information acquisition and under diversification if an investor wants to form a portfolio of risky assets and can exert effort to collect information on the future value of these assets before he invests which assets should he learn about the best assets to acquire information about are ones the investor expects to hold but the assets the investor holds depend on the information he observes we build a framework to solve jointly for investment and information choices with general preferences and information cost functions although the optimal research strategies depend on preferences and costs the main result is that the investor who can first collect information systematically deviates from holding a diversified portfolio information acquisition can rationalize investing in a diversified fund and a concentrated set of assets an allocation often observed but usually deemed anomalous copyright wiley blackwell

how do fiscal and technology shocks affect real exchange rates new evidence for the united states abstract using vector autoregressions on u s time series relative to an aggregate of industrialized countries this paper provides new evidence on the dynamic effects of government spending and technology shocks on the real exchange rate and the terms of trade to achieve identification we derive robust restrictions on the sign of several impulse responses from a two country general equilibrium model we find that both the real exchange rate and the terms of trade whose responses are left unrestricted depreciate in response to expansionary government spending shocks and appreciate in response to positive technology shocks

simple market equilibria with rationally inattentive consumers we study a market with rationally inattentive consumers who are unsure of the terms of the offers made by firms but can acquire information about the terms at a cost in a symmetric equilibrium the price set by firms is continuously increasing in the cost of information for consumers and decreasing in the number of firms operating in addition favorable a priori information about a firm leads it to set a higher price and a new entrant can increase demand for incumbents when consumers have heterogeneous costs of information firms selling low quality products may choose to set the highest prices

inequality in the impact of the coronavirus shock evidence from real time surveys abstract we present real time survey evidence from the uk us and germany showing that the immediate labor market impacts of covid 19 differ considerably across countries employees in germany which has a well established short time work scheme are substantially less likely to be affected by the crisis within countries the impacts are highly unequal and exacerbate existing inequalities workers in alternative work arrangements and who can only do a small share of tasks from home are more likely to have lost their jobs and suffered falls in earnings women and less educated workers are more affected by the crisis

unemployment and domestic violence theory and evidence is unemployment the overwhelming determinant of domestic violence that many commentators expect it to be the contribution of this paper is to examine theoretically and empirically how changes in unemployment affect the incidence of domestic abuse the key theoretical prediction is that male and female unemployment have opposite signed effects on domestic abuse an increase in male unemployment decreases the incidence of intimate partner violence while an increase in female unemployment increases domestic abuse combining data on intimate partner violence from the british crime survey with locally disaggregated labor market data from the uk s annual population survey we find strong evidence in support of the theoretical prediction

demographic differences in cyclical employment variation demographic differences in patterns of employment variation over the business cycle are examined in this paper three primary conclusions emerge first both participation and unemployment must be considered in any analysis of cyclical changes in the labor market second young people bear a disproportionate share of cyclical employment variation third failure to consider participation has led to undue pessimism about the effect of aggregate demand policy on high unemployment groups if participation did not surge reduction in overall unemployment to its 1969 level would reduce the unemployment of almost all demographic groups to very low levels

consumption inequality and intra household allocations the current literature on consumption inequality treats all adults within the household equally making the implicit assumption that all consumption inequality is between not within households however increased marital sorting on earnings and the subsequent rise in the share of women s income in the household may have important implications for consumption inequality measured at the individual level we use an extension of the collective framework of chiappori to estimate a rule for assigning resources to individual household members we then construct a measure of individual level inequality by looking at implied changes in intra household allocations and explore the implications of our framework for the measurement of individual level versus household level consumption inequality our analysis which is based on households comprising one or two adults suggests that the conventional approach of ignoring intra household allocations underestimates the level of cross sectional consumption inequality by 30 and overstates the trend by two thirds our findings also indicate that increases in marital sorting on wages and hours worked can simultaneously explain virtually all of the decline in within household inequality and a substantial fraction of the rise in between household inequality in the uk since the 1970s

man bites dog business cycles the newsworthiness of an event is partly determined by how unusual it is and this paper investigates the business cycle implications of this fact signals that are more likely to be observed after unusual events may increase both uncertainty and disagreement among agents in a simple business cycle model such signals can explain why we observe i occasional large changes in macro economic aggregate variables without a correspondingly large change in underlying fundamentals ii persistent periods of high macroeconomic volatility and iii a positive correlation between absolute changes in macro variables and the cross sectional dispersion of survey expectations

