economies of density versus natural advantage crop choice on the back forty abstract we estimate the factors determining specialization of crop choice at the level of individual fields distinguishing between the role of natural advantage soil characteristics and economies of density scale economies achieved when farmers plant neighboring fields the same using rich geographic data from north dakota including new data on crop choice collected by satellite we estimate a model of how a farmer plants adjacent fields under the farmer s control we find planting decisions on a field are heavily dependent on the soil characteristics of adjacent fields through this relationship we back out the structural parameters of economies of density

marshall s scale economies using panel data this paper estimates plant level production functions for machinery and high tech industries that allow for scale externalities from other plants in the same industry locally and from the scale or diversity of local economic activity outside the own industry the paper finds that the count of other own industry plants representing a count of local information spillover sources has strong productivity effects in high tech but not machinery industries single plant firms both benefit more from and generate greater external benefits than corporate plants given their greater reliance on external environments on dynamic externalities high tech single plant firms benefit also from the scale of past own industry activity i find little evidence of economies from the diversity or scale of local economic activity outside the own industry

sticky prices and monetary policy evidence from disaggregated us data this paper disentangles fluctuations in disaggregated prices due to macroeconomic and sectoral conditions using a factor augmented vector autoregression estimated on a large data set on the basis of this estimation we establish eight facts 1 macroeconomic shocks explain only about 15 of sectoral inflation fluctuations 2 the persistence of sectoral inflation is driven by macroeconomic factors 3 while disaggregated prices respond quickly to sector specific shocks their responses to aggregate shocks are small on impact and larger thereafter 4 most prices respond with a significant delay to identified monetary policy shocks and show little evidence of a price puzzle contrary to existing studies based on traditional vars 5 categories in which consumer prices fall the most following a monetary policy shock tend to be those in which quantities consumed fall the least 6 the observed dispersion in the reaction of producer prices is relatively well explained by the degree of market power 7 prices in sectors with volatile idiosyncratic shocks react rapidly to aggregate monetary policy shocks 8 the sector specific components of prices and quantities move in opposite directions

measuring the pricing error of the arbitrage pricing theory this article provides an exact bayesian frame work for analyzing the arbitrage pricing the ory apt based on the gibbs sampler we show how to obtain the exact posterior distributions for functions of interest in the factor model in particular we propose a measure of the apt pricing deviations and obtain its exact posterior distribution using monthly portfolio returns grouped by industry and market capitalization we find that there is little improvement in reduc ing the pricing errors by including more factors beyond the first one as an important extension of the asset pricing model of sharpe 1964 and lintner 196 5 ross 1976 1977 derived the arbitrage pricing theory apt which addresses a fundamental problem in finance to char acterize the expected return on a security the apt implies that the expected return is approximately a

does bankruptcy law affect business turnover evidence from new and existing business this study examines how differences in state bankruptcy laws specifically the homestead exemption affect business turnover by studying both new and existing businesses we focus on areas just near state boundaries to control for unobserved local attributes to better isolate the effect of more wealth protection we find that an increase in the homestead exemption attracts new businesses but also has a positive impact on existing businesses suggesting that asset protection through bankruptcy law encourages successful entrepreneurs to incur the risks our results indicate that the personal bankruptcy law is an important policy tool that governments can use to encourage business growth without causing business turnover jel k30 k36 r11 r1

measuring urban economic density agglomeration economies are at the heart of urban economics driving the existence and extent of cities and are central to structural transformation and the urbanization process this paper evaluates the use of different measures of economic density in assessing urban agglomeration effects by examining how well they explain household income differences across cities and neighborhoods in six african countries the paper examines simple scale and density measures and more nuanced ones that capture the extent of clustering within cities the evidence suggests that more nuanced measures attempting to capture within city differences in the extent of clustering do no better than a simple density measure in explaining income differences across cities at least for the current degree of accuracy in measuring clustering however simple city scale measures such as total population are inferior to density measures and to some degree misleading the analysis finds large household income premiums from being in bigger and particularly denser cities over rural areas in africa indicating that migration pull forces remain very strong in the structural transformation process moreover the marginal effects of increases in urban density on household income are very large with density elasticities of 0 6 in addition to strong city level density effects the analysis finds strong neighborhood effects for household incomes overall city density and density of the neighborhood matter

