American Economic Association Nashville, TN 1945-7707 1945-7715 American Economic Journal: Macroeconomics http://www.aeaweb.org/aej-macro/ 2 4 October 2010 http://www.aeaweb.org/issue.php?journal=MAC&volume=2&issue=4 Journal Article Front Matter i i http://www.aeaweb.org/articles.php?doi=10.1257/mac.2.4.i 10.1257/mac.2.4.i American Economic Association Nashville, TN 1945-7707 1945-7715 American Economic Journal: Macroeconomics http://www.aeaweb.org/aej-macro/ 2 4 October 2010 http://www.aeaweb.org/issue.php?journal=MAC&volume=2&issue=4 Journal Article Understanding PPPs and PPP-Based National Accounts AngusDeatonPrinceton U AlanHestonU PA 1 35 We provide an overview of the theory and practice of constructing PPPs. We focus on four practical areas: how to handle international differences in quality; the treatment of urban and rural areas of large countries; how to estimate prices for government services, health, and education; and the effects of the regional structure of the latest International Comparison Program for 2005. We discuss revisions of the Penn World Table, and their effects on econometric analysis, and include health warnings. Some international comparisons are close to impossible, even in theory, and in others, the practical difficulties make comparison exceedingly hazardous. (JEL C43, E01, E31, O57). http://www.aeaweb.org/articles.php?doi=10.1257/mac.2.4.1 10.1257/mac.2.4.1 http://www.aeaweb.org/aej/mac/data/2008-0163_data.zip American Economic Association Nashville, TN 1945-7707 1945-7715 American Economic Journal: Macroeconomics http://www.aeaweb.org/aej-macro/ 2 4 October 2010 http://www.aeaweb.org/issue.php?journal=MAC&volume=2&issue=4 Journal Article Understanding PPPs and PPP-Based National Accounts: Comment ErwinDiewertU British Columbia 36 45 http://www.aeaweb.org/articles.php?doi=10.1257/mac.2.4.36 10.1257/mac.2.4.36 American Economic Association Nashville, TN 1945-7707 1945-7715 American Economic Journal: Macroeconomics http://www.aeaweb.org/aej-macro/ 2 4 October 2010 http://www.aeaweb.org/issue.php?journal=MAC&volume=2&issue=4 Journal Article Understanding PPPs and PPP-Based National Accounts: Comment MartinRavallionWorld Bank 46 52 http://www.aeaweb.org/articles.php?doi=10.1257/mac.2.4.46 10.1257/mac.2.4.46 American Economic Association Nashville, TN 1945-7707 1945-7715 American Economic Journal: Macroeconomics http://www.aeaweb.org/aej-macro/ 2 4 October 2010 http://www.aeaweb.org/issue.php?journal=MAC&volume=2&issue=4 Journal Article How Much Consumption Insurance beyond Self-Insurance? GregKaplanFederal Reserve Bank of Minneapolis and U PA Giovanni L.ViolanteNYU and Institute for Fiscal Studies, London 53 87 We assess the degree of consumption smoothing implicit in a calibrated life-cycle version of the standard incomplete-markets model, and we compare it to the empirical estimates of Richard Blundell, Luigi Pistaferri, and Ian Preston (2008) (BPP hereafter) on US data. Households in the data have access to more consumption insurance against permanent earnings shocks than in the model. BPP estimate that 36 percent of permanent shocks are insurable, whereas the model's counterpart of the BPP estimator varies between 7 percent and 22 percent, depending on the tightness of debt limits. We also show that the BPP estimator has a downward bias that grows as borrowing limits become tighter. (JEL D31, D91, E21). http://www.aeaweb.org/articles.php?doi=10.1257/mac.2.4.53 10.1257/mac.2.4.53 http://www.aeaweb.org/aej/mac/data/2009-0155_data.zip American Economic Association Nashville, TN 1945-7707 1945-7715 American Economic Journal: Macroeconomics http://www.aeaweb.org/aej-macro/ 2 4 October 2010 http://www.aeaweb.org/issue.php?journal=MAC&volume=2&issue=4 Journal Article Unmeasured Investment and the Puzzling US Boom in the 1990s Ellen R.McGrattanFederal Reserve Bank of Minneapolis and U MN Edward C.PrescottFederal Reserve Bank of Minneapolis and AZ State U 88 123 For the 1990s, the basic neoclassical growth model predicts a depressed economy, when