rational inattention in uncertain business cycles the paper proposes endogenous information choice as a channel through which uncertainty affects price dynamics i consider a rational inattention model with volatility uncertainty and endogenous information processing capability according to the model firms learning and optimal attention exhibits inertia and asymmetry in response to volatility changes firms choose to process more information when uncertainty rises especially about aggregate conditions and their pricing behavior changes accordingly using a markov switching factor augmented vector autoregression ms favar the paper also documents a significant positive correlation between volatility and firms responsiveness to macro and microlevel shocks consistent with model predictions

an empirical examination of the procyclicality of r d investment and innovation abstract the schumpeterian opportunity cost hypothesis predicts that firms concentrate innovative activities in recessions however empirical evidence suggests that innovative activities are procyclical theory proposes that firms shift r d investments and innovation from recessions to booms to maximize returns by capturing high demand periods before imitators compete away rents this paper provides the first empirical test of these predictions results indicate that r d spending is more procyclical in industries with faster obsolescence where matching invention to demand is more valuable and innovation is more procyclical in industries with weaker ip protection where imitation poses a greater threat

labor supply and taxes a survey i survey the male and female labor supply literatures focusing on implications for effects of wages and taxes for males i describe and contrast results from three basic types of model static models especially those that account for nonlinear taxes life cycle models with savings and life cycle models with both savings and human capital for women more important distinctions are whether models include fixed costs of work and whether they treat demographics like fertility and marriage and human capital as exogenous or endogenous the literature is characterized by considerable controversy over the responsiveness of labor supply to changes in wages and taxes at least for males it is fair to say that most economists believe labor supply elasticities are small but a sizeable minority of studies that i examine obtain large values hence there is no clear consensus on this point in fact a simple average of hicks elasticities across all the studies i examine is 0 30 several simulation studies have shown that such a value is large enough to generate large welfare costs of income taxation for males i conclude that two factors drive many of the differences in results across studies one factor is use of direct vs ratio wage measures with studies that use the former tending to find larger elasticties another factor is the failure of most studies to account for human capital returns to work experience i argue that this may lead to downward bias in elasticity estimates in a model that includes human capital i show how even modest elasticities as conventionally measured can be consistent with large welfare costs of taxation

portfolio choice attention allocation and price comovement abstract this paper models the attention allocation of portfolio investors investors choose the composition of their information subject to an information flow constraint given their expected investment strategy in the next period which is to hold a diversified portfolio in equilibrium investors choose to observe one linear combination of asset payoffs as a private signal when investors use this private signal to update information about two assets changes in one asset affect both asset prices and may lead to asset price comovement the model also has implications for the transmission of volatility shocks between two assets

price differentials in monetary unions the role of fiscal shocks we study the effect of regional expenditure and revenue shocks on price differentials for 47 us states and 9 eu countries we identify shocks using sign restrictions on the dynamics of expenditures revenues deficits and output and construct two estimates for structural price differentials dynamics one for the average and one for each unit which optimally weight information contained in the data for all units on average expansionary fiscal disturbances produce positive while distortionary balance budget shocks produce negative price differential responses the negative price differentials responses in some units is partially explained by spillovers and labour supply effects

a quantized approach to rational inattention abstract in this paper i propose a model of rational inattention where the choice variable is a deterministic function of the exogenous variables and still only a finite amount of information is being used this holds provided the choice variable is discrete rather than continuous that is the mapping from the realization of the exogenous variables to the endogenous ones is piece wise constant thus limited information is now a source of lumpiness in behavior rather than a source of noise the approach is applied to a simple static model of price setting where individual price setters face aggregate monetary shocks and idiosyncratic productivity shocks the effect of aggregate money shocks on output and prices is studied it is shown that as the variance of idiosyncratic shocks become large the aggregate log price level converges to a linear function of the aggregate money shock with a coefficient which is strictly between 0 and 1 consequently unanticipated aggregate money shocks have real effects on output in contrast to the sticky price model of caplin and spulber 1987 but these effects are smaller than in standard rational inattention models or in the lucas 1972 misperception model

