estimates of effective marginal tax rates on factor incomes this chapter describes a method of calculating summary measures of effective factor income tax rates in the united states using readily available data the numbers resulting from application of this method in a study are reported in the chapter and some of their possible uses are discussed the estimated factor income tax rates behave over time in a manner quite consistent with the behavior of other broad measures of federal tax policy the postwar movement in the tax rate on income from labor relative to that on income from capital or more accurately the relevant components of these tax rates provides suggestive support for the miller scholes hypothesis that the federal personal income tax has been moving in the direction of a pure consumption tax the tax rates reported in the chapter are consistent with other studies that show a decrease since the 1950s in rates of taxation at the corporate level of income from corporate held capital they are also consistent with the view that rates of taxation of such income at the noncorporate level have risen but not quite sufficiently to offset the decline in the corporate tax burden

market frictions a unified model of search costs and switching costs it is well known that search costs and switching costs can create market power by constraining the ability of consumers to change suppliers while previous research has examined each cost in isolation this paper demonstrates the benefits of examining the two types of friction in unison the paper shows how subtle distinctions between the two costs can provide important differences in their effects upon consumer behaviour competition and welfare in addition the paper also illustrates a simple empirical methodology for estimating separate measures of both costs while demonstrating a potential bias that can arise if only one cost is considered

payment card rewards programs and consumer payment choice abstract by using a unique data set that contains detailed information about consumer payment choice and consumers attitudes toward each payment method we estimate the effects of payment card rewards on consumer choice of payment methods our approach allows us to control for consumer heterogeneity we find the effects of rewards to be statistically significant across five retail types our policy experiments suggest that for the sub population who hold both credit and debit cards removing rewards would increase their share of paper based payment methods i e cash and checks measured in terms of in store transactions by no more than 4 percentage points

debt deleveraging and the liquidity trap a fisher minsky koo approach in this paper we present a simple new keynesian style model of debt driven slumps that is situations in which an overhang of debt on the part of some agents who are forced into rapid deleveraging is depressing aggregate demand making some agents debt constrained is a surprisingly powerful assumption fisherian debt deflation the possibility of a liquidity trap the paradox of thrift a keynesiantype multiplier and a rationale for expansionary fiscal policy all emerge naturally from the model we argue that this approach sheds considerable light both on current economic difficulties and on historical episodes including japan s lost decade now in its 18th year and the great depression itself

value function approximation in the presence of uncertainty and inequality constraints an application to the demand for credit cards abstract we present an algorithm for approximating the solution to discrete time stochastic dynamic programs with inequality constraints the algorithm exploits the state preference approach to choice under uncertainty to reduce the dimensionality of the state space and polynomial approximation to improve computational efficiency it is particularly useful in financial applications involving liquidity and credit constraints and more than one asset the algorithm provides information about the derivatives of the value function and therefore risk aversion along with asset demands

borrowing high versus borrowing higher price dispersion and shopping behavior in the u s credit card market we document substantial cross individual dispersion in u s credit card borrowing costs even after controlling for borrower risk and card characteristics that remaining dispersion arises because cross lender pricing heterogeneity generates dispersion in annual percentage rate apr offers to borrowers and borrowers vary in shopping intensity our empirics match administrative data to self reported card shopping intensity and use instruments suggested by fair lending law to account for the endogeneity between aprs and search the results show that shoppers versus nonshoppers pay aprs as different as those paid by borrowers in the best versus worst credit score deciles we discuss implications for policy and practice

stochastic replicator dynamics this article studies the replicator dynamics in the presence of shocks i show that under these dynamics strategies that do not survive the iterated deletion of strictly dominated strategies are eliminated in the long run even in the presence of nonvanishing perturbations i also give an example that shows that the stochastic dynamics in this article have equilibrium selection properties that differ from other dynamics in the literature

precautionary saving over the business cycle we study the macroeconomic implications of time varying precautionary savings within a general equilibrium model with borrowing constraints aggregate shocks and uninsurable idiosyncratic unemployment risk our framework generates limited cross sectional household heterogeneity as an equilibrium outcome thereby making it possible to analyse the role of precautionary saving over the business cycle in an analytically tractable way the time series behaviour of aggregate consumption generated by our model is closer to the data than that implied by the hand to mouth and representative agent models and it is comparable to that produced by the krusell and smith 1998 model

cyclical dynamics in idiosyncratic labor market risk is individual labor income more risky in recessions this is a difficult question to answer because existing panel data sets are so short to address this problem we develop a generalized method of moments estimator that conditions on the macroeconomic history that each member of the panel has experienced variation in the cross sectional variance between households with differing macroeconomic histories allows us to incorporate business cycle information dating back to 1930 even though our data do not begin until 1968 we implement this estimator using household level labor earnings data from the panel study of income dynamics we estimate that idiosyncratic risk is i highly persistent with an annual autocorrelation coefficient of 0 95 and ii strongly countercyclical with a conditional standard deviation that increases by 75 percent from 0 12 to 0 21 as the macroeconomy moves from peak to trough