networking off madison avenue known for the key role that networking plays in the operation of agencies where interviews suggest that informal networking among close neighbors is critical to many agencies success networking involves the exchange of ideas and while there is no market place for these ideas exchanges may be more deliberate rather than just marshall s 1890 mysteries of the air type of information spillovers this paper examines the effect on productivity of having more near advertising agency neighborhoods and hence better opportunities for meetings and exchange within manhattan we will show that there is extremely rapid spatial decay in the benefits of having more near neighbors even in the close quarters of southern manhattan a finding that is new to the empirical literature and indicates our understanding of scale externalities is still very limited the finding indicates that having a high density of commercial establishments is important in enhancing local productivity an issue in lucas and rossi hansberg 2002 where within business district spatial decay of spillovers plays a key role we will argue also that in manhattan advertising agencies trade off the higher rent costs of being in bigger clusters nearer centers of action against the lower rent costs of operating on the fringes away from high concentrations of other agencies introducing the idea of trade offs immediately suggests heterogeneity is involved we will show that higher quality agencies are the ones willing to pay more rent to locate in greater size clusters specifically because they benefit more from networking while all 1 the research in this paper was conducted while the authors were census bureau research associates at the boston research data center research results and conclusions expressed are those of the authors and do not necessarily indicate concurrence by the census bureau the paper has been screened to ensure that no confidential data are revealed we acknowledge helpful comments from andrew foster on aspects of the paper and from participants in seminars at brown university lse and the university of toronto

tall buildings and land values height and construction cost elasticities in chicago 1870 2010 cities around the world are experiencing unprecedented vertical growth yet the economics of skyscrapers remain empirically understudied this paper analyzes the determinants of the urban height profile by combining a micro geographic data set on tall buildings with a unique panel of land prices covering 140 years we provide novel estimates of the land price elasticity of height the height elasticity of construction cost and the elasticity of substitution between land and capital for tall build ings in line with improvements in construction technology the land price elasticity of height increased substantially over time rationalizing a trend to ever taller buildings the land price elasticity of height is larger for commercial than for residential buildings suggesting that the typical segregation of land uses within cities is not exclusively shaped by the demand side but also by the supply side

how local are spatial density externalities neighbourhood effects in agglomeration economies andersson m klaesson j and larsson j p how local are spatial density externalities neighbourhood effects in agglomeration economies regional studies the geographic scale at which density externalities operate is analysed in this paper using geocoded high resolution data the analysis is focused on exogenously determined within city squares neighbourhoods of 1 km2 the analysis confirms a city wide employment density wage elasticity and an economically significant density wage elasticity at the neighbourhood level that attenuate sharply with distance panel estimates over 20 years suggest a neighbourhood density wage elasticity of about 3 while the city wide elasticity is about 1 it is argued that the neighbourhood level is more prone to capture learning e g through knowledge and information spillovers this interpretation is supported by 1 significantly larger neighbourhood elasticities for university educated workers and 2 sharper attenuation with distance of the effect for such wo

geography industrial organization and agglomeration this paper makes two contributions to the empirical literature on agglomeration economies first the paper uses a unique and rich database in conjunction with mapping software to measure the geographic extent of agglomerative externalities previous papers have been forced to assume that agglomeration economies are club goods that operate at a metropolitan scale second the paper tests for the existence of organizational agglomeration economies of the kind studied qualitatively by saxenian 1994 this is a potentially important source of increasing returns that previous empirical work has not considered results indicate that localization economies attenuate rapidly and that industrial organization affects the benefits of agglomeration

peer effects in the diffusion of solar photovoltaic panels social interaction peer effects are recognized as a potentially important factor in the diffusion of new products in the case of environmentally friendly goods or technologies both marketers and policy makers are interested in the presence of causal peer effects as social spillovers can be used to expedite adoption we provide a methodology for the simple straightforward identification of peer effects with sufficiently rich data avoiding the biases that occur with traditional fixed effects estimation when using the past installed base of consumers in the reference group we study the diffusion of solar photovoltaic panels in california and find that at the average number of owner occupied homes in a zip code an additional installation increases the probability of an adoption in the zip code by 0 78 percentage points our results provide valuable guidance to marketers designing strategies to increase referrals and reduce customer acquisition costs they also provide insights into the diffusion process of environmentally friendly technologies

monetary policy and the relative price of durable goods abstract in a structural vector autoregressive model of the us the response of the relative price of durables to a monetary policy contraction is either flat or mildly positive it significantly falls only if narrowly defined as the ratio between new house and nondurables prices these findings are rationalized via the estimation of two sector new keynesian nk models durables prices are estimated to be as sticky as those of nondurables leading to a flat relative price response to a monetary policy shock conversely house prices are estimated to be almost flexible such results survive several robustness checks and a three sector extension of the nk model these findings have implications for building nk models with durable and nondurable goods and for the conduct of monetary policy