who suffers during recessions in this paper we examine how business cycles affect labor market outcomes in the united states we conduct a detailed analysis of how cycles affect outcomes differentially across persons of differing age education race and gender and we compare the cyclical sensitivity during the great recession to that in the early 1980s recession we present raw tabulations and estimate a state panel data model that leverages variation across u s states in the timing and severity of business cycles we find that the impacts of the great recession are not uniform across demographic groups and have been felt most strongly for men black and hispanic workers youth and low education workers these dramatic differences in the cyclicality across demographic groups are remarkably stable across three decades of time and throughout recessionary periods and expansionary periods for the 2007 recession these differences are largely explained by differences in exposure to cycles across industry occupation employment

african american and white differences in the impacts of monetary policy on the duration of unemployment an emerging literature documents monetary policy s impacts on labor market outcomes for example willem thorbecke 200 and seth b carpenter and william m rodgers iii 2004 find that recursive vector autoregressions var and autoregressive distributed lag adl models indicate that the response of the employmentpopulation ratio unemployment rate and labor force participation rate to increases in the federal funds rate follows the hump shaped pattern in which the peak impact occurs several quarters after the initial shock carl e walsh 2003 an interesting dynamic occurs the drop in aggregate demand reduces the number of available jobs this reduction lengthens job search but not to the extent that job seekers leave the labor force an extension of this work is to identify the type of unemployment that contractionary monetary policy generates is the unemployment short or long term to answer this question rodgers 2007 uses published bureau of labor statistics bls data on unemployment duration and type of unemployment to estimate models to assess whether job loss is concentrated among shortor long term spells or whether a ripple

the effects of fiscal shocks on employment and the real wage we study the transmission of fiscal shocks in the labor market we employ a structural var and base identification on the restrictions that shocks to government consumption investment and employment must raise output and deficits these restrictions hold in both prototype real business cycle rbc and new keynesian models shocks to government consumption and investment increase real wages and employment contemporaneously both at state level and in the aggregate the dynamics in response to employment shocks are mixed increases in government employment raise the real wage and total employment in the aggregate however in one third of the states they reduce total employment

household intertemporal behaviour a collective characterization and a test of commitment in this paper a formal test of intra household commitment is derived and performed to that end two models of household intertemporal behaviour are developed in both models household members are characterized by individual preferences in the first formulation household decisions are always on the ex ante pareto frontier in the second model the assumption of intra household commitment required by ex ante efficiency is relaxed it is shown that the full efficiency household euler equations are nested in the no commitment euler equations using this result the hypothesis that household members can commit to future allocations of resources is tested using the consumer expenditure survey i strongly reject this hypothesis it is also shown that the standard unitary framework is a special case of the full efficiency model however if household members are not able to commit household intertemporal behaviour cannot be characterized using the standard life cycle model these findings have two main implications first policy makers can change household behaviour by modifying the decision power of individual household members second to evaluate programmes designed to improve the welfare of household members it would be beneficial to replace the standard unitary model with a characterization of household behaviour that allows for lack of commitment

does monetary policy affect relative educational unemployment rates this paper examines the empirical relationship between relative educational unemployment rates and monetary policy such an examination is warranted because policymakers attempts to understand the distributional effects of monetary policy may be confounded by vintages of the theoretical literature that offer contrasting views of how skill based relative unemployment with unemployment of the less skilled in the numerator might behave over the business cycle a traditional view emphasizes characteristics of labor markets that could induce countercyclical movements in skill based relative unemployment for example arthur okun 1973 argues that an important benefit of high levels of aggregate economic activity is that opportunities for employment in the high quality jobs sector open up to the relatively unskilled a mechanism for the relative improvement of the employment prospects of the unskilled is changes in hiring standards of high quality job providers that occur over the cycle changes that occur during expansion and boom periods mentioned by okun include accepting younger and less experienced workers or workers without diplomas and more intensive screening of applicants a forceful statement of this highpressure economy view is contained in rebecca blank 2000 a more recent view of the impact of technological adoption could have quite different implications for movements in skill based relative unemployment over the cycle for example dale mortensen and christopher pissarides 1999 show that in their equilibrium search and matching framework the relationship between skill and unemployment is convex in the presence of labor market policies such as unemployment compensation in this environment skill biased technology shocks increase overall unemployment rates with a disproportionate share of the unemployment falling on the unskilled in his popular account of the matter krueger 2002 ties cyclical investment in new technologies to the conduct of monetary policy thereby linking relative educational unemployment to monetary policy my answer to the title question emerges from quantitative results designed to assess the dynamic effect on relative educational unemployment of a monetary policy surprise controlling for supply shocks and the introduction of new technical ideas these findings appear to resolve some of the tension between alternative views on relative unemployment dynamics in favor of the high pressure economy hypothesis discussants seth b carpenter federal reserve board jonah b gelbach university of maryland bridget terry long harvard university

