversely related to the bargaining power of workers both results find empirical support in the data

the real costs of credit access evidence from the payday lending market using geographic differences in the availability of payday loans i estimate the real effects of credit access among low income households payday loans are small high interest rate loans that constitute the marginal source of credit for many high risk borrowers i find no evidence that payday loans alleviate economic hardship to the contrary loan access leads to increased difficulty paying mortgage rent and utilities bills the empirical design isolates variation in loan access that is uninfluenced by lenders location decisions and state regulatory decisions two factors that might otherwise correlate with economic hardship measures further analysis of differences in loan availability over time and across income groups rules out a number of alternative explanations for the estimated effects counter to the view that improving credit access facilitates important expenditures the results suggest that for some low income households the debt service burden imposed by borrowing inhibits their ability to pay important bills copyright 2011 oxford university press

democracy and national economic performance the preference for stability appear to arise because democracies ameliorate the effects of social cleavages another mechanism that might explain democratic stability when growth and volatility are jointly examined democracies reveal highly favorable economic results oes democracy affect national economic performance and if so how no question is more central to the study of political economics almost all previous work on democracy and economic performance has focused exclusively on growth rates with contradictory and confusing results in this article we argue that to reveal the impact of democratic institutions on economic performance scholars must consider two dimensions of economic performance growth rate and volatility we begin with a novel hypothesis economic policy in democracy is risk avoiding relative to policy in nondemocracies 1 because voters are riskaverse they penalize incumbent governments for economic volatility and democratic governments respond accordingly in nondemocracies we posit that elites are more likely to seek risk that voters would reject consequently autocracies produce systematically more economic volatility than

inequality in landownership the emergence of human capital promoting institutions and the great divergence this paper suggests that inequality in the distribution of landownership adversely affected the emergence of human capital promoting institutions e g public schooling and thus the pace and the nature of the transition from an agricultural to an industrial economy contributing to the emergence of the great divergence in income per capita across countries the prediction of the theory regarding the adverse effect of the concentration of landownership on education expenditure is established empirically based on evidence from the beginning of the 20th century in the u s

a test of conspicuous consumption visibility and income elasticities abstract this paper shows that consistent with a signaling by consuming model a la veblen income elasticities can be predicted from the visibility of consumer expenditures we outline a stylized conspicuous consumption model where income elasticity is endogenously predicted to be higher if a good is visible and lower if it is not we then develop a survey based measure of expenditure visibility ranking different expenditures by how noticeable they are to others finally we show that our visibility measure predicts up to one third of the observed variation in elasticities across consumption categories in u s data

inequality leverage and crises the paper studies how high leverage and crises can arise as a result of changes in the income distribution empirically the periods 1920 1929 and 1983 2007 both exhibited a large increase in the income share of the rich a large increase in leverage for the remainder and an eventual financial and real crisis the paper presents a theoretical model where these features arise endogenously as a result of a shift in bargaining powers over incomes a financial crisis can reduce leverage if it is very large and not accompanied by a real contraction but restoration of the lower income group s bargaining power is more effective

employer search training and vacancy duration we develop a model of optimal employer search strategy when information about match quality is endogenous the model is tested using four data sets two of which have not previously been used as theory predicts we find that when filling positions requiring more training employers search more intensively and extensively employers also search more extensively when hiring workers with more education and with prior experience these findings provide strong evidence of systematic variation in search strategies based on the characteristics of the positions and job applicants factors that influence employer search also affect the duration of a vacancy

indivisible labor lotteries and equilibrium abstract this paper considers an economy where labor is indivisible and agents are identical although the discontinuity in labor supply at the individual level disappears as a result of aggregation it is shown that indivisible labor has strong consequences for the aggregate bahavior of the economy it is also shown that optimal allocations involve lotteries over employment and consumption

entitlement to assort democracy compromise culture and economic stability abstract we propose a simple model to support rodrik s 2000 conjecture that democracy lowers economic instability through breeding compromise culture in the model a population of compromisers and opportunists collectively bargain over the assortativity level of matching through a democratic political institution we show that compromisers are able to achieve a positive level of assortativity which helps them to avoid matching with opportunists this in turn raises compromisers payoffs above opportunists and eventually compromisers dominate the population through cultural evolution