asset prices in a huggett economy this paper explores asset pricing in economies where there is no direct insurance against idiosyncratic risks but other assets can be used for self insurance subject to exogenously imposed borrowing limits we analyze an endowment economy based on huggett 1993 11 both with and without aggregate risk our main innovation is that we obtain full analytical tractability by studying the case with maximally tight borrowing constraints we illustrate by looking at riskless bonds equity and the term structure of interest rates and we show that the model can reproduce many features of observed asset prices when idiosyncratic risks are quantitatively reasonable

permanent income hypothesis in emerging markets some brazilian evidence abstract this paper uses a dataset from one of the largest credit card issuers in brazil to investigate the extent of credit constraints for one of the world s largest emerging market economies in order to deal with the endogeneity problem from an observational dataset an identification strategy based on the issuer actual policies was used to better identify the long run effects of a credit card limit increase on debt the results point to a long run effect of credit limit on credit card debts of 0 1144 a similar size to the ones found in gross and souleles 2001 this value indicates the permanent income hypothesis is rejected for this sample and some evidence supporting a variation of buffer stock behavior is found furthermore results indicate the degree of heterogeneity in effects is much higher than similar results for developed countries lending credence to the conclusion credit constraints are much stronger for lower income groups this conclusion is in line to previous studies in brazil such as de lucinda and vieira 2014

risk based pricing of interest rates for consumer loans abstract by focusing on observable default risk s role in loan terms and the subsequent consequences for household behavior this paper shows that lenders increasingly used risk based pricing of interest rates in consumer loan markets during the mid 1990s it tests three resulting predictions first the premium paid per unit of risk should have increased over this period second debt levels should have reacted accordingly third fewer high risk households should have been denied credit further contributing to the interest rate spread between the highest and lowest risk borrowers for people obtaining loans the premium paid per unit of risk did indeed become significantly larger after the mid 1990s for example for a 0 01 increase in the probability of bankruptcy the corresponding interest rate increase tripled for first mortgages doubled for automobile loans and rose nearly six fold for second mortgages additionally changes in borrowing levels and debt access reflected these new pricing practices particularly for secured debt borrowing increased most for the low risk households who saw their relative borrowing costs fall furthermore while very high risk households gained expanded access to credit the increases in their risk premiums implied that their borrowing as a whole either rose less or sometimes fell

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

the cyclicality of the opportunity cost of employment the flow opportunity cost of moving from unemployment to employment consists of forgone public benefits and the forgone consumption value of nonworking time we construct a time series of the opportunity cost of employment using detailed microdata and administrative or national accounts data to estimate benefits levels eligibility take up consumption by labor force status hours taxes and preference parameters the opportunity cost is procyclical and volatile over the business cycle the estimated cyclicality implies far less unemployment volatility in leading models of the labor market than that observed in the data irrespective of the level of the opportunity cost

how effective are rewards programs in promoting payment card usage empirical evidence card issuers have mainly relied on rewards programs as their main strategy to increase usage however there is scarce evidence on the effectiveness of these programs this paper is addressing two topics which could have important managerial and public policy implications i it estimates the impact of rewards on the use of cards and ii it quantifies their economic effects in terms of the cash substitution we find that rewards may significantly modify choice for card payments their economic impact also varies significantly across types of rewards and merchant activities additionally rewards seem to be more effective for debit cards

labor market matching with precautionary savings and aggregate fluctuations we analyze a bewley huggett aiyagari incomplete markets model with labor market frictions consumers are subject to idiosyncratic employment shocks against which they cannot insure directly the labor market has a diamond mortensen pissarides structure firms enter by posting vacancies and match with workers bilaterally with match probabilities given by an aggregate matching function wages are determined through nash bargaining we also consider aggregate productivity shocks and a complete set of contingent claims conditional on this risk we use the model to evaluate a tax financed unemployment insurance scheme higher insurance is beneficial for consumption smoothing but because it raises workers outside option value it discourages firm entry we find that the latter effect is more potent for welfare outcomes we tabulate the effects quantitatively for different kinds of consumers we also demonstrate that productivity changes in the model in steady state as well as stochastic ones generate rather limited unemployment effects unless workers are close to indifferent between working and not working thus recent findings are corroborated in our more general setting