sticky prices or rational inattention what can we learn from sectoral price data abstract this paper derives stylised facts on sectoral inflation dynamics and confronts these facts with two popular theoretical models of price setting based on sectoral price responses to macroeconomic shocks estimated from an approximate factor model we find that the frequency of price changes explains a relevant share of the cross sectional variation of the speed and size of responses moreover there is little evidence that the volatility of sectoral inflation due to idiosyncratic shocks dampens the size and speed of the responses to macroeconomic shocks these findings support a multi sector model with sticky prices rather than a rational inattention model we derive the results from different modelling and sampling decisions proposed in the literature and we find that the explanatory power of the frequency of price changes for the speed of response to a macroeconomic shock proves robust in the face of these decisions other results are sensitive with respect to the choice of the factor model and the treatment of outliers

business cycle dynamics under rational inattention we develop a dynamic stochastic general equilibrium dsge model with rational inattention and compare its predictions to data households and decision makers in firms have limited attention and optimally allocate their attention rational inattention is the only source of slow adjustment the model matches the empirical impulse responses to monetary policy shocks and aggregate technology shocks at the same time profit losses and utility losses from inattention are very small furthermore it matters whether one uses this model or a conventional dsge model for policy analysis

costly information planning complementarities and the phillips curve sticky information models capture the sluggish response of aggregate prices to monetary shocks but fail to match the magnitude and frequency of price changes at the microlevel this paper shows that accounting for the endogenous decision of when to acquire new information about different shocks can help overcome this shortcoming in the calibrated model prices change frequently and by large amounts in response to idiosyncratic shocks but sluggishly to monetary shocks the paper also highlights that many predictions of the sticky information and rational inattention models are the same and thus robust to different specifications of information processing costs

evaluating microfoundations for aggregate price rigidities evidence from matched firm level data on product prices and unit labor cost a number of competing business cycle models have recently emerged all of which can explain why nominal shocks have real effects 1 although sharing a large number of common features a key difference between these models lies in the assumptions of how firms set prices and process information yet there exists very little direct micro evidence on the credibility of these assumptions this paper uses detailed data on product prices and unit labor cost merged at the firm level to evaluate competing sets of assumptions regarding firms price setting behavior thereby we provide firsthand evidence on the empirical relevance of the microfoundations of different dynamic stochastic general equilibrium dsge models

sectoral price rigidity and aggregate dynamics abstract this paper studies the business cycle implications of sectoral heterogeneity in price rigidity using a highly disaggregated multi sector model the model is estimated by the simulated method of moments using a mix of aggregate and sectoral u s data the frequencies of price changes implied by our estimates are consistent with those reported in micro based studies we show that heterogeneity in price rigidity is the primary factor explaining the heterogeneity in the responses of sectoral output and inflation to a monetary policy shock we also find that ignoring sectoral heterogeneity in price rigidity leads to the mismeasurement of the relative importance of aggregate and sector specific shocks in aggregate and sectoral fluctuations

concrete agglomeration benefits do roads improve urban connections or just attract more people cities with more roads are more productive however it can be unclear whether roads increase productivity directly through improved intra urban connections or indirectly by attracting more people our theory suggests that population responses may obscure the direct connectivity effects of roads indeed conditional on population size highway density does not affect productivity in a sample of us metropolitan areas however when exploiting exogenous variation in urban populations we find that highway density improves agglomeration benefits moving from the 50th to the 75th percentile of highway density increases the productivity to population elasticity from 2 to 4 moreover travel based measures outperform population size as a measure of agglomeration externalities

the economics of density evidence from the berlin wall this paper develops a quantitative model of internal city structure that features agglomeration and dispersion forces and an arbitrary number of heterogeneous city blocks the model remains tractable and amenable to empirical analysis because of stochastic shocks to commuting decisions which yield a gravity equation for commuting flows to structurally estimate agglomeration and dispersion forces we use data on thousands of city blocks in berlin for 1936 1986 and 2006 and exogenous variation from the city s division and reunification we estimate substantial and highly localized production and residential externalities we show that the model with the estimated agglomeration parameters can account both qualitatively and quantitatively for the observed changes in city structure we show how our quantitative framework can be used to undertake counterfactuals for changes in the organization of economic activity within cities in response for example to changes in the transport network

