American Economic Association Nashville, TN 1945-7707 1945-7715 American Economic Journal: Macroeconomics http://www.aeaweb.org/aej-macro/ 1 1 January 2009 http://www.aeaweb.org/issue.php?journal=MAC&volume=1&issue=1 Articles Border Effect or Country Effect? Seattle May Not Be So Far from Vancouver After All YuriyGorodnichenkoU CA, Berkeley Linda L.TesarU MI 219 41 This paper reexamines the evidence on the border effect. We argue that if there is cross-country heterogeneity in the distribution of within-country price differentials, there is no clear benchmark from which to gauge the effect of a border. In the absence of a structural model or a (natural) experiment, it is impossible to separate the "border" effect from the effect of trading with a country with a different distribution of prices. We show that the border effect identified by Engel and Rogers (1996) is entirely driven by the difference in the distribution of prices within the United States and Canada. (JEL F11, F14) http://www.aeaweb.org/articles.php?doi=10.1257/mac.1.1.219 10.1257/mac.1.1.219 American Economic Association Nashville, TN 1945-7707 1945-7715 American Economic Journal: Macroeconomics http://www.aeaweb.org/aej-macro/ 1 1 January 2009 http://www.aeaweb.org/issue.php?journal=MAC&volume=1&issue=1 Articles Rent Preservation and the Persistence of Underdevelopment Raghuram G.RajanU Chicago 178 218 When citizens in a poor constrained society are unequally endowed, they are likely to find it hard to agree on reforms, even though the status quo hurts them collectively. Each citizen group or constituency prefers reforms that expand its opportunities, but in an unequal society, this will typically hurt another constituency's rents. Competitive rent preservation ensures no comprehensive reform path may command broad support. The roots of underdevelopment may therefore lie in the natural tendency toward rent preservation in a divided society. (JEL D72, O10, O17) http://www.aeaweb.org/articles.php?doi=10.1257/mac.1.1.178 10.1257/mac.1.1.178 http://www.aeaweb.org/aej/mac/data/2007-0041_data.zip American Economic Association Nashville, TN 1945-7707 1945-7715 American Economic Journal: Macroeconomics http://www.aeaweb.org/aej-macro/ 1 1 January 2009 http://www.aeaweb.org/issue.php?journal=MAC&volume=1&issue=1 Articles Culture: An Empirical Investigation of Beliefs, Work, and Fertility RaquelFernandezNYU and IZA AlessandraFogliU MN 146 77 We study culture by examining the work and fertility behavior of second-generation American women. Culture is proxied with past female labor force participation and total fertility rates from the woman's country of ancestry. The values of these variables capture not only economic and institutional conditions but also the country's preferences and beliefs regarding women's roles. Since the women live in the United States, only the belief and preference components are potentially relevant. We show that the cultural proxies have positive significant explanatory power even after controlling for education and spousal characteristics, and we demonstrate that the results are unlikely to be explained by unobserved human capital. (JEL: J13, J16, J22, J24, Z13) http://www.aeaweb.org/articles.php?doi=10.1257/mac.1.1.146 10.1257/mac.1.1.146 American Economic Association Nashville, TN 1945-7707 1945-7715 American Economic Journal: Macroeconomics http://www.aeaweb.org/aej-macro/ 1 1 January 2009 http://www.aeaweb.org/issue.php?journal=MAC&volume=1&issue=1 Articles Civic Virtue and Labor Market Institutions YannAlganParis East U PierreCahucEcole Polytechnique, Malakoff 111 45 We argue civic virtue plays a key role in explaining the design of public insurance against unemployment risks by solving moral hazard issues which hinder the efficiency of unemployment insurance. We show, in a simple model, that economies with stronger civic virtues are more prone to provide insurance through unemployment benefits rather than through job protection. We provide cross-country empirical evidence of a strong correlation between civic attitudes and the design of unemployment benefits and employment protection in OECD countries over the period 1980 to 2003. We then use an epidemiological approach to estimate the existence of a potential causal relationship from inherited civic virtue to labor market insurance institutions. (JEL: J41, J65, J68, Z13) http://www.aeaweb.org/articles.php?doi=10.1257/mac.1.1.111 10.1257/mac.1.1.111 http://www.aeaweb.org/aej-macro/data/2007-0002_data.zip American Economic Association Nashville, TN 1945-7707 1945-7715 American Economic Journal: Macroeconomics http://www.aeaweb.org/aej-macro/ 1 1 January 2009 http://www.aeaweb.org/issue.php?journal=MAC&volume=1&issue=1 Articles The Ins and Outs of Cyclical Unemployment Michael W. L.ElsbyU MI RyanMichaelsU MI GarySolonMI State U 84 110 A dominant trend in recent modeling of labor market fluctuations is to treat unemployment inflows as acyclical. This trend has been encouraged by recent influential papers that stress the role of longer unemployment spells, rather than more unemployment spells, in accounting for recessionary unemployment. After reviewing an empirical literature going back several decades, we apply a convenient log change decomposition to Current Population Survey data to characterize rising unemployment in each postwar recession. We conclude that a complete understanding of cyclical unemployment requires an explanation of countercyclical inflow rates, especially for job losers (layoffs), as well as procyclical outflow rates. (JEL E24, E32) http://www.aeaweb.org/articles.php?doi=10.1257/mac.1.1.84 10.1257/mac.1.1.84 http://www.aeaweb.org/aej/mac/data/2007-0013_data.zip American Economic Association Nashville, TN 1945-7707 1945-7715 American Economic Journal: Macroeconomics http://www.aeaweb.org/aej-macro/ 1 1 January 2009 http://www.aeaweb.org/issue.php?journal=MAC&volume=1&issue=1 Articles A Black Swan in the Money Market John B.TaylorStanford U John C.WilliamsFederal Reserve Bank of San Francisco 58 83 The recent financial crisis saw a dramatic and persistent jump in interest rate spreads between overnight federal funds and longer - term interbank loans. The Fed took several actions to reduce these spreads including the creation of the Term Auction Facility (TAF). The effectiveness of these policies depends on the cause of the increased spreads such as counterparty risk, liquidity, or other factors. Using a no-arbitrage pricing framework and various measures of risk, we find robust evidence that increased counterparty risk contributed to the rise in spreads but do not find robust evidence that the TAF had a significant effect on spreads. (JEL E43, E44, E52, G21) http://www.aeaweb.org/articles.php?doi=10.1257/mac.1.1.58 10.1257/mac.1.1.58 http://www.aeaweb.org/aej/mac/data/2008-0048_data.zip American Economic Association Nashville, TN 1945-7707 1945-7715 American Economic Journal: Macroeconomics http://www.aeaweb.org/aej-macro/ 1 1 January 2009 http://www.aeaweb.org/issue.php?journal=MAC&volume=1&issue=1 Articles On the Sources of the Great Moderation JordiGalíCREI, U Pompeu Fabra LucaGambettiU Autonoma de Barcelona 26 57 The Great Moderation in the US economy has been accompanied by large changes in the comovements among output, hours, and labor productivity. Those changes are reflected in both conditional and unconditional second moments as well as in the impulse responses to identified shocks. Among other changes, our findings point to an increase in the volatility of hours relative to output, a shrinking contribution of nontechnology shocks to output volatility, and a change in the cyclical response of labor productivity to those shocks. That evidence suggests a more complex picture than that associated with "good luck" explanations of the Great Moderation. (JEL: E23, E24, J22, J24) http://www.aeaweb.org/articles.php?doi=10.1257/mac.1.1.26 10.1257/mac.1.1.26 http://www.aeaweb.org/aej-macro/data/2007-0005_data.zip American Economic Association Nashville, TN 1945-7707 1945-7715 American Economic Journal: Macroeconomics http://www.aeaweb.org/aej-macro/ 1 1 January 2009 http://www.aeaweb.org/issue.php?journal=MAC&volume=1&issue=1 Articles Trade and the Diffusion of the Industrial Revolution Robert E.LucasChicago, IL 1 25 This paper proposes a model to describe the evolution of real gross domestic product (GDP) in the world economy that is intended to apply to all open economies. The parameters of the model are calibrated using evidence from Sachs and Warner on economies classed as open, from Parente and Prescott on economies that have successfully begun to develop, and from Kuznets and the World Bank on the employment share of agriculture in various times and places. The theory predicts convergence