wealth and volatility we document that in the us over the course of the past century there has been a systematic negative relation between household wealth and business cycle volatility we develop a microfounded dynamic equilibrium model that contains elements of a traditional keynesian framework in which economic uctuations can be driven by sunspot type uctuations in household optimism or pessimism the novel feature is that the scope for equilibrium uctuations due to sunspots depends on the exogenously given value of household wealth when wealth is high consumers demand is not sensitive to unemployment expectations and the economy is robust to condence crisis when wealth is low consumers demand is sensitive to unemployment expectations the economy becomes vulnerable to condence driven uctuations and is in general more volatile in this case there is a potential role for public policies to stabilize demand we conclude by providing micro economic evidence on the importance of wealth in aecting the sensitivity of demand to aggregate conditions we show that during the great recession consumers with low

the power of forward guidance revisited in recent years central banks have increasingly turned to forward guidance as a central tool of monetary policy especially as interest rates around the world have hit the zero lower bound standard monetary models imply that far future forward guidance is extremely powerful promises about far future interest rates have huge effects on current economic outcomes and these effects grow with the horizon of the forward guidance we show that the power of forward guidance is highly sensitive to the assumption of complete markets if agents face uninsurable income risk and borrowing constraints a precautionary savings effect tempers their responses to changes in future interest rates as a consequence forward guidance has substantially less power to stimulate the economy in addition we show that the business cycle dynamics of our incomplete markets model differ substantially from its complete market counterpart this contrasts with the well known results of krusell and smith 1998 we present approximate representations that can easily be incorporated into standard business cycle models

a unified measure of fed monetary policy shocks abstract we develop a u s monetary policy shock series that stably bridges periods of conventional and unconventional policymaking is largely unpredictable and contains no significant central bank information effect we attribute differences between our measure and often used alternatives to our econometric procedure a partial least squares approach and our using the full maturity spectrum of interest rates in estimating the shock we find that shocks to our monetary policy series have particularly large effects on maturities in the middle of the term structure and produce conventionally signed impulse responses of output and inflation

evolution rationality and equilibrium in games abstract evolutionary game theory studies the robustness of strategy profiles and sets of strategy profiles with respect to evolutionary forces in games played repeatedly in large populations of boundedly rational agents the approach is macro oriented in the sense of focusing on the strategy distribution in the interacting population s some of the main features of this approach are here outlined and connections with learning models and standard notions of game theoretic rationality and equilibrium are discussed some desiderata and results for robust long run predictions are considered

perspectives on the rise and fall of american growth abstract this paper summarizes the book and assesses the reviews contained in the four contributed papers gregory clark provides convincing arguments that extend the book s forecast that future technological change will be slower nicholas crafts shows declining mortality and shorter work hours greatly increase welfare augmented tfp growth during 1929 50 benjamin friedman points out that optimism about future technological change casts doubt on future employment growth while technological pessimism implies employment optimism daron acemoglu and co authors emphasize the institutional environment that influences the timing and magnitude of innovation

uninsured countercyclical risk an aggregation result and application to optimal monetary policy we consider an incomplete markets economy with capital accumulation and endogenous labor supply individuals face countercyclical idiosyncratic labor and asset risk we derive conditions under which the aggregate allocations and price system can be found by solving a representative agent problem this result is applied to analyze the properties of an optimal monetary policy in a new keynesian economy with uninsured countercyclical individual risk the optimal monetary policy that emerges from our incomplete markets economy is the same as the optimal monetary policy in a representative agent model with preference shocks when price rigidity is the only friction the optimal monetary policy calls for stabilizing the ination rate at zero

replicator dynamics in a cobweb model with rationally heterogeneous expectations abstract this paper extends the adaptively rational equilibrium dynamics of brock and hommes brock w a hommes c h 1997 a rational route to randomness econometrica 65 1059 1160 by introducing a generalized version of the replicator dynamic the replicator equilibrium dynamics red couples the price dynamics of a cobweb model with predictor selection governed by an evolutionary replicator dynamic we show that the red supports the conclusion of sethi and franke sethi r franke r 1995 behavioural heterogeneity under evolutionary pressure macroeconomic implications of costly optimisation the economic journal 105 583 600 that costly rational beliefs persist though unlike them these results obtain in the deterministic case numerical evidence shows that complex dynamics exist as in brock and hommes even though no weight is placed on strictly dominated predictors in an red steady state

the macroeconomic effects of lockdown policies abstract a tractable incomplete market model with endogenous unemployment risk sticky prices real wage rigidity and a fiscal side is calibrated to euro area countries and used to analyze the macroeconomic effects of lockdown policies modeling them as a shock to the extensive margin of labor adjustment a rise in separations produces large and persistent negative effects on output unemployment and welfare raises precautionary savings and lowers inflation in line with early evidence about inflation dynamics modeling lockdowns as a shock to the intensive margin a fall in labor utilization produces small and short lived macroeconomic and welfare effects and implies a counterfactual rise in inflation conditional on a lockdown separation shock raising public spending or extending ui benefits by large amounts is much more effective in stimulating the economy than during normal times quantitatively however the ability of such policies to flatten the output and unemployment curves remains limited even though these policies can alleviate a reasonable share of the aggregate welfare losses from the lockdown