price points and price dynamics abstract a standard model of price setting is extended to include an important role for price points as well as sticky information it makes empirically reasonable predictions about the frequency of price adjustments the sizes of price increases and decreases the shape of the hazard function the fraction of price changes that are price increases and the relationship between price changes and inflation when the model of price setting is integrated into a small scale dsge model it implies plausible aggregate effects of monetary policy in contrast to a model with a prominent role for price points but no information rigidities

an estimated canadian dsge model with nominal and real rigidities this paper develops a dynamic stochastic general equilibrium dgse model for the canadian economy and evaluates the real effects of monetary policy shocks to generate high and persistent real effects the model combines nominal frictions in the form of costly price adjustment with real rigidities modelled as convex costs of adjusting capital and employment

the laffer curve revisited abstract laffer curves for the us the eu 14 and individual european countries are compared using a neoclassical growth model featuring constant frisch elasticity cfe preferences new tax rate data is provided the us can maximally increase tax revenues by 30 with labor taxes and 6 with capital taxes we obtain 8 and 1 for the eu 14 there 54 of a labor tax cut and 79 of a capital tax cut are self financing the consumption tax laffer curve does not peak endogenous growth and human capital accumulation affect the results quantitatively household heterogeneity may not be important while transition matters greatly

man cessions fiscal policy and the gender composition of employment recessions are man cessions as men are disproportionately exposed to cyclical employment fluctuations we provide evidence that fiscal expansions stimulate predominantly female employment implying a further destabilization of the gender composition of employment in recessions our findings can be understood as a consequence of differences in the industry occupation mix of employment by gender

welfare policy expansion in botswana and mauritius explaining the causes of different welfare regime paths how come two developing countries with similar economic institutional and democratic attributes have developed vastly different welfare regimes drawing inspiration from the welfare regime literature the author subjects botswana and mauritius to a comparative historical analysis that explores the economic and political trajectories of their welfare policy development the findings offer both support and modifications to the established and mostly western oriented literature first politics affect welfare policy development in developing countries the rural population can promote welfare policy expansion but it is middle class interests that shape the direction of policy development second given the importance of politics conceptualizations of welfare policies need to include both the spending and the financing side finally the causes of different welfare regime paths need to be examined with attention to the particular economic contexts of developing countries and how welfare and economic poli

investigating nonneutrality in a state dependent pricing model with firm level productivity shocks in a model with fixed cost of price adjustment and idiosyncratic shocks two parameterizations match a large set of microeconomic facts yet display different degrees of nonneutrality although there is substantial nonneutrality in both cases the model does not behave like a time dependent model as changes in the distribution of firms account for roughly a third of the short run response of the price level to a monetary shock we use the model to examine how aggregating firm behavior can generate flat hazards we also find that a recently developed steady state statistic is an imperfect guide to characterizing nonneutrality

rigid pricing and rationally inattentive consumer abstract this paper proposes a mechanism leading to rigid pricing as an optimal strategy it applies a framework of rational inattention to study the pricing strategies of a monopolistic seller facing a consumer with limited information capacity the consumer needs to process information about the realized price while the seller is perfectly attentive the seller chooses to price rigidly i e prices respond to changes in the unit input cost less than if the consumer was perfectly attentive the rigidity is sometimes manifested by discreteness of prices the seller charges a finite set of different prices even for a continuous range of unit input costs the seller does so to provide the consumer with easily observable prices which stimulates her to consume more and increases the seller s profit

heuristic thinking and limited attention in the car market can heuristic information processing affect important product markets analyzing over 22 million wholesale used car transactions we find evidence of left digit bias in the processing of odometer values whereby individuals focus on the number s leftmost digits the bias leads to discontinuous drops in sale prices at 10 000 mile odometer thresholds along with smaller drops at 1 000 mile thresholds these findings reveal that information processing heuristics matter even in markets with large stakes and easily observed information we model left digit bias in an inattention framework and structurally estimate the inattention parameter empirical patterns suggest the results are driven by final customers rather than professional agents jel d12 d44 d83 l81