democracy diversification and growth reversals there exists convincing evidence that democratic countries are less volatile this conclusion is usually reached with respect to volatility as measured by the standard deviation of annual growth rates of per capita gdp which includes both low and high frequency fluctuations however recently several studies have documented that significant changes in trend growth such as growth accelerations that last a decade or similar periods of negative growth are quite common in this paper we ask whether democracy also has a stabilizing effect on trend volatility i e whether more democratic countries experience fewer and milder swings of trend growth we find a common phenomenon medium term reversals of growth that is periods of exceptionally high growth are on average followed by periods of exceptionally low growth and vice versa the propensity to experience large swings of trend growth is not uniform across countries less democratic countries are more susceptible to it when compared with factors commonly associated with volatility such as measures of quality of institutions macroeconomic policies and financial development we find that democracy is the most robust predictor of a country s propensity for growth reversals we construct a model in which non democracies have high barriers of entry for new firms this leads to less sectoral diversification fewer sectors are operated but more resources are channeled to each in an uncertain environment this leads to infrequent but large growth accelerations when one of the few sectors operated is successful however these accelerations are followed by large declines when fortunes change in favor of the missing sectors we present empirical evidence that confirms the positive relationship between democracy and industrial diversification

if diversification is good why don t countries diversify more the political economy of diversification in resource rich countries abstract for resource rich countries diversification is claimed to represent a strategy for reducing resource curse problems this however depends on whether diversification has a positive effect on the country s institutions while there is a lot of evidence that exports of oil have a negative impact on institutions we know much less about the extent to which diversification leads to better institutions this article applies recent political economy theory to the phenomenon of diversification theoretical arguments suggest that it is the pattern of industrial activity rather than diversification per se which affects institutions like democracy in other words not all forms of diversification lead to better institutions furthermore where diversification has a positive impact on institutions diversification may be difficult to attain when it threatens the power base of the ruling elite a possible implication of these arguments is that policies for diversification should focus on international regulation affecting elite incentives rather than domestic industrial policy

empirics of hills plateaus mountains and plains a markov switching approach to growth abstract most economic growth research has been aimed at explaining cross country differences in average growth rates however it is well known that growth experiences differ over time within a country almost as much as they differ among countries this paper builds on pritchett s 2000 pritchett lant understanding patterns of economic growth searching for hills among plateaus mountains and plains world bank economic review may 2000 14 2 221 250 observation that the growth process can be thought of as transitions between different growth regimes and proposes a framework for systematic analysis of such regimes and the dynamics of the transitions i estimate a markov switching regression to characterize four distinct growth regimes and transitions between them the results show that countries switch among regimes of stable growth miracle catch up stagnation and crisis with the transition probabilities determined by the quality of institutions better institutions appear to improve long run growth by making episodes of fast growth more persistent low average growth rates in countries with weak institutions are a result of these countries spending more time in stagnation regimes rather then being incapable of fast growth at all weak institutions do not rule out growth takeoffs but limit their sustainability the approach directs attention to shifts in growth performance and highlights the fact that identical average growth rates can mask very distinct growth paths

indivisible labor and the business cycle abstract a growth model with shocks to technology is studied labor is indivisible so all variability in hours worked is due to fluctuations in the number employed we find that unlike previous equilibrium models of the business cycle this economy displays large fluctuations in hours worked and relatively small fluctuations in productivity this finding is independent of individuals willingness to substitute leisure across time this and other findings are the result of studying and comparing summary statistics describing this economy an economy with divisible labor and post war u s time series

participatory politics social cooperation and economic stability few would doubt the proposition that political institutions matter for economic development yet robust generalizations and systematic evidence on how exactly they do so are lacking in this paper attention is drawn to regularity in the cross national data that has received little attention to date participatory political regimes are associated with significantly lower levels of aggregate economic instability after presenting some of the evidence it is speculated that the reason has to do with the propensity of democracy to moderate social conflict and induce compromise three distinct arguments as to why this may be the case are presented