work location residence location and the intraurban wage gradient abstract the monocentric city model implies that work and residence locations are likely to be positively correlated and that wages decline with distance from the city center the first implication has not been explicitly tested before we provide strong support for it in census data for cleveland columbus dayton detroit indianapolis philadelphia and pittsburgh previous wage gradient estimates were hindered by lack of individual data on employment location and worker characteristics we solve this problem by estimating probit models that predict optimal work location and using the results to explain wages we find evidence of significant wage gradients

urban population and amenities the neoclassical model of location we develop a neoclassical general equilibrium model to explain cross metro variation in population and density we provide new methods to estimate traded and non traded productivities and elasticities of housing and land supply using density and land area data from wage and housing cost indices the model explains half of u s density and population variation and finds that quality of life determines location choices more than trade productivity productivity and factor substitution in housing matter most but are weak in nicer areas relaxing land use regulations would increase population in the west raising both quality of life and productivity experienced by residents

relocation of public sector workers evaluating a place based policy this paper investigates the local labor market impact of a uk relocation initiative the 2004 lyons review the review resulted in the dispersal of about 25 000 civil service jobs out of london and the south east towards other uk destinations this study aims to detect whether the inflow of public sector jobs crowded out private sector activity or stimulated the local provision of jobs in the private sector focusing on short term effects i find that the relocation initiative raised private sector employment in receiving areas and changed the sectoral distribution of local employment towards services i also find evidence of displacement i e a tendency for private businesses to locate closer to a relocation site moving out of areas at 1 2km and 2 3km distances into areas at 0 1km distance these agglomeration effects appear highly localized the largest policy impact is found in areas that received the relocated jobs with spillover effects reducing sharply over distance

scale externalities in korea this paper estimates the nature and magnitude of scale externalities in a developing country korea in the period 1983 1993 this is a period of rapid industry deconcentration from seoul to other metro areas providing a context where externalities are measured when local scale magnitudes are changing dramatically the data allow us to examine the emerging degree of national industrial concentration in different industries as related to their scale externality magnitudes we also examine whether individual industries agglomerate in cities which have a comparative advantage for that industry

optimal policies in cities with congestion and agglomeration externalities congestion tolls labor subsidies and place based strategies abstract this paper develops a spatial general equilibrium model that accommodates both congestion and agglomeration externalities while firms and households land use decisions are endogenous across continuous space focusing on the interaction between externalities and land use patterns we examine the efficiencies of first best policies and second best pricing and place based strategies using numerical simulations a first best policy must combine both pigouvian congestion tolling pct and pigouvian labor subsidies pls instruments or design an optimal toll or subsidy internalizing agglomeration externalities or congestion externalities we also examine second best pricing policies if only one instrument is adopted congestion pricing policies alone e g a partial pct or a flat rate toll can improve social welfare only in heavy congestion cities and their welfare gains may be insignificant e g below 10 of the welfare improvement achieved by first best policies in contrast second best labor subsidy policies alone are a more effective alternative to first best policies as to place based policies the firm cluster zoning fcz regulation is more efficient than the urban growth boundary ugb policy ugbs only have small effects on the agglomeration economy but could worsen land market distortions via residential rent escalation effects these findings suggest that it is important to internalize business land use decisions and relax monocentricity assumptions in order to appreciate the interplay of both urban externalities since spatial adaptations to policy interventions can distort system efficiencies

r d networks we develop a model of strategic networks that captures two distinctive features of interfirm collaboration bilateral agreements and nonexclusive relationships our analysis highlights the relationship between market competition firms incentives to invest in r d and the architecture of collaboration networks in the absence of firm rivalry the complete network where each firm collaborates with all others is uniquely stable industry profit maximizing and efficient by contrast under strong market rivalry the complete network is stable but intermediate levels of collaboration and asymmetric networks are more attractive from a collective viewpoint this suggests that competing firms may have excessive incentives to form collaborative links

competition by choice the effect of consumer search on firm location decisions this paper relates firm location choice and consumer search firms that cluster together attract consumers by facilitating price comparison but clustering increases the intensity of local competition the author constructs a simple model which shows that firms may choose head on competition by locating together under reasonable conditions this is the only equilibrium outcome copyright 1990 by american economic association