in fact the US economy boomed. We extend the base model by introducing intangible investment and non-neutral technology change with respect to producing intangible investment goods and find that the 1990s are not puzzling in light of this new theory. There is microeconomic and macroeconomic evidence motivating our extension, and the theory's predictions are in conformity with US national accounts and capital gains. We compare accounting measures with corresponding measures for our model economy and find that standard accounting measures greatly understate the 1990s boom. (JEL E22, E23, O33, O47) http://www.aeaweb.org/articles.php?doi=10.1257/mac.2.4.88 10.1257/mac.2.4.88 http://www.aeaweb.org/aej/mac/data/2008-0145_data.zip http://www.aeaweb.org/aej/mac/app/2008-0145_app.pdf American Economic Association Nashville, TN 1945-7707 1945-7715 American Economic Journal: Macroeconomics http://www.aeaweb.org/aej-macro/ 2 4 October 2010 http://www.aeaweb.org/issue.php?journal=MAC&volume=2&issue=4 Journal Article Do Output Contractions Trigger Democratic Change? Paul J.BurkeAustralian National U AndrewLeighAustralian National U 124 57 Does faster economic growth increase pressure for democratic change, or reduce it? Using data for 154 countries for the period 1963-2007, we examine the short-run relationship between economic growth and moves toward and away from greater democracy. To address the potential endogeneity of economic growth, we use variation in precipitation, temperatures, and commodity prices as instruments for a country's rate of economic growth. Our results indicate that more rapid economic growth reduces the short-run likelihood of institutional change toward democracy. Output contractions due to adverse weather shocks appear to have a particularly important impact on the timing of democratic change. (JEL D72, E23, E32, O11, O17, O47) http://www.aeaweb.org/articles.php?doi=10.1257/mac.2.4.124 10.1257/mac.2.4.124 http://www.aeaweb.org/aej/mac/data/2008-0115_data.zip http://www.aeaweb.org/aej/mac/app/2008-0115_app.pdf American Economic Association Nashville, TN 1945-7707 1945-7715 American Economic Journal: Macroeconomics http://www.aeaweb.org/aej-macro/ 2 4 October 2010 http://www.aeaweb.org/issue.php?journal=MAC&volume=2&issue=4 Journal Article The Structure of Tariffs and Long-Term Growth NathanNunnHarvard U and BREAD DanielTreflerU Toronto and CIFAR 158 94 We show that the "skill bias" of a country's tariff structure is positively correlated with long-term per capita GDP growth. Testing for causal mechanisms, we find evidence consistent with the existence of real benefits from tariffs focused in skill-intensive industries. However, this only accounts for a quarter of the total correlation between skill-biased tariffs and growth. Turning to alternative explanations, we extend the standard Grossman-Helpman "protection-for- sale" model and show how the skill bias of tariffs can reflect the extent of domestic rent-seeking activities in the economy. We provide evidence that the remaining variation is explained by this endogeneity. (JEL D72, F13, F43, O17, O19, O24, O47) http://www.aeaweb.org/articles.php?doi=10.1257/mac.2.4.158 10.1257/mac.2.4.158 http://www.aeaweb.org/aej/mac/data/2008-0134_data.zip American Economic Association Nashville, TN 1945-7707 1945-7715 American Economic Journal: Macroeconomics http://www.aeaweb.org/aej-macro/ 2 4 October 2010 http://www.aeaweb.org/issue.php?journal=MAC&volume=2&issue=4 Journal Article Value-Added Taxes, Chain Effects, and Informality Áureode PaulaU PA Jose A.ScheinkmanPrinceton U 195 221 We present an equilibrium model of tax avoidance and test its implications using a survey of firms in Brazil. In the model, the credit method used to collect value-added tax (VAT) creates informality chains-clients or suppliers of informal firms are more likely to be informal. An increase in enforcement in a production stage increases formality downstream and upstream. Various empirical measures of formality of suppliers and