mortgage lending in boston interpreting hmda data the home mortgage disclosure act was enacted to monitor minority and low income access to the mortgage market the data collected for this purpose show that minorities are more than twice as likely to be denied a mortgage as whites yet variables correlated with both race and creditworthiness were omitted from these data making any conclusion about race s role in mortgage lending impossible the federal reserve bank of boston collected additional variables important to the mortgage lending decision and found that race continued to play an important though significantly diminished role in the decision to grant a mortgage copyright 1996 by american economic association

conspicuous consumption and race using nationally representative data on consumption we show that blacks and hispanics devote larger shares of their expenditure bundles to visible goods clothing jewelry and cars than do comparable whites these differences exist among virtually all subpopulations are relatively constant over time and are economically large although racial differences in utility preference parameters might account for a portion of these consumption differences we emphasize instead a model of status seeking in which conspicuous consumption is used as a costly indicator of a household s economic position using merged data on race and state level income we demonstrate that a key prediction of the status signaling model that visible consumption should be declining in reference group income is strongly borne out in the data for each racial group moreover we show that accounting for differences in reference group income characteristics explains most of the racial difference in visible consumption

the effects of lottery prizes on winners and their neighbors evidence from the dutch postcode lottery each week the dutch postcode lottery pcl randomly selects a postal code and distributes cash and a new bmw to lottery participants in that code we study the effects of these shocks on lottery winners and their neighbors consistent with the life cycle hypothesis the effects on winners consumption are largely confined to cars and other durables consistent with the theory of in kind transfers the vast majority of bmw winners liquidate their bmws we do however detect substantial social effects of lottery winnings pcl nonparticipants who live next door to winners have significantly higher levels of car consumption than other nonparticipants

an empirical analysis of personal bankruptcy and delinquency this article uses a new dataset of credit card accounts to analyze credit card delinquency personal bankruptcy and the stability of credit risk models we estimate duration models for default and assess the relative importance of different variables in predicting default we investigate how the propensity to default has changed over time disentangling the two leading explanations for the recent increase in default rates a deterioration in the risk composition of borrowers versus an increase in borrowers willingness to default due to declines in default costs even after controlling for risk composition and economic fundamentals the propensity to default significantly increased between 1995 and 1997 standard default models missed an important time varying default factor consistent with a decline in default costs debt issued by consumers is an understudied asset class there has been particularly little academic study of recent trends in default on this debt between 1994 and 1997 the number of personal bankruptcy filings in the united states rose by about 75 the 1 35 million filings in 1997 represented well over 1 of u s households delinquency rates on credit cards rose almost as sharply federal reserve bank of cleveland 1998 the resulting losses to lenders amounted to a sizable fraction of the interest payments they collect potentially raising the average cost of credit these trends in default both in bankruptcy and delinquency are especially surprising in light of the strong economy over the period they provide an unusually rich source of variation to test the stability of models that forecast personal default and of credit risk models more generally there are two leading explanations for these trends first the risk composition of borrowers might have worsened under the risk effect less

stages of diversification this paper studies the evolution of sectoral concentration in relation to the level of per capita income we show that various measures of sectoral concentration follow a u shaped pattern across a wide variety of data sources countries first diversify in the sense that economic activity is spread more equally across sectors but there exists relatively late in the development process a point at which they start specializing again we discuss this finding in light of existing theories of trade and growth which generally predict a monotonic relationship between income and diversification

trickle down consumption abstract we document that nonrich households consume a larger share of their current income when exposed to higher top income and consumption levels permanent income wealth effects and upward local price pressures cannot provide the sole explanation for this finding instead we show that the budget shares that nonrich households allocate to more visible goods and services rise with top income levels consistent with status maintaining explanations for our primary finding nonrich households might have saved up to 3 more annually by the mid 2000s had incomes at the top grown at the same rate as median income since the early 1980s

