American Economic Association Nashville, TN 1945-7707 1945-7715 American Economic Journal: Macroeconomics http://www.aeaweb.org/aej-macro/ 3 1 January 2011 http://www.aeaweb.org/issue.php?journal=MAC&volume=3&issue=1 Journal Article Front Matter i ii http://www.aeaweb.org/articles.php?doi=10.1257/mac.3.1.i 10.1257/mac.3.1.i American Economic Association Nashville, TN 1945-7707 1945-7715 American Economic Journal: Macroeconomics http://www.aeaweb.org/aej-macro/ 3 1 January 2011 http://www.aeaweb.org/issue.php?journal=MAC&volume=3&issue=1 Journal Article Simple Analytics of the Government Expenditure Multiplier MichaelWoodfordColumbia U 1 35 This paper explains the key factors that determine the output multiplier of government purchases in New Keynesian models, through a series of simple examples that can be solved analytically. Sticky prices or wages allow for larger multipliers than in a neoclassical model, though the size of the multiplier depends crucially on the monetary policy response. A multiplier well in excess of one is possible when monetary policy is constrained by the zero lower bound, and in this case welfare increases if government purchases expand to partially fill the output gap that arises from the inability to lower interest rates. (JEL E12, E23, E32, E62, H20, H50) http://www.aeaweb.org/articles.php?doi=10.1257/mac.3.1.1 10.1257/mac.3.1.1 American Economic Association Nashville, TN 1945-7707 1945-7715 American Economic Journal: Macroeconomics http://www.aeaweb.org/aej-macro/ 3 1 January 2011 http://www.aeaweb.org/issue.php?journal=MAC&volume=3&issue=1 Journal Article Industry Evidence on the Effects of Government Spending Christopher J.NekardaFederal Reserve Board Valerie A.RameyU CA, San Diego 36 59 This paper investigates the effects of government purchases at the industry level in order to shed light on the transmission mechanism for government spending on the aggregate economy. We create a new panel dataset that matches output and labor variables to industry-specific shifts in government demand. An increase in government demand raises output and hours, lowers real product wages and labor productivity, and has no effect on the markup. The estimates also imply approximately constant returns to scale. The findings are more consistent with the effects of government spending in the neoclassical model than the textbook New Keynesian model. (JEL E12, E23, E62, H50) http://www.aeaweb.org/articles.php?doi=10.1257/mac.3.1.36 10.1257/mac.3.1.36 http://www.aeaweb.org/aej/mac/data/2010-0019_data.zip http://www.aeaweb.org/aej/mac/app/2010-0019_app.zip American Economic Association Nashville, TN 1945-7707 1945-7715 American Economic Journal: Macroeconomics http://www.aeaweb.org/aej-macro/ 3 1 January 2011 http://www.aeaweb.org/issue.php?journal=MAC&volume=3&issue=1 Journal Article Sticky Prices versus Monetary Frictions: An Estimation of Policy Trade-Offs S. BorağanAruobaU MD FrankSchorfheideU PA 60 90 We develop a two-sector monetary model with a centralized and decentralized market. Activities in the centralized market resemble those in a standard New Keynesian economy with price rigidities. In the decentralized market agents engage in bilateral exchanges for which money is essential. This paper is the first to formally estimate such a model, evaluate its fit based on postwar US data, and assess its money demand properties. Steady-state welfare calculations reveal that the distortions created by the monetary friction may be of similar magnitude as the distortions created by the New Keynesian friction. (JEL C54, E12, E31, E41, E52) http://www.aeaweb.org/articles.php?doi=10.1257/mac.3.1.60 10.1257/mac.3.1.60 http://www.aeaweb.org/aej/mac/data/2009-0177_data.zip http://www.aeaweb.org/aej/mac/app/2009-0177_app.pdf American Economic Association Nashville, TN 1945-7707 1945-7715 American Economic Journal: Macroeconomics http://www.aeaweb.org/aej-macro/ 3 1 January 2011 http://www.aeaweb.org/issue.php?journal=MAC&volume=3&issue=1 Journal Article Pricing-to-Market and the Failure of Absolute PPP GeorgeAlessandriaFederal Reserve Bank of Philadelphia Joseph P.KaboskiU Notre Dame 91 127 We show that deviations from the law of one price in tradable goods are an important source of violations of absolute purchasing power parity. Using highly disaggregated export data, we document systematic international price discrimination: at the US dock, low-income countries pay lower prices. This pricing-to-market is about twice as important as local nontraded inputs for differences in tradable prices. We propose a model of consumer search and pricing-to-market in which consumers in low-income countries have a comparative advantage in nontraded, nonmarket search activities. Evidence from cross-country time-use studies and US export prices supports the model. (JEL E31, F14) http://www.aeaweb.org/articles.php?doi=10.1257/mac.3.1.91 10.1257/mac.3.1.91 http://www.aeaweb.org/aej/mac/data/2008-0075_data.zip http://www.aeaweb.org/aej/mac/app/2008-0075_app.pdf American Economic Association Nashville, TN 1945-7707 1945-7715 American Economic Journal: Macroeconomics http://www.aeaweb.org/aej-macro/ 3 1 January 2011 http://www.aeaweb.org/issue.php?journal=MAC&volume=3&issue=1 Journal Article Worker Heterogeneity and Endogenous Separations in a Matching Model of Unemployment Fluctuations MarkBilsU Rochester YongsungChangU