congestion agglomeration and the structure of cities abstract congestion costs in urban areas are significant and clearly represent a negative externality nonetheless economists also recognize the production advantages of urban density in the form of positive agglomeration externalities the long run equilibrium outcomes in economies with multiple correlated but offsetting externalities have yet to be fully explored in the literature therefore i develop a spatial equilibrium model of urban structure that includes both congestion costs and agglomeration externalities i then estimate the structural parameters of the model using a computational algorithm to match the spatial distribution of employment population land use land rents and commute times in the data policy simulations based on the estimates suggest that congestion pricing may have ambiguous consequences for economic welfare

local labor force education new business characteristics and firm performance it is often asserted that a highly educated workforce is vital to improving the competitive position of american businesses especially by boosting entrepreneurship to examine this contention we use population census data and a new panel data of startup firms to examine how the education and skill level of the local labor force are related to the creation and success of new businesses this paper studies relationship between education entrepreneurship and businesses outcomes and considers simultaneously both the education of the entrepreneur and of the workforce where the entrepreneurs operate their businesses consistent with this simultaneous focus our initial results indicate that more educated entrepreneurs tend to be located in metropolitan areas with more educated workforces moreover highly educated areas have above average entrepreneurship rates finally the level of education of entrepreneurs is strongly related to positive business outcomes especially for college graduates compared to those with less than a four year degree

international business cycles world region and country specific factors the paper investigates the common dynamic properties of business cycle fluctuations across countries regions and the world we employ a bayesian dynamic latent factor model to estimate common components in macroeconomic aggregates output consumption and investment in a 60 country sample covering seven regions of the world the results indicate that a common world factor is an important source of volatility for aggregates in most countries providing evidence for a world business cycle we find that region specific factors play only a minor role in explaining fluctuations in economic activity we also document similarities and differences across regions countries and aggregates jel f41 e32 c11 c32

exogenous information endogenous information and optimal monetary policy most of the analysis of optimal monetary policy is conducted with the calvo model this paper studies optimal monetary policy when the slow adjustment of the price level is due to imperfect information by decision makers in firms we consider two models a model with exogenous dispersed information and a rational inattention model in the model with exogenous dispersed information complete stabilization of the price level is optimal after aggregate productivity shocks but not after markup shocks by contrast in the rational inattention model complete stabilization of the price level is optimal both after aggregate productivity shocks and after markup shocks moreover in the model with exogenous dispersed information there is no value from commitment to a future monetary policy by contrast in the rational inattention model there is value from commitment to a future monetary policy because then the private sector can trust the central bank that not paying attention to certain variables is optimal

global versus local shocks in micro price dynamics a number of recent papers point to the importance of distinguishing between the price reaction to macro and micro shocks we emphasize instead the importance of distinguishing between global and local shocks we exploit a panel of 276 micro price levels collected on a semi annual frequency over two decades in 59 countries around the world that enables us to distinguish between different types global and local of macro and micro shocks we find that global macro and micro shocks are always associated with a slower response of prices than the respective local shocks focusing on structural monetary macro shocks we show that prices reach their long run value much slower in response to a global macro shock as compared to the time it takes for prices to reach their long run value in response to a local macro shock

what can survey forecasts tell us about information rigidities a lot we derive common and conflicting predictions from models in which agents face information constraints and then assess their validity using surveys of consumers firms central bankers and professional forecasters we document that mean forecasts fail to completely adjust on impact to shocks leading to statistically and economically significant deviations from the null of full information the dynamics of forecast errors after shocks are consistent with the predictions of models with information rigidities the conditional responses of forecast errors and disagreement among agents can also be used to differentiate between some of the most prominent models of information rigidities

five facts about prices a reevaluation of menu cost models are price decreases 3 the frequency of price increases covaries strongly with inflation whereas the frequency of price decreases and the size of price increases and price decreases do not 4 the frequency of price change is highly seasonal it is highest in the first quarter and then declines 5 we find no evidence of upwardsloping hazard functions of price changes for individual products we show that the first second and third facts are consistent with a benchmark menu cost model whereas the fourth and fifth facts are not

inventory theoretic money demand and relative price dynamics we construct a two goods inventory theoretic money demand model and find that the model implies in a monetary contraction the decline in the prices of low cash intensity goods durables or luxuries outpaces that of high cash intensity goods nondurables or necessities using u s data we show that our model s predictions are consistent with the data