of the income levels and growth rates in the open economies and has strong but reasonable implications for transition dynamics. (JEL F41, O33, O47) http://www.aeaweb.org/articles.php?doi=10.1257/mac.1.1.1 10.1257/mac.1.1.1 American Economic Association Nashville, TN 1945-7707 1945-7715 American Economic Journal: Macroeconomics http://www.aeaweb.org/aej-macro/ 1 1 January 2009 http://www.aeaweb.org/issue.php?journal=MAC&volume=1&issue=1 Journal Article Editor's Note OlivierBlanchardMIT iii iv http://www.aeaweb.org/articles.php?doi=10.1257/mac.1.1.iii 10.1257/mac.1.1.iii American Economic Association Nashville, TN 1945-7707 1945-7715 American Economic Journal: Macroeconomics http://www.aeaweb.org/aej-macro/ 1 1 January 2009 http://www.aeaweb.org/issue.php?journal=MAC&volume=1&issue=1 Symposium New Keynesian Models: Not Yet Useful for Policy Analysis V. V.ChariFederal Reserve Bank of Minneapolis and U MN Patrick J.KehoeFederal Reserve Bank of Minneapolis and U MN Ellen R.McGrattanFederal Reserve Bank of Minneapolis and U MN 242 66 Macroeconomists have largely converged on method, model design, reduced-form shocks, and principles of policy advice. Our main disagreements today are about implementing the methodology. Some think New Keynesian models are ready to be used for quarter-to-quarter quantitative policy advice. We do not. Focusing on the state-of- the-art version of these models, we argue that some of its shocks and other features are not structural or consistent with microeconomic evidence. Since an accurate structural model is essential to reliably evaluate the effects of policies, we conclude that New Keynesian models are not yet useful for policy analysis. (JEL E12, E60) http://www.aeaweb.org/articles.php?doi=10.1257/mac.1.1.242 10.1257/mac.1.1.242 http://www.aeaweb.org/aej/mac/data/2008-0044_data.zip American Economic Association Nashville, TN 1945-7707 1945-7715 American Economic Journal: Macroeconomics http://www.aeaweb.org/aej-macro/ 1 1 January 2009 http://www.aeaweb.org/issue.php?journal=MAC&volume=1&issue=1 Symposium Convergence in Macroeconomics: Elements of the New Synthesis MichaelWoodfordColumbia U 267 79 While macroeconomics is often thought of as a deeply divided field, with less of a shared core and correspondingly less cumulative progress than other areas of economics, in fact, there are fewer fundamental disagreements among macroeconomists now than in past decades. This is due to important progress in resolving seemingly intractable debates. In this paper, I review some of those debates and outline important elements of the new synthesis in macroeconomic theory. I discusses the extent to which the new developments in theory and research methods are already affecting macroeconomic analysis in policy institutions. (JEL A11, E00) http://www.aeaweb.org/articles.php?doi=10.1257/mac.1.1.267 10.1257/mac.1.1.267 American Economic Association Nashville, TN 1945-7707 1945-7715 American Economic Journal: Macroeconomics http://www.aeaweb.org/aej-macro/ 1 1 January 2009 http://www.aeaweb.org/issue.php?journal=MAC&volume=1&issue=1 Symposium Convergence in Macroeconomics: The Labor Wedge RobertShimerU Chicago 280 97 I review research on the behavior of the labor wedge, the ratio between the marginal rate of substitution of consumption for leisure and the marginal product of labor. According to competitive, market-clearing macroeconomic models, the ratio is easy to measure and should be equal to the sum of consumption and labor taxes. The observation that the wedge is higher in continental Europe than in the United States has proved useful for understanding the extent to which taxes can explain differences in labor market outcomes. The observation that the ratio rises during recessions suggests some failure of competitive, market-clearing macroeconomic models at business cycle frequencies. The latter observation has guided recent research, including work on sticky wage models and job search models. (JEL E24, E32, J64) http://www.aeaweb.org/articles.php?doi=10.1257/mac.1.1.280 10.1257/mac.1.1.280 American Economic Association Nashville, TN 1945-7707 1945-7715 American Economic Journal: Macroeconomics http://www.aeaweb.org/aej-macro/ 1 1 January 2009 http://www.aeaweb.org/issue.php?journal=MAC&volume=1&issue=1 Journal Article Front Matter i ii http://www.aeaweb.org/articles.php?doi=10.1257/mac.1.1.i 10.1257/mac.1.1.i