the rise and fall of american growth exploring the numbers abstract this paper reviews some of the major claims in robert gordon s rise and fall of american growth his argument that growth of conventional real gdp per person is well below that of real living standards is accepted it is shown that adding an imputation to gdp for reductions in mortality raises growth substantially especially between 1929 and 1950 gordon is also right that total factor productivity growth peaked in the second and third quarters of the twentieth century but his claim that there was a great leap forward in the 1940s stimulated by world war 2 is not persuasive

equilibrium selection inn person coordination games abstract this paper investigates several approaches to equilibrium selection and the relationships between them the class of games we study are n person generalized coordination games with multiple pareto rankable strict nash equilibria the main result is that all selection criteria select the same outcome namely the risk dominant equilibrium in two person games and that most equivalences break for games with more than two players all criteria select the pareto efficient equilibrium in voting games of which pure coordination games are special cases journal of economic literature classification numbers c70 c72 d82

do people play nash equilibrium lessons from evolutionary game theory evolutionary game theory provides an answer to two of the central questions in economic modeling when is it reasonable to assume that people are rational and when is it reasonable to assume that behavior is part of a nash equilibrium and if it is reasonable which equilibrium the traditional answers are not compelling and much of evolutionary modeling is motivated by the need for a better answer evolutionary game theory suggests that in a range of settings agents do eventually play a nash equilibrium moreover evolutionary modeling has shed light on the relative plausibility of different nash equilibria

better reply dynamics and global convergence to nash equilibrium in aggregative games we consider n person games with quasi concave payoffs that depend on a player s own action and the sum of all players actions we show that a discrete time stochastic process in which players move towards better replies the better reply dynamics converges globally to a nash equilibrium if actions are either strategic substitutes or strategic complements for all players around each nash equilibrium that is asymptotically stable under a deterministic adjusted best reply dynamics we present an example of a 2 person game with a unique equilibrium where the derivatives of the best reply functions have different signs and the better reply dynamics does not converge

regulate one service tame the entire market credit cards in turkey abstract in credit card markets banks provide both payment and credit services two regulations were recently enacted in the turkish credit card market one on payment services in 2005 and the other on credit services in 2006 by employing the well known panzar and rosse 1982 panzar and rosse 1987 method and a unique quarterly data set for 21 turkish banks between 2002 and 2008 we investigate the extent of banks market power in the turkish credit card market before and after the regulations unlike most of the existing literature which considers competition and regulation for either credit or payment services and ignores the externalities between them we consider the entire market by taking both services into account fixed effects estimations reveal that banks enjoyed collusive oligopoly power before the regulations although the first regulation did not have much impact the second led to rises in both banks total revenues and competition in the entire market

evolutionary consumers imply monopolies exit we address the question of how a monopolist should price when facing evolutionary consumers who gradually move in the direction of following their optimal strategy but may make temporary suboptimal choices we show that under a broad generalization of the most commonly used model of evolution the monopolist will set a path of prices such that all consumers eventually stop purchasing the monopolist s product

unemployment fears and deflationary spirals the interaction of incomplete markets and sticky nominal wages is shown to magnify business cycles even though these two features in isolation dampen them during recessions fears of unemployment stir up precautionary sentiments which induces agents to save more the additional savings may be used as investments in both a productive asset equity and an unproductive asset money but even a small rise in money demand has important consequences the desire to hold money puts deflationary pressure on the economy which provided that nominal wages are sticky increases wage costs and reduces firm profits lower profits repress the desire to save in equity which increases the fear of unemployment and so on this is a powerful mechanism which causes the model to behave differently from both its complete markets version and a version with incomplete markets but without aggregate uncertainty in contrast to previous results in the literature agents uniformly prefer non trivial levels of unemployment insurance

credit crises precautionary savings and the liquidity trap we use a model a la bewly huggett ayagari to explore the eects of a credit crunch on consumer spending households borrow and lend to smooth idiosyncratic income shocks facing an exogenous borrowing constraint we look at the economy response after an unexpected permananent tightening of this constraint the interest rate drops sharply in the short run and then adjusts to a lower steady state level this is due to the fact that after the shock a large fraction of agents is far below their target holdings of precautionary savings and this generates a large temporary positive shock to net lending we then look at the eects on output here two opposing forces are present as households can deleverage in two ways by consuming less and by working more we show that under a reasonable parametrization the eect on consumer spending dominates and precautionary behavior generates a recession if we add nominal rigidities two things happen i supply side responses are muted and ii there is a lower bound on the interest rate adjustment these two elements tend to amplify the recession caused by the credit tightening