sectoral price data and models of price setting in the median sector 100 percent of the long run response of the sectoral price index to a sector specific shock occurs in the month of the shock the standard calvo model and the standard sticky information model can match this finding only under extreme assumptions concerning the profit maximizing price the rational inattention model of mackowiak and wiederholt 2009a optimal sticky prices under rational inattention american economic review 99 769 803 can match this finding without an extreme assumption concerning the profit maximizing price furthermore there is little variation across sectors in the speed of response of sectoral price indexes to sector specific shocks the rational inattention model matches this finding while the calvo model predicts too much cross sectional variation

understanding the city size wage gap in 2000 wages of full time full year workers were more than 30 percent higher in metropolitan areas of over 1 5 million people than rural areas the monotonic relationship between wages and city size is robust to controls for age schooling and labor market experience in this paper we decompose the city size wage gap into various components we propose an on the job search model that incorporates latent ability search frictions firm worker match quality human capital accumulation and endogenous migration between large medium and small cities counterfactual simulations of the model indicate that variation in returns to experience and differences in wage intercepts across location type are the most important mechanisms contributing to the overall city size wage premium steeper returns to experience in larger cities is more important for college graduates while differences in wage intercepts is more important for high school graduates sorting on unobserved ability within education group and differences in labor market search frictions and distributions of firm worker match quality contribute little or slightly negatively to observed city size wage premia in both samples

endogeneity in count data models an application to demand for health care the generalized method of moments gmm estimation technique is discussed for count data models with endogenous regressors count data models can be specified with additive or multiplicative errors and it is shown that in general a set of instruments is not orthogonal to both error types simultaneous equations with a dependent count variable often do not have a reduced form which is a simple function of the instruments however a simultaneous model with a count and a binary variable can only be logically consistent when the system is triangular utilizing data from the british health and lifestyle survey 1991 1992 the gmm estimator is used in the estimation of a model explaining the number of visits to doctors with a self reported binary health index as a possible endogenous regressor if this regressor is truly endogenous one expects the pseudo likelihood estimate of its coefficient to be biased upwards indeed for the additive model the estimated coefficient of the binary health index decreases in value when the possible endogeneity of this regressor is taken into account further indication of endogeneity is given by the fact that the overidentifying restrictions are rejected in the multiplicative model but not in the additive model finally a model that includes predicted latent health instead of the binary health index is estimated in stages

the attenuation of human capital spillovers abstract this paper uses 2000 census data to estimate the relationship of agglomeration and proximity to human capital to wages the paper takes a geographic approach and focuses on the attenuation of agglomeration and human capital effects differencing and instrumental variable methods are employed to address endogeneity in the wage agglomeration relationship and also to deal with measurement error in our agglomeration and human capital variables three key results are obtained first the spatial concentration of employment within five miles is positively related to wage second the benefits of spatial concentration are driven by proximity to college educated workers an instance of human capital spillovers third these effects attenuate sharply with distance

do government purchases affect unemployment we estimate the effect of government purchases on unemployment in 20 oecd countries for the period 1980 2007 an increase in government purchases equal to one percent of gdp is found to reduce unemployment by about 0 3 percentage points in the same year the effect is greater and more persistent under less employment friendly labour market institutions and greater and more persistent under a fixed exchange rate regime than under a floating regime the effect is also greater in downturns than in booms the effect on unemployment reflects a corresponding positive effect of increased government purchases on the employment to population rate this article is protected by copyright all rights reserved

breakthrough inventions and migrating clusters of innovation abstract we investigate the speed at which clusters of invention for a technology migrate spatially following breakthrough inventions we identify breakthrough inventions as the top 1 of us inventions for a technology during 1975 1984 in terms of subsequent citations patenting growth is significantly higher in cities and technologies where breakthrough inventions occur after 1984 relative to peer locations that do not experience breakthrough inventions this growth differential in turn depends on the mobility of the technology s labor force which we model through the extent that technologies depend upon immigrant scientists and engineers spatial adjustments are faster for technologies that depend heavily on immigrant inventors the results qualitatively confirm the mechanism of industry migration proposed in models like duranton duranton g 2007 urban evolutions the fast the slow and the still american economic review 97 197 221

signalling effects of monetary policy we develop a dynamic general equilibrium model in which the policy rate signals the central bank s view about macroeconomic developments to price setters the model is estimated with likelihood methods on a u s data set that includes the survey of professional forecasters as a measure of price setters inflation expectations this model improves upon existing perfect information models in explaining why in the data inflation expectations respond with delays to monetary impulses and remain disanchored for years in the 1970s u s monetary policy is found to signal persistent inflationary shocks explaining why inflation and inflation expectations were so persistently heightened the signalling effects of monetary policy also explain why inflation expectations adjusted more sluggishly than inflation after the robust monetary tightening of the 1980s