Rochester and Yonsei U Sun-BinKimYonsei U 128 54 We model worker heterogeneity in the rents from being employed in a Diamond-Mortensen-Pissarides model of matching and unemployment. We show that heterogeneity, reflecting differences in match quality and worker assets, reduces the extent of fluctuations in separations and unemployment. We find that the model faces a trade-off—it cannot produce both realistic dispersion in wage growth across workers and realistic cyclical fluctuations in unemployment. (JEL D31, E24, E32, J41, J63) http://www.aeaweb.org/articles.php?doi=10.1257/mac.3.1.128 10.1257/mac.3.1.128 http://www.aeaweb.org/aej/mac/data/2009-0109_data.zip American Economic Association Nashville, TN 1945-7707 1945-7715 American Economic Journal: Macroeconomics http://www.aeaweb.org/aej-macro/ 3 1 January 2011 http://www.aeaweb.org/issue.php?journal=MAC&volume=3&issue=1 Journal Article Bank Integration and Transmission of Financial Shocks: Evidence from Japan MasamiImaiWesleyan U SeitaroTakarabeMitsubishi Corporation, Tokyo 155 83 This paper investigates whether banking integration plays an important role in transmitting financial shocks across geographical boundaries by using a dataset on the branch network of nationwide city banks and prefecture-level dataset on the formation and collapse of the real estate bubble in Japan. The results show that the credit and economic cycle of financially integrated prefectures exhibits higher sensitivity to fluctuation in land prices in cities relative to financially isolated ones. These results suggest nationwide banks can be a source of economic volatility when they pass on the impacts of financial shocks to host economies. (JEL E44, G21, R30) http://www.aeaweb.org/articles.php?doi=10.1257/mac.3.1.155 10.1257/mac.3.1.155 http://www.aeaweb.org/aej/mac/data/2009-0092_data.zip http://www.aeaweb.org/aej/mac/app/2009-0092_app.pdf American Economic Association Nashville, TN 1945-7707 1945-7715 American Economic Journal: Macroeconomics http://www.aeaweb.org/aej-macro/ 3 1 January 2011 http://www.aeaweb.org/issue.php?journal=MAC&volume=3&issue=1 Journal Article Professional Forecasters' View of Permanent and Transitory Shocks to GDP Spencer D.KraneFederal Reserve Bank of Chicago 184 211 This paper examines how the professional forecasters comprising the Blue Chip Economic Consensus view shocks to GDP. I use an unobserved components model of the forecast revisions to identify forecasters' perceptions of permanent and transitory shocks to GDP. The model indicates forecasters: attribute about two-thirds of the variance in current-period revisions to permanent shocks; view the relative importance of permanent shocks similar to the estimates of some simple univariate econometric models; see high-frequency indicators of economic activity as being informative about both permanent and transitory shocks; and react to incoming data differently during periods of economic weakness. (JEL C51, C53, E23, E27, E32, E37) http://www.aeaweb.org/articles.php?doi=10.1257/mac.3.1.184 10.1257/mac.3.1.184 http://www.aeaweb.org/aej/mac/data/2008-0046_data.zip American Economic Association Nashville, TN 1945-7707 1945-7715 American Economic Journal: Macroeconomics http://www.aeaweb.org/aej-macro/ 3 1 January 2011 http://www.aeaweb.org/issue.php?journal=MAC&volume=3&issue=1 Journal Article Housing Bubbles ÓscarArceCNMV, Madrid DavidLópez-SalidoFederal Reserve Board 212 41 We use the notion of a housing bubble as an equilibrium in which some investors hold houses for resale purposes only and not with the expectation of receiving a dividend, either in the form of rent or utility. We show that an economy with looser collateral constraints is less prone to bubbles, which, in turn, have smaller size, but are more fragile in the face of credit-crunch shocks. Our environment also allows for the existence of pure bubbles on unproductive assets. We find that multiple equilibria, in which the economy moves endogenously from a pure bubble to a housing bubble and vice versa, are possible. (JEL G12, R21, R31) http://www.aeaweb.org/articles.php?doi=10.1257/mac.3.1.212 10.1257/mac.3.1.212 http://www.aeaweb.org/aej/mac/app/2008-0023_app.pdf American Economic Association Nashville, TN 1945-7707 1945-7715 American Economic Journal: Macroeconomics http://www.aeaweb.org/aej-macro/ 3 1 January 2011 http://www.aeaweb.org/issue.php?journal=MAC&volume=3&issue=1 Journal Article Exclusive Goods and Formal-Sector Employment RetoFoellmiU Berne JosefZweimüllerInstitute for Empirical Research in Economics, U Zurich and IZA, Bonn 242 72 We explore how the underemployment problem of less-developed economies is related to income inequality. Consumers have nonhomothetic preferences over differentiated products of formal-sector goods and thus inequality affects the composition of aggregate demand via the price-setting behavior of firms. We find that high inequality divides the formal sector into mass producers and exclusive producers (which serve only the rich); high inequality generates an equilibrium where many workers are crowded into the informal economy; and an increase in subsistence productivity raises the unskilled workers' wages and boosts employment due to the higher purchasing power of poorer households. (JEL D31, D43, E24, E26, J24) http://www.aeaweb.org/articles.php?doi=10.1257/mac.3.1.242 10.1257/mac.3.1.242