oligarchic versus democratic societies this paper develops a model to analyze economic performance under different political regimes an oligarchic society where political power is in the hands of major producers protects their property rights but also tends to erect significant entry barriers against new entrepreneurs democracy where political power is more widely diffused imposes redistributive taxes on producers but tends to avoid entry barriers when taxes in democracy are high and the distortions caused by entry barriers are low an oligarchic society achieves greater efficiency because comparative advantage in entrepreneurship shifts away from the incumbents the inefficiency created by entry barriers in oligarchy deteriorates over time the typical pattern is one of rise and decline of oligarchic societies an oligarchic society may first become richer but later fall behind a similar democratic society i also discuss how democracies may be better able to take advantage of new technologies how within elite conflict in oligarchies might cause a transition to democracy and how the unequal distribution of income may keep inefficient oligarchic institutions in place jel p16 o10

credit booms and lending standards evidence from the subprime mortgage market this paper links the u s subprime mortgage crisis to demand side factors that contributed to the rapid expansion of the u s mortgage market we show that denial rates were relatively lower in areas that experienced faster credit demand growth and that lenders in these high growth areas attached less weight to applicants loan to income ratios the results are robust to controlling for supply side factors including house price appreciation mortgage securitization and other economic fundamentals and to several robustness tests controlling for endogeneity the results are consistent with the notion that a relaxation of lending standards triggered by an increased demand for loans contributed to the boom and the ensuing crisis together with other supply side explanations these findings shed new light on the relationship between credit booms and financial instability

institutional causes macroeconomic symptoms volatility crises and growth countries that have pursued distortionary macroeconomic policies including high inflation large budget deficits and misaligned exchange rates appear to have suffered more macroeconomic volatility and also grown more slowly during the postwar period does this reflect the causal effect of these macroeconomic policies on economic outcomes one reason to suspect that the answer may be no is that countries pursuing poor macroeconomic policies also have weak institutions including political institutions that do not constrain politicians and political elites ineffective enforcement of property rights for investors widespread corruption and a high degree of political instability this paper documents that countries that inherited more extractive institutions from their colonial past were more likely to experience high volatility and economic crises during the postwar period more specifically societies where european colonists faced high mortality rates more than 100 years ago are much more volatile and prone to crises based on our previous work we interpret this relationship as due to the causal effect of institutions on economic outcomes europeans did not settle and were more likely to set up extractive institutions in areas where they faced high mortality once we control for the effect of institutions macroeconomic policies appear to have only a minor impact on volatility and crises this suggests that distortionary macroeconomic policies are more likely to be symptoms of underlying institutional problems rather than the main causes of economic

a market structure for an environment with heterogeneous job matches indivisible labor and persistent unemployment abstract the mortensen pissarides model with heterogeneous job matches and persistent unemployment has become a popular workhorse for studying aggregate phenomena in the labor market this paper develops a microeconomic structure decentralizing a generalized social planner s version of this model it is shown in the presence of the indivisibility of labor heterogeneous job matches and persistent unemployment that different households can fully insure themselves against variations in wealth if they have access to a complete insurance market also factor prices and matching rates are derived

redlining in boston do mortgage lenders discriminate against neighborhoods historically lenders have been accused of redlining minority neighborhoods as well as refusing to lend to minority applicants considerable bank regulation is designed to prevent both actions however the strong correlation between race and neighborhood makes it difficult to distinguish the impact of geographic discrimination from the effects of racial discrimination previous studies have failed to untangle these two influences in part because of severe omitted variable bias the data set in this paper allows the distinct effects of race and geography to be identified and it shows that the evidence for redlining is weak