fiscal policy in an expectations driven liquidity trap we study the effects of fiscal policy interventions in a liquidity trap in a model with nominal rigidities and an interest rate rule in a liquidity trap caused by a self fulfilling state of low confidence higher government spending has deflationary effects that reduce the spending multiplier when the zero lower bound is binding instead cuts in marginal labor tax rates are inflationary and become more expansionary when the zero lower bound is binding these findings contradict popular views about the effects of fiscal policy in a liquidity trap

roads to prosperity assessing the link between public capital and productivity does the positive correlation between infrastructure and productivity reflect causation if so in which direction the author finds that when growth in roads the largest component of infrastructure changes productivity growth changes disproportionately in u s industries with more vehicles that vehicle intensive industries benefit more from road building suggests that roads are productive at the margin however road investments do not appear unusually productive intuitively the interstate system was highly productive but a second one would not be road building thus explains much of the productivity slowdown through a one time unrepeatable productivity boost in the 1950s and 1960s

building a composite help wanted index abstract this paper builds a measure of vacancy posting over 1951 2009 that captures the behavior of total print and online help wanted advertising and can be used for time series analysis of the us labor market

license to cheat voluntary regulation and ethical behavior although monitoring and regulation can be used to combat socially costly unethical conduct their intended targets can often avoid regulation or hide their behavior this surrenders at least part of the effectiveness of regulatory policies to firms and individuals decisions to voluntarily submit to regulation we study individuals decisions to avoid monitoring or regulation and thus enhance their ability to engage in unethical conduct we conduct a laboratory experiment in which participants engage in a competitive task and can decide between having the opportunity to misreport their performance or having their performance verified by an external monitor to study the effect of social factors on the willingness to be subject to monitoring we vary whether participants make this decision simultaneously with others or sequentially as well as whether the decision is private or public our results show that the opportunity to avoid being submitted to regulation produces more unethical conduct than situati

futile attempts at self control we investigate costly yet futile attempts at self control when consumption of a harmful product has a binary breakdown no breakdown nature and individuals tend to underestimate their need for self control considering time inconsistent preferences as well as temptation disutility we show that becoming more sophisticated can decrease welfare and investigate what kind of mistaken beliefs lead to low welfare with time inconsistent preferences being close to perfectly understanding one s preferences but assigning zero probability to true preferences induces the worst outcome jel d03 d11 d91

unemployment and business cycles we develop and estimate a general equilibrium search and matching model that accounts for key business cycle properties of macroeconomic aggregates including labor market variables in sharp contrast to leading new keynesian models we do not impose wage inertia instead we derive wage inertia from our specification of how firms and workers negotiate wages our model outperforms a variant of the standard new keynesian calvo sticky wage model according to our estimated model there is a critical interaction between the degree of price stickiness monetary policy and the duration of an increase in unemployment benefits

precautionary savings illiquid assets and the aggregate consequences of shocks to household income risk households face large income uncertainty that varies substantially over the business cycle we examine the macroeconomic consequences of these variations in a model with incomplete markets liquid and illiquid assets and a nominal rigidity heightened uncertainty depresses aggregate demand as households respond by hoarding liquid paper assets for precautionary motives thereby reducing both illiquid physical investment and consumption demand we document the empirical response of portfolio liquidity and aggregate activity to surprise changes in idiosyncratic income uncertainty and find both to be quantitatively in line with our model the welfare consequences of uncertainty shocks and of the policy response thereto depend crucially on a household s asset position

risk management of non maturing liabilities abstract risk management of non maturing liabilities is a relatively unstudied issue of significant practical importance non maturing liabilities include most of the traditional deposit accounts like demand deposits savings accounts and short time deposits and form the basis of the funding of depository institutions therefore the asset and liability management of depository institutions depends crucially on an accurate understanding of the liquidity risk and interest rate risk profile of these deposits in this paper we propose a stochastic three factor model as general quantitative framework for liquidity risk and interest rate risk management for non maturing liabilities it consists of three building blocks market rates deposit rates and deposit volumes we give a detailed model specification and present algorithms for simulation and calibration our approach to liquidity risk management is based on the term structure of liquidity a concept which forecasts for a specified period and probability what amount of cash is available for investment for interest rate risk management we compute the value the risk profile and the replicating bond portfolio of non maturing liabilities using arbitrage free pricing under a variance minimizing measure the proposed methodology is demonstrated by means of a case study the risk management of savings accounts