buyers, and of enforcement downstream and upstream, are positively correlated with formality. When the VAT is applied in a single stage of production at a rate estimated by the authorities, these chain effects disappear. (JEL H25, H26, L14, L21, O14, O17) http://www.aeaweb.org/articles.php?doi=10.1257/mac.2.4.195 10.1257/mac.2.4.195 http://www.aeaweb.org/aej/mac/data/2008-0073_data.zip http://www.aeaweb.org/aej/mac/app/2008-0073_app.pdf American Economic Association Nashville, TN 1945-7707 1945-7715 American Economic Journal: Macroeconomics http://www.aeaweb.org/aej-macro/ 2 4 October 2010 http://www.aeaweb.org/issue.php?journal=MAC&volume=2&issue=4 Journal Article Determinants of Economic Growth: Will Data Tell? AntonioCicconeICREA, U Pompeu Fabra MarekJarocińskiEuropean Central Bank 222 46 Many factors inhibiting and facilitating economic growth have been suggested. Can agnostics rely on international income data to tell them which matter? We find that agnostic priors lead to conclusions that are sensitive to differences across available income estimates. For example, the PWT 6.2 revision of the 1960-1996 income estimates in the PWT 6.1 leads to substantial changes regarding the role of government, international trade, demography, and geography. We conclude that margins of error in international income estimates appear too large for agnostic growth empirics. (JEL O41, O47) http://www.aeaweb.org/articles.php?doi=10.1257/mac.2.4.222 10.1257/mac.2.4.222 http://www.aeaweb.org/aej/mac/data/2008-0098_data.zip http://www.aeaweb.org/aej/mac/app/2008-0098_app.zip American Economic Association Nashville, TN 1945-7707 1945-7715 American Economic Journal: Macroeconomics http://www.aeaweb.org/aej-macro/ 2 4 October 2010 http://www.aeaweb.org/issue.php?journal=MAC&volume=2&issue=4 Journal Article International Competition and Inflation: A New Keynesian Perspective LucaGuerrieriFederal Reserve Board ChristopherGustFederal Reserve Board J. DavidLópez-SalidoFederal Reserve Board 247 80 We develop and estimate an open economy New Keynesian Phillips Curve (NKPC) in which variable demand elasticities give rise to movements in desired markups in response to changes in competitive pressure from abroad. A parametric restriction yields the standard NKPC under constant elasticity and no role for foreign competition to influence domestic inflation. Foreign competition plays an important role in accounting for the behavior of traded goods price inflation. Foreign competition accounted for more than half of a 4 percentage point decline in domestic goods price inflation in the 1990s. Our results also provide evidence against demand curves with a constant elasticity. (JEL E12, E22, E31, F14, F41) http://www.aeaweb.org/articles.php?doi=10.1257/mac.2.4.247 10.1257/mac.2.4.247 http://www.aeaweb.org/aej/mac/data/2008-0157_data.zip American Economic Association Nashville, TN 1945-7707 1945-7715 American Economic Journal: Macroeconomics http://www.aeaweb.org/aej-macro/ 2 4 October 2010 http://www.aeaweb.org/issue.php?journal=MAC&volume=2&issue=4 Journal Article Risk-Sensitive Consumption and Savings under Rational Inattention YuleiLuoU Hong Kong Eric R.YoungU VA 281 325 This paper studies the consumption-savings behavior of households who have risk-sensitive preferences and suffer from limited information-processing capacity (rational inattention or RI). We first solve the model explicitly and show that RI increases precautionary savings by interacting with income uncertainty and risk sensitivity. Given the closed-form solutions, we find that the RI model displays a wide range of observational equivalence properties, implying that consumption and savings data cannot distinguish between risk sensitivity, robustness, or the discount factor, in any combination. We then show that the welfare costs from RI are larger for risk-sensitive households than any other observationally-equivalent settings. (JEL D11, D81, D82, E13, E21) http://www.aeaweb.org/articles.php?doi=10.1257/mac.2.4.281 10.1257/mac.2.4.281