American Economic Association Nashville, TN 1945-7707 1945-7715 American Economic Journal: Macroeconomics http://www.aeaweb.org/aej-macro/ 4 4 October 2012 http://www.aeaweb.org/issue.php?journal=MAC&volume=4&issue=4 Journal Article Front Matter i vi http://www.aeaweb.org/articles.php?doi=10.1257/mac.4.4.i 10.1257/mac.4.4.i American Economic Association Nashville, TN 1945-7707 1945-7715 American Economic Journal: Macroeconomics http://www.aeaweb.org/aej-macro/ 4 4 October 2012 http://www.aeaweb.org/issue.php?journal=MAC&volume=4&issue=4 Articles The Geography of Conflicts and Regional Trade Agreements PhilippeMartinSciences Po, Paris ThierryMayerSciences Po, Paris MathiasThoenigU Lausanne 1 35 In addition to standard trade gains, regional trade agreements (RTAs) can promote peaceful relations by increasing the opportunity cost of conflicts. Country pairs with large trade gains from RTAs and a high probability of conflict should be more likely to sign an RTA. Using data from 1950 to 2000, we show that this complementarity between economic and politics determines the geography of RTAs. We disentangle trade gains from political factors by a theory-driven empirical estimation and find that country pairs with higher frequency of past wars are more likely to sign RTAs, the more so the larger the trade gains. (JEL D72, D74, F15, N70) http://www.aeaweb.org/articles.php?doi=10.1257/mac.4.4.1 10.1257/mac.4.4.1 http://www.aeaweb.org/aej/mac/data/2011-0041_data.zip American Economic Association Nashville, TN 1945-7707 1945-7715 American Economic Journal: Macroeconomics http://www.aeaweb.org/aej-macro/ 4 4 October 2012 http://www.aeaweb.org/issue.php?journal=MAC&volume=4&issue=4 Articles Measuring What Employers Do about Entry Wages over the Business Cycle: A New Approach Pedro S.MartinsQueen Mary, U London GarySolonMI State U Jonathan P.ThomasU Edinburgh 36 55 Rigidity in real hiring wages plays a crucial role in some recent macroeconomic models. But are hiring wages really so noncyclical? We propose using employer/employee longitudinal data to track the cyclical variation in the wages paid to workers newly hired into specific entry jobs. Illustrating the methodology with 1982-2008 data from the Portuguese census of employers, we find real entry wages were about 1.8 percent higher when the unemployment rate was 1 percentage point lower. Like most recent evidence on other aspects of wage cyclicality, our results suggest that the cyclical elasticity of wages is similar to that of employment. (JEL E24, E32, J31, J64) http://www.aeaweb.org/articles.php?doi=10.1257/mac.4.4.36 10.1257/mac.4.4.36 http://www.aeaweb.org/aej/mac/data/2010-0083_data.zip American Economic Association Nashville, TN 1945-7707 1945-7715 American Economic Journal: Macroeconomics http://www.aeaweb.org/aej-macro/ 4 4 October 2012 http://www.aeaweb.org/issue.php?journal=MAC&volume=4&issue=4 Articles Evidence on the Incidence of Wage Posting, Wage Bargaining, and On-the-Job Search Robert E.HallStanford U Alan B.KruegerPrinceton U 56 67 Some workers bargain with prospective employers before accepting a job. Others face a posted wage as a take-it-or-leave-it opportunity. Both modes of wage determination have generated large bodies of research. We surveyed a representative sample of US workers to inquire about the wage determination process at the time they were hired into their current or most recent jobs. A third of the respondents reported bargaining over pay before accepting their current jobs. Almost a third of workers had precise information about pay when they first met with their employers, a sign of wage posting. About 40 percent of workers were on-the-job searchers--they could have remained at their earlier jobs at the time they accepted their current jobs, indicating a more favorable bargaining position than is held by unemployed job-seekers. About half of all workers reported that their employers had learned their pay in their earlier jobs before making the offer that led to the current job. (JEL C83, J31, J52, J64) http://www.aeaweb.org/articles.php?doi=10.1257/mac.4.4.56 10.1257/mac.4.4.56 http://www.aeaweb.org/aej/mac/data/2011-0071_data.zip http://www.aeaweb.org/aej/mac/app/2011-0071_app.pdf American Economic Association Nashville, TN 1945-7707 1945-7715 American Economic Journal: Macroeconomics http://www.aeaweb.org/aej-macro/ 4 4 October 2012 http://www.aeaweb.org/issue.php?journal=MAC&volume=4&issue=4 Articles Exogenous versus Endogenous Separation ShigeruFujitaFederal Reserve Bank of Philadelphia GareyRameyU CA, San Diego 68 93 This paper