limited asset markets participation monetary policy and inverted aggregate demand logic abstract this paper incorporates limited asset markets participation in dynamic general equilibrium and develops a simple analytical framework for monetary policy analysis aggregate dynamics and stability properties of an otherwise standard business cycle model depend nonlinearly on the degree of asset market participation while moderate participation rates strengthen the role of monetary policy low enough participation causes an inversion of results dictated by conventional wisdom the slope of the is curve changes sign the taylor principle is inverted optimal welfare maximizing discretionary monetary policy requires a passive policy rule and the effects and propagation of shocks are changed however a targeting rule implementing optimal policy under commitment delivers equilibrium determinacy regardless of the degree of asset market participation our results may justify fed s behavior during the great inflation period

evolutionary dynamics with aggregate shocks abstract we study the evolution of the continuous time replicator dynamics when payoffs are subject to aggregate shocks that take the form of a wiener process in the absence of mutation the system need not have an ergodic distribution with mutation the system does have an ergodic distribution in the limit as the mutation rate and the variance of the shocks converge to zero this distribution concentrates on the risk dominant equilibrium this result is not however robust to changes in the underlying deterministic dynamics

what accounts for the variation in retirement wealth among u s households even among households with similar socioeconomic characteristics saving and wealth vary considerably life cycle models attribute this variation to differences in time preference rates risk tolerance exposure to uncertainty relative tastes for work and leisure at advanced ages and income replacement rates these factors have testable implications concerning the relation between accumulated wealth and the shape of the consumption profile using the panel study of income dynamics and the consumer expenditure survey we find little support for these implications the data are instead consistent with rule of thumb mental accounting or hyperbolic discounting theories of wealth accumulation jel di d91 e21

stagnant productivity and low unemployment stuck in a keynesian equilibrium a major challenge is to build simple intuitive macroeconomic models for policy makers and professional economists as well as students a specific contemporary challenge is to account for the prolonged slow growth and stagnant productivity that has followed the post financial crisis recession along with low inflation despite low unemployment notably in the uk we set out a simple three equation model which extends the core model in our two recent books carlin and soskice 2006 2015 to one with two equilibria and two associated macroeconomic policy regimes one is the standard inflation targeting policy regime with equilibrium associated with central bank inflation targeting through monetary policy it is joined by a second keynesian policy regime and equilibrium with a zero lower bound zlb in the nominal interest rate and a zlb in inflation in which only fiscal policy is effective ragot 2015 our approach is related to the benigno and fornaro 2016 keynesian wicksellian model of growth with business cycles it diverges from new keynesian models because although we attribute model consistent expectations to the policy maker we do not assume that these are the basis for inflation and growth expectations of workers and firms we compare our approach to ravn and sterk s related multiple equilibrium new keynesian model ravn and sterk 2016

volumes of evidence examining technical change in the last century through a new lens abstract new indicators of technical change based on titles included in the catalogue of the library of congress and on amazon com s website are presented along with evidence that they do capture technological innovation the indicators are used to chart the pattern and nature of technical change over the last century a strong causal relationship is found to exist between these indicators and changes in tfp and output per capita moreover innovations in some subgroups have had a greater impact on output and productivity than in others and the key players change over time information technologies are currently the dominant subgroup jel classificatiion e32 o3 o4 n1

u s industry adjustment to economic deregulation conomic deregulation does not happen overnight it takes time for lawmakers and regulators to dismantle regulatory regimes and then it takes more time for the deregulated industries to adjust to their new competitive environment federal regulatory agencies and the u s congress began liberalizing pricing entry and exit in the transportation financial energy and communications industries during the mid 1970s but while some smaller industries such as intercity bus transportation and air cargo have been fully deregulated during that time the only major american industries fully deregulated to date are airlines and motor carriers as to the pace of industry adjustment consider airlines economic deregulation of the airline industry began in 1974 when the civil aeronautics board first encouraged experiments with discount fares it was completed in 1983 when all regulations on fares entry and exit were eliminated yet more than 20 years after the deregulatory process began the airline industry continues to shed inefficiencies that accumulated over decades of regulation and to find new ways to market their service indeed the airlines latest marketing innovation selling discount fares on the internet would be illegal if fares were still regulated it is not surprising that deregulated or partially deregulated industries are slow to achieve maximum efficiency when regulatory restrictions on pricing operations and entry especially from new firms have been enforced for decades managers and employees of regulated firms settle into patterns of inefficient production and missed opportunities for technological advance and entry into new markets deregulation frees an industry from the state s control over prices entry and exit although of course firms are still subject to antitrust laws and safety regulations after deregulation some costs usually fall in short order but it takes