the household bankruptcy decision personal bankruptcy filings have risen from 0 3 percent of households per year in 1984 to around 1 35 percent in 1998 and 1999 transforming bankruptcy from a rare occurrence to a routine event lenders lost about 39 billion in 1998 due to personal bankruptcy filings but economists have little understanding of why households file for bankruptcy or why filings have increased so rapidly until very recently studying the household bankruptcy decision was very difficult because no household level data set existed that included information on bankruptcy filings in this paper we use new data from the panel study of income dynamics which includes information on bankruptcy filings to estimate a model of households bankruptcy decisions we find support for the strategic model of bankruptcy which predicts that households are more likely to file when their financial benefit from filing is higher our model predicts that an increase of 1 000 in households financial benefit from bankruptcy would result in a 7 percent increase in the number of bankruptcy filings our model also predicts that if the 1997 national bankruptcy review commission s proposed changes in bankruptcy exemption levels were implemented there would be a 16 percent increase in the number of bankruptcy filings each year but if the 100 000 cap on homestead exemptions recently passed by the u s senate were adopted our model predicts that there would be only a negligible effect on the number of filings we find little support for the nonstrategic model of bankruptcy which predicts that households file when adverse events occur which reduce their ability to repay finally controlling for state and time fixed effects our model shows that households are more likely to file for bankruptcy if they live in districts with higher aggregate filing rates

heterogeneous job matches and the cyclical behavior of labor turnover abstract worker flows to and from unemployment simultaneously occur over the us business cycle and the size of the flows is positively linked to the unemployment rate unemployment flows and the unemployment rate are highly volatile persistent and countercyclical inflows lead the unemployment rate and the unemployment rate leads outflows over the business cycle the one sector stochastic growth model is augmented by matching frictions in the labor market and match specific productivity shocks that introduce ex post heterogeneous job matches matching frictions help generate the lead lag relationship between unemployment flows and the unemployment rate combined with heterogeneous job matches they generate endogenous unemployment flows and an unemployment rate whose dynamic characteristics match observed data

do all sectoral shocks lead to aggregate volatility empirics from a production network perspective abstract productive diversification has long been acknowledged as a volatility reducing strategy yet recent theoretical contributions have shown that in strongly diversified economies idiosyncratic shocks could translate into aggregate volatility via the network of inter industry linkages by exploiting exogenous cross country sector variations in demand shocks during the 2008 great recession we provide empirical evidence that the network properties of a sector affected by an individual shock determine its propensity to transmit volatility to the rest of the economy more precisely shocks to sectors that are located in denser parts of a production network fade out over a large number of alternative paths of propagation due to substitution effects whereas shocks to sectors that are more influential within the network generate aggregate fluctuations through contagion effects we also find that the impact of sectoral shocks on aggregate volatility 1 is not conditional on sector level differences in trade intensity and 2 is larger for developing countries because they tend to have more isolated influential sectors and larger structural holes in their production network our results thus help consolidate the two opposite views in the literature on the impact of productive diversification on aggregate volatility

does inequality lead to a financial crisis abstract the recent global crisis has sparked interest in the relationship between income inequality credit booms and financial crises rajan 2010 and kumhof and ranciere 2011 propose that rising inequality led to a credit boom and eventually to a financial crisis in the us in the first decade of the 21st century as it did in the 1920s data from 14 advanced countries between 1920 and 2000 suggest these are not general relationships credit booms heighten the probability of a banking crisis but we find no evidence that a rise in top income shares leads to credit booms instead low interest rates and economic expansions are the only two robust determinants of credit booms in our data set anecdotal evidence from us experience in the 1920s and in the years up to 2007 and from other countries does not support the inequality credit crisis nexus rather it points back to a familiar boom bust pattern of declines in interest rates strong growth rising credit asset price booms and crises

loan originations and defaults in the mortgage crisis the role of the middle class this paper highlights the importance of middle class and high fico borrowers for the mortgage crisis contrary to popular belief which focuses on subprime and poor borrowers we show that mortgage originations increased for borrowers across all income levels and fico scores the relation between mortgage growth and income growth at the individual level remained positive throughout the pre 2007 period finally middle income high income and prime borrowers all sharply increased their share of delinquencies in the crisis these results are consistent with a demand side view where homebuyers and lenders bought into increasing house values and borrowers defaulted after prices dropped