a strategic model of social and economic networks we study the stability and efficiency of social and economic networks when self interested individuals can form or sever links first for two stylized models we characterize the stable and efficient networks there does not always exist a stable network that is efficient next we show that this tension persists generally to assure that there exists a stable network that is efficient one is forced to allocate resources to nodes that are not responsible for any of the production we characterize one such allocation rule the equal split rule and another rule that arises naturally from bargaining of the players

refining stylized facts from factor models of inflation summary factor models of disaggregate inflation indices suggest that sectoral shocks generate the bulk of sectoral inflation variance but no persistence aggregate shocks by contrast are the root of sectoral inflation persistence but have negligible relative variance we show that simple factor models do not cope well with essential features of price data in particular sectoral inflation series are subject to features such as measurement error sales and item substitutions in factor models these blow up the variance of sector specific shocks while reducing their persistence we control for such effects by estimating a refined factor model and find that inflation variance is driven by both aggregate and sectoral shocks sectoral shocks too generate substantial inflation persistence both findings contrast with earlier evidence from factor models but align well with recent micro evidence our results have implications for the foundations of price stickiness and provide quantitative inputs for calibrating models with sectoral heterogeneity copyright 2014 john wiley sons ltd

commuting and taxes theory empirics and welfare implications we examine the effect of interstate differences in income taxes on commuting times our theoretical model introduces a border into a model of an urban area and shows that differences in average tax rates distort commuting patterns but the sign of the effect depends on whether taxes are residence based or employment based empirically tax differentials have a large effect on commuting times for affluent households and mobile households we show that commuting times are a sufficient statistic to measure the spatial welfare effects of tax policy the model and empirical design can be used by economists to study other policy differences this article is protected by copyright all rights reserved

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

global cities and multinational enterprise location strategy we combine the concept of location derived by economic geographers with theories of the multinational enterprise mne and the liability of foreignness developed by international business scholars to examine the factors that propel mnes toward or away from global cities we argue that three distinctive characteristics of global cities global interconnectedness cosmopolitanism and abundance of advanced producer services help mnes overcome the costs of doing business abroad and we identify the contingencies under which these characteristics combine with firm attributes to exert their strongest influence consistent with these arguments our analysis of a large sample of mne location decisions using a multilevel multinomial model suggests not only that mnes have a strong propensity to locate within global cities but also that these choices are associated with a nuanced interplay of firm and subsidiary level factors including investment motives proprietary capabilities and business strategy our study provides important insights for international business scholars by shedding new light on mne location choices and also contributes to our understanding of economic geography by examining the heterogeneous strategies and capabilities of mnes the primary agents of economic globalization that shape the nature of global cities

macroeconomic forecasting using diffusion indexes this article studies forecasting a macroeconomic time series variable using a large number of predictors the predictors are summarized using a small number of indexes constructed by principal component analysis an approximate dynamic factor model serves as the statistical framework for the estimation of the indexes and construction of the forecasts the method is used to construct 6 12 and 24 monthahead forecasts for eight monthly u s macroeconomic time series using 215 predictors in simulated real time from 1970 through 1998 during this sample period these new forecasts outperformed univariate autoregressions small vector autoregressions and leading indicator models

the location choices of foreign investors a district level analysis in india this paper analyzes the determinants of the location choices made by foreign investors at the district level in india to gauge the relative importance of economic geography factors local business conditions and the presence of previous foreign investors we employ a discretechoice model and poisson regressions to control for the potential violation of the assumption of independence of irrelevant alternatives our sample includes about 19 500 foreign investment projects approved in 447 districts from 1991 2005 we find that foreign investors strongly prefer locations where other foreign investors are they are also attracted to industrially diverse locations and those with better infrastructure we conclude that the concentration of fdi in a few locations could fuel regional divergence in post reform india

transit service physical agglomeration and productivity in us metropolitan areas public transit improvements could cause more clustered and higher density employment and enable urban growth giving rise to agglomeration economies by improving labour market accessibility increasing information exchange and facilitating industrial specialisation using data on us metropolitan areas this paper traces the links from transit service to central city employment density urbanised area employment density and population and from these physical agglomeration measures to average wages and per capita gmp significant indirect productivity effects of transit service are found for example in the case of central city employment density estimated wage increases range between 1 5 million and 1 8 billion per metropolitan area yearly for a 10 per cent increase in transit seats or rail service miles per capita firms and households likely receive unanticipated agglomeration benefits from transit induced densification and growth and current benefit cost evaluations may therefore underestimate the