educational attainment and the cyclical sensitivity of employment this article examines whether there are educational premiums on the quantity side of the labor market we document four findings 1 trend employment patterns shifted for most educational levels post 1977 2 the lower the level of educational attainment the more volatile the employment ratio 3 the volatility of employment for female high school dropouts increased over time even as the economy became less volatile and 4 since 1984 the responses of skilled and unskilled employment to the business cycle have become more alike this latter finding is consistent with a reduced degree of capital skill complementarity during this period

optimal sticky prices under rational inattention this paper presents a model in which price setting firms decide what to pay attention to subject to a constraint on information flow when idiosyncratic conditions are more variable or more important than aggregate conditions firms pay more attention to idiosyncratic conditions than to aggregate conditions when we calibrate the model to match the large average absolute size of price changes observed in micro data prices react fast and by large amounts to idiosyncratic shocks but only slowly and by small amounts to nominal shocks nominal shocks have strong and persistent real effects we use the model to investigate how the optimal allocation of attention and the dynamics of prices depend on the firms environment jel e 3 e5 d8

the differential effects of output shocks on unemployment rates by race and gender 1 introduction the issues of unemployment and output are central to many macroeconomic policy debates a major source of disagreement among policymakers deals with the maximum sustainable level of output growth that is consistent with the absence of inflation when the economy s rate of output growth exceeds the maximum sustainable rate there will be upward pressure on the economy s overall price level traditional macroeconomic theory emphasizes the role that tight labor markets play in this inflationary pressure the commonly held belief is that in a tight labor market firms must bid workers away from other firms if they wish to expand the size of their workforce hence labor costs in the economy will tend to rise since labor is a major input in the production of virtually all goods and services an increase in labor costs without an accompanying increase in productivity will tend to increase the economy s overall price level conversely when the economy contracts labor costs in the economy will tend to fall inducing a downward movement in the economy s overall price level the labor market is therefore linked to changes in economic activity and to changes in the economy s price level a common feature in many macroeconomic models is the connection between departures from the equilibrium rate of unemployment i e the natural or normal rate and the business cycle these macroeconomic models suggest that unanticipated departures from a steady state in the output market should be related to departures of the actual unemployment rate from the normal rate however the economy s aggregate unemployment rate is actually a weighted average of the unemployment rates of various demographic groups the rate of each demographic group is influenced by that group s flows into and out of unemployment since many of the factors that determine these flows have been found to differ by demographic group it is expected that a given aggregate output shock may have differential effects on the unemployment rates of various groups this article focuses on how unanticipated changes in real output affect the unemployment rate of different demographic groups we examine the time series behavior of black male white male black female and white female monthly unemployment rates over the january 1972august 1999 period specifically we estimate a vector autoregression var and then conduct simulations in the form of impulse responses to determine the extent to which each of these unemployment rates is affected by an aggregate output shock i e an unanticipated change in aggregate output we compare and contrast the magnitude and the persistence of these responses across the groups because the traditional impulse response function generated from a var is sensitive to how the researcher chooses to order the variables with different orderings often giving vastly different results we employ the recently developed generalized impulse response function koop pesaran and potter 1996 pesaran and shin 1998 this technique allows researchers to examine impulse responses that are robust to changes in ordering in the following sections we highlight the major literature that this article builds upon and then we discuss the basics behind the nature of the relationship between the unemployment rate and output a discussion of the data the methodology and the results follows the article closes with concluding remarks and policy implications 2 related literature a number of studies have examined racial differences in unemployment rates and in factors that may affect unemployment rates using data on displaced workers fairlie and kletzer 1998 examine racial differences in job displacement over the years 1984 1992 and find that black males experienced greater rates of job displacement and lower rates of reemployment than white males petterson 1998 uses data from the national longitudinal survey of youth for the 19791986 period to examine the reservation wages of black males compared with those of white males and contrary to earlier research argues that these differences do not explain much if any of the racial employment gap

implications of rational inattention abstract a constraint that actions can depend on observations only through a communication channel with finite shannon capacity is shown to be able to play a role very similar to that of a signal extraction problem or an adjustment cost in standard control problems the resulting theory looks enough like familiar dynamic rational expectations theories to suggest that it might be useful and practical while the implications for policy are different enough to be interesting