the estimation of frictional unemployment a stochastic frontier approach this paper reports an estimate of the frictional unemployment rate in u s manufacturing that is derived from a parametric statistical method for estimating stochastic frontiers the steady state perfect foresight solution to an estimated employment growth frontier provides a locus of technically efficient frictional rates of unemployment the mean frictional unemployment rate during the sample period is estimated to be 3 7 percent of the manufacturing labor force this estimate conforms closely to an estimate of 3 5 percent that is derived from manufacturing sector data presented by david m lilien 1980 for roughly the same time period copyright 1991 by mit press

vested interests in a positive theory of stagnation and growth we study a positive theory of stagnation and growth aimed at understanding the large variations in growth outcomes across actual economies the theory points to the fundamental role played by vested interests in determining policies which are key to the growth process some agents seek to prevent the adoption of new technologies we develop a model of technology adoption and show how technological innovation may sow the seeds of its own destruction in particular we find that the equilibrium is characterized by a long cycle of stagnation and growth over this cycle incumbents are phased out of the economy will new innovation occur in formalizing our theory we make a methodological contribution by characterizing dynamic voting equilibria when voters must forecast the effects of different current policies on future prices and policy outcomes

productivity shocks and business cycles this note uses two measures of productivity growth the solow residual and the dual residual from the cost function to test competing theories of the cycle in a number of oecd countries the empirical results indicate that both demand and supply shocks play a role in driving economic cycles and therefore refute the stronger real business cycle hypothesis

volatility and development why is gdp growth so much more volatile in poor countries than in rich ones we identify four possible reasons i poor countries specialize in more volatile sectors ii poor countries specialize in fewer sectors iii poor countries experience more frequent and more severe aggregate shocks e g from macroeconomic policy and iv poor countries macroeconomic fluctuations are more highly correlated with the shocks of the sectors they specialize in we show how to decompose volatility into these four sources quantify their contribution to aggregate volatility and study how they relate to the stage of development we document the following regularities first as countries develop their productive structure moves from more volatile to less volatile sectors second the level of specialization declines with development at early stages and slowly increases at later stages of development third the volatility of country specific macroeconomic shocks falls with development fourth the covariance between sector specific and country specific shocks does not vary systematically with the level of development we argue that many theories linking volatility and development are not consistent with these findings and suggest new directions for future theoretical work

real business cycles in this paper we demonstrate how certain very ordinary economic principles lead maximizing individuals to choose consumption production plans that display many of the characteristics commonly associated with business cycles our explanation is entirely consistent with i rational expectations ii complete current information iii stable preferences iv no technological change v no long lived commodities vi no frictions or adjustment costs vii no government viii no money and ix no serial dependence in the stochastic elements of the environment we also provide a completely worked out example of the type of artificial economy we have in mind the time series properties of the example exhibit some major features of observed business cycles although this type of model may not be capable of explaining all of the regularities in actual business cycles we believe that it provides a useful well defined benchmark for assessing the relative importance of factors e g monetary disturbances

what triggers mortgage default this paper assesses the relative importance of two key drivers of mortgage default negative equity and illiquidity to do so the authors combine loan level mortgage data with detailed credit bureau information about the borrower s broader balance sheet this gives them a direct way to measure illiquid borrowers those with high credit card utilization rates the authors find that both negative equity and illiquidity are significantly associated with mortgage default with comparably sized marginal effects moreover these two factors interact with each other the effect of illiquidity on default generally increases with high combined loan to value ratios cltv though it is significant even for low cltv county level unemployment shocks are also associated with higher default risk though less so than high utilization and strongly interact with cltv in addition having a second mortgage implies significantly higher default risk particularly for borrowers who have a first mortgage ltv approaching 100 percent this abstract was borrowed from another version of this item

cross country evidence on the link between volatility and growth this paper presents empirical evidence against the standard dichotomy in macroeconomics that separates growth from the volatility of economic fluctuations in a sample of ninety two countries as well as a sample of oecd countries the authors find that countries with higher volatility have lower growth the addition of standard control variables strengthens the negative relationship the authors also find that government spending induced volatility is negatively associated with growth even after controlling for both time and country fixed effects copyright 1995 by american economic association