tax avoidance and business location in a state border model abstract previous studies have struggled to demonstrate that higher taxes deter business activity we revisit this issue by estimating the effect of changes over time in cross border differences in state tax conditions on the tendency for new establishments to favor one side of a state border over the other identification is enhanced by taking account of previously overlooked reciprocal agreements that require workers to pay income tax to their state of residence as opposed to their state of employment when reciprocal agreements are in force higher personal income tax rates lure companies from across the border while corporate income tax and sales tax rates have the opposite effect where reciprocal agreements are not in place the results are largely reversed these patterns are amplified in heavily developed locations and differ in anticipated ways by industry and corporate non corporate status of the establishment overall results strengthen the view that state level tax policies do affect the location decisions of entrepreneurs and new business activity but not in a way that lends itself to a one size fits all summary

increasing social returns to human capital evidence from hungarian regions abstractincreasing social returns to human capital evidence from hungarian regions regional studies using individual level data from 2002 to 2008 this paper estimates augmented mincerian wage equations to analyze social returns to human capital in hungary the results show that geographically localized human capital externalities have a strong productivity effect on the wages of local workers but the strength of this effect falls short of the private returns a one year increase in the average schooling of the local labour force has a 3 average external effect on the wages of local workers

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

agglomeration economies and productivity a structural estimation approach using commercial rents we gain more insight into the heterogeneity in firms productivity regarding agglomeration economies given a production function that allows for input factor substitution we identify ratios of firm specific production parameters employing a hedonic price approach we use unique microdata of commercial rents and firm characteristics and employ semiparametric estimation techniques the results show that agglomeration economies capitalize in commercial rents nevertheless expenditure on agglomeration is in general limited for example it is on average only 5 3 of expenditure on office floor space it is much higher in some sectors for retail firms it is about 20 of the expenditure on floor space 2013 the london school of economics and political science

big data and big cities the promises and limitations of improved measures of urban life new big data sources allow measurement of city characteristics and outcome variables at higher collection frequencies and more granular geographic scales than ever before however big data will not solve large urban social science questions on its own big urban data has the most value for the study of cities when it allows measurement of the previously opaque or when it can be coupled with exogenous shocks to people or place we describe a number of new urban data sources and illustrate how they can be used to improve the study and function of cities we first show how google street view images can be used to predict income in new york city suggesting that similar imagery data can be used to map wealth and poverty in previously unmeasured areas of the developing world we then discuss how survey techniques can be improved to better measure willingness to pay for urban amenities finally we explain how internet data is being used to improve the quality of city services jel r1 c8 c18

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

on the importance of sectoral and regional shocks for price setting summary we use novel disaggregate sectoral regional euro area data to investigate the sources of price changes introducing a new method to extract factors from overlapping data blocks that allows for estimation of aggregate sectoral country specific and regional components of price changes our sectoral component explains much less variation in disaggregate inflation rates and exhibits much less volatility and more persistence than previous findings for the us indicate country and region specific factors play an important role emphasizing heterogeneity of inflation dynamics along both sectoral and geographical dimensions our results are incompatible with basic sticky information or calvo type price setting models but require multi sector multi country models copyright 2015 john wiley sons ltd

how do the trans pacific economies affect the usa an industrial sector approach this paper studies how the trans pacific region affects the us economy in terms of business cycle transmission we use a large data set consisting of disaggregated sectoral industrial production indexes from selected countries in the region and employ a factor augmented vector autoregression favar approach to analyse the transmission of shocks in different industries we find that a positive output shock in the entire trans pacific region has positive effects on the majority of us manufacturing sectors we also find that sectoral shocks in five sectors of the trans pacific region have a large impact on the overall us economy three of the five sectors displayed strong same sector responses relative to the overall response suggesting that vertical production linkages might play a key role in the transmission of shocks our results highlight the importance of examining industrial sectors in studying the transmission of shocks in the trans pacific region

strategic pricing with rational inattention to quality this paper studies both theoretically and experimentally the pricing strategy of a rm that faces a consumer who is rationally inattentive to product quality sims 2003 in a standard sequential pricing game rational inattention to quality produces two types of mixed strategy perfect bayesian equilibria one where sellers pool at a low price and buyers are fully inattentive to quality and one where there is semi pooling at a high price and buyers are selectively attentive to quality i characterize these