assesses how various approaches to modeling the separation margin affect the quantitative ability of the Mortensen-Pissarides labor matching model. The model with a constant separation rate fails to produce realistic volatility and productivity responsiveness of the separation rate and worker flows. The specification with endogenous separation succeeds along these dimensions. Allowing for on-the-job search enables the model to replicate the Beveridge curve. All specifications, however, fail to generate sufficient volatility of the job finding rate. While adopting the Hagedorn-Manovskii calibration remedies this problem, the volume of job-to-job transitions in the on-the-job search specification becomes essentially zero. (JEL E24, J41, J64) http://www.aeaweb.org/articles.php?doi=10.1257/mac.4.4.68 10.1257/mac.4.4.68 http://www.aeaweb.org/aej/mac/data/2011-0236_data.zip American Economic Association Nashville, TN 1945-7707 1945-7715 American Economic Journal: Macroeconomics http://www.aeaweb.org/aej-macro/ 4 4 October 2012 http://www.aeaweb.org/issue.php?journal=MAC&volume=4&issue=4 Articles Home Equity Lending and Retail Spending: Evidence from a Natural Experiment in Texas Chadi S.AbdallahMiami U OH William D.LastrapesU GA 94 125 We estimate how spending in Texas responded to a 1997 constitutional amendment that relaxed severe restrictions on home equity lending. We use this event as a natural experiment to estimate the importance of credit constraints. If households are credit-constrained, such an increase in credit availability will increase their spending. We find that Texas retail sales at the county and state levels increased significantly after the amendment, lending support to the credit-constraint hypothesis. We confirm these findings and refine our interpretation of the estimated aggregate-level responses using household-level data on home equity loans. (JEL D14, E21, G21, G28) http://www.aeaweb.org/articles.php?doi=10.1257/mac.4.4.94 10.1257/mac.4.4.94 http://www.aeaweb.org/aej/mac/data/2011-0027_data.zip American Economic Association Nashville, TN 1945-7707 1945-7715 American Economic Journal: Macroeconomics http://www.aeaweb.org/aej-macro/ 4 4 October 2012 http://www.aeaweb.org/issue.php?journal=MAC&volume=4&issue=4 Articles Why Are Target Interest Rate Changes So Persistent? OlivierCoibionIMF and U TX YuriyGorodnichenkoU CA, Berkeley 126 62 While the degree of policy inertia in central banks' reaction functions is a central ingredient in theoretical and empirical monetary economics, the source of the observed policy inertia in the United States is controversial, with tests of competing hypotheses, such as interest-smoothing and persistent-shocks, being inconclusive. This paper employs real time data; nested specifications with flexible time series structures; narratives; interest rate forecasts of the Fed, financial markets, and professional forecasters; and instrumental variables to discriminate between competing explanations of policy inertia. The evidence strongly favors the interest-smoothing explanation and thus can help resolve a key puzzle in monetary economics. (JEL C53, E43, E47, E52, E58) http://www.aeaweb.org/articles.php?doi=10.1257/mac.4.4.126 10.1257/mac.4.4.126 http://www.aeaweb.org/aej/mac/data/2011-0185_data.zip http://www.aeaweb.org/aej/mac/app/2011-0185_app.pdf American Economic Association Nashville, TN 1945-7707 1945-7715 American Economic Journal: Macroeconomics http://www.aeaweb.org/aej-macro/ 4 4 October 2012 http://www.aeaweb.org/issue.php?journal=MAC&volume=4&issue=4 Articles Financial Contracts and the Political Economy of Investor Protection PavelSevcikU Quebec, Montreal 163 97 This paper studies the joint dynamics of investor protection and economic development in a political economy model with capital accumulation and occupational choice. Less investor protection implies higher costs of external financing for entrepreneurs. This excludes poorer agents from entrepreneurship, increasing the profits of the remaining entrepreneurs. The main determinants of investor protection policy preferences are the agent's net worth and the expected return from entrepreneurship. When the policy is chosen by the simple majority rule, the model generates several implications consistent with the observed variation of investor protection over time and across countries. (JEL D72, E22, E32, G18, G38, J24, L26) http://www.aeaweb.org/articles.php?doi=10.1257/mac.4.4.163 10.1257/mac.4.4.163 http://www.aeaweb.org/aej/mac/data/2011-0058_data.zip http://www.aeaweb.org/aej/mac/app/2011-0058_app.pdf