information sharing in credit markets we present a model with adverse selection where information sharing between lenders arises endogenously lenders incentives to share information about borrowers are positively related to the mobility and heterogeneity of borrowers to the size of the credit market and to advances in information technology such incentives are instead reduced by the fear of competition from potential entrants in addition information sharing increases the volume of lending when adverse selection is so severe that safe borrowers drop out of the market these predictions are supported by international and historical evidence in the context of the consumer credit market a large body of literature on credit markets has shown that asymmetric information may prevent the efficient allocation of lending leading to credit rationing e g jaffee and russell 1976 stiglitz and weiss 1981 or to a wedge between lending and borrowing rates e g king 1986 in this literature informational asymmetries are taken to be exogenous lenders fail to observe some relevant characteristic or action of potential borrowers and have no way of learning about it in some countries however lenders can improve their knowledge about new customers by exchanging information with other lenders through information brokers generally known as credit bureaus the latter collect file and distribute the information voluntarily supplied by their members and operate on the principle of reciprocity lenders who do not provide data are denied access to the bureau s files in other countries instead these institutions do not exist the literature offers no guide to identify the factors that lead to endogenous communication between lenders this paper is an attempt to fill the gap information sharing is important for a number of reasons it may increase the degree of competitiveness within credit markets vives 1990 improve

the intertemporal dynamics of consumer lock in this article examines how dynamic changes in information cost structure and time preferences affect consumers search and switching behavior over time and lead to lock in the information cost structure is conceptualized as a trade off of initial setup costs and ongoing usage costs lock in is defined as consumers decreased propensity to search and switch after an initial investment which is determined both by a preference to minimize immediate costs and by an inability to anticipate the impact of future switching costs the results of three experiments support the proposed mechanism experiment 1 shows that a small initial investment is sufficient to produce lock in experiment 2 shows that the results of a prior investment on lock in are not due to psychological commitment but to a shift in relative costs of incumbent and new options experiment 3 shows that respondents fail to anticipate how their prior investment will lock them in

the failure of competition in the credit card market the bank credit card market containing 4 000 firms and lacking regulatory barriers casually appears to be a hospitable environment for the model of perfect competition nevertheless this article reports that credit card interest rates have been exceptionally sticky relative to the cost of funds moreover major credit card issuers have persistently earned from three to five times the ordinary rate of return in banking during the periods 1983 88 the failure of the competitive model appears to be partly attributable to consumers making credit card choices without taking account of the very high probability that they will pay interest on their outstanding balances copyright 1991 by american economic association

monopolists and viscous demand we characterize the optimal dynamic price policy of a monopolist who faces viscous demand for its services demand is viscous if it adjusts relatively slowly to price changes we show that with the optimal policy the monopolist stops short of achieving 100 market penetration even when all of the consumers have the same long run willingness to pay for the service furthermore for certain parameter values in the model the price policy requires rapid oscillations of the price path

the establishment level behavior of vacancies and hiring this paper is the first to study vacancies hires and vacancy yields at the establishment level in the job openings and labor turnover survey a large sample of u s employers to interpret the data we develop a simple model that identifies the flow of new vacancies and the job filling rate for vacant positions the job filling rate moves counter to aggregate employment but rises steeply with employer growth rates in the cross section it falls with employer size rises with worker turnover rates and varies by a factor of four across major industry groups we also develop evidence that the employer level hiring technology exhibits constant returns and that at the employer level and that employers rely heavily on other instruments in addition to vacancies as they vary hires we also develop evidence that effective recruiting intensity per vacancy varies over time accounting for about 41 of movements in aggregate hires in the 2007 to 2009 period our evidence and analysis provide useful inputs for assessing developing and calibrating theoretical models of search matching and hiring in the labor market

competition and pricing in the credit card market many credit card issuers charge fixed rates that remain the same for three to five years while the rest charge variable rates that are indexed to market rates the presence of these two distinct rate types forces prices at firms selling an otherwise identical product to move asynchronously variable rates move one for one with the index while fixed rates stay constant empirical and theoretical analysis shows that this pricing structure provides an explanation for the simultaneous yet seemingly contradictory existence of high rate cost margins and aggressive non price competition for new customers a phenomenon that existed in the credit card market in the early 1990s

job uncertainty and deep recessions abstract we study a model where households are subject to uninsurable unemployment risk price setting is subject to nominal rigidities and the labor market is characterized by matching frictions and inflexible wages higher risk of job loss and worsening job finding prospects during unemployment depress goods demand because of a precautionary savings motive lower goods demand reduces job vacancies and the job finding rate producing an amplification mechanism due to endogenous countercyclical income risk amplification derives from the combination of incomplete financial markets and frictional goods and labor markets the model can account for key features of the great recession

reconciling hayek s and keynes views of recessions recessions often happen after periods of rapid accumulation of houses consumer durables and business capital this observation has led some economists most notably friedrich hayek to conclude that recessions often reflect periods of needed liquidation resulting from past over investment according to the main proponents of this view government spending or any other form of aggregate demand policy should not be used to mitigate such a liquidation process as doing so would simply result in a needed adjustment being postponed in contrast ever since the work of keynes many economists have viewed recessions as periods of deficient demand that should be countered by activist fiscal policy in this paper we reexamine the liquidation perspective of recessions in a setup where prices are flexible but where not all trades are coordinated by centralized markets the model illustrates why liquidations likely cause recessions characterized by deficient aggregate demand and accordingly suggests that keynes and hayek s views of recessions may be closely linked in our framework interventions aimed at stimulating aggregate demand face a trade off whereby current stimulus postpones the adjustment process and therefore prolongs the recessions but where some stimulative policies may nevertheless remain desirable

the arbitrage free valuation and hedging of demand deposits and credit card loans abstract using a market segmentation argument this paper uses the interest rate derivative s arbitrage free methodology to value both demand deposit liabilities and credit card loan balances in markets where deposits loan rates may be determined under imperfect competition in this context these financial instruments are shown to be equivalent to a particular interest rate swap where the principal depends on the past history of market rates solutions are obtained which are independent of any particular model for the evolution of the term structure of interest rates

the financial system and the natural real interest rate towards a new benchmark theory model the 2008 financial crisis revealed serious flaws in the models that macroeconomists use to research inform policy and teach graduate students in this paper we seek to find simple additions to the existing benchmark model that might let us answer three questions what caused the boom and crisis why has the recovery been slow and how should policy respond to that slow recovery we argue that it is necessary to add financial frictions to the benchmark model this allows us to study the effects of leveraged financial institutions and of a yield curve based on preferred habitats such features will cause endogenous changes in the natural real interest rate and the spread between that interest rate and the rate which influences expenditure decisions they are likely to radically change the way in which the model responds to shocks we point to some promising models that incorporate these features

exploiting naivete about self control in the credit market we develop a model of the credit market where competitive lenders oer long term contracts specifying a non linear schedule of possible repayment schedules to borrowers who may dier both in their taste for immediate gratication and their prior beliefs about that taste the equilibrium contract to a borrower with given beliefs is discontinuous it features an advantageous option involving fast repayment and a penalty for deviating and repaying later these predictions seem to resemble some salient features of many credit card and mortgage contracts for fully sophisticated borrowers the discontinuity acts as a commitment device and yields fast repayment but all other borrowers even those with an arbitrarily small amount of naivete end up delaying repayment despite the penalty and receive little benet from commitment furthermore because they believe they will repay early they underestimate the cost of credit and hence borrow too much non sophisticated borrowers cross subsidize sophisticated borrowers while sophisticated borrowers discipline rms by preventing very exploitative contracts we identify natural conditions under which the above results obtain even if

the role of automatic stabilizers in the u s business cycle most countries have automatic rules in their tax and transfer systems that are partly intended to stabilize economic uctuations this paper measures how eective they are at lowering the volatility of u s economic activity we identify seven potential stabilizers in the data and include four theoretical channels through which they may operate in a business cycle model calibrated to the u s data the model is used to compare the volatility of output in the data with counterfactuals where some or all of the stabilizers are shut down our rst nding is that proportional taxes like sales property and corporate income taxes contribute little to stabilization our second

cross selling switching costs and imperfect competition in british banks this paper attempts to evaluate the competitiveness of british banking in the presence of cross selling and switching costs during 1993 2008 it presents estimates of a model of banking behaviour that encompasses switching costs as well as cross selling of loans and off balance sheet transactions the evidence from panel estimation of the model indicates that the consumer faced high switching costs in the loan market in the latter part of the sample period as a result of weaker competitiveness in the loan market additionally the weaker competitiveness in the loan market appears to facilitate the cross selling behaviour of british banks which helps explain the rapid growth of non interest income during the last two decades

macroeconomic fluctuations with hank sam an analytical approach new keynesian models with unemployment and incomplete markets are rapidly becoming a new workhorse model in macroeconomics such models typically require heavy computational methods which may obscure intuition and overlook equilibria we present a tractable version which can be characterized analytically our results highlight that ndue the interaction between incomplete markets sticky prices and endogenous unemployment risk nproductivity shocks may have radically di erent e ects than in traditional nk models that the taylor principle may fail and that pessimistic beliefs may be self fulolling and move the economy into temporary episodes of low demand and high unemployment as well as into a long lasting iunemployment trapi at the zero lower bound the presence of endogenous unemployment risk can create inaation and overturn paradoxical properties of the model we further study onancial asset prices and show that non negligible risk premia emerge