The Trade-Comovement Puzzle

By Lukasz A. Drozd, Sergey Kolbin, and Jaromir B. Nosal

American Economic Journal: Macroeconomics, April 2021

Standard international transmission mechanism of productivity shocks predicts a weak endogenous linkage between trade and business cycle synchronization: a problem known as the trade-comovement puzzle. We provide the foundational analysis of the puzzle, p...

Interest Rate Liberalization and Capital Misallocations

By Zheng Liu, Pengfei Wang, and Zhiwei Xu

American Economic Journal: Macroeconomics, April 2021

We study the consequences of interest rate liberalization in a two-sector general equilibrium model of China. The model captures a key feature of China's distorted financial system: state-owned enterprises (SOEs) have greater incentive to expand productio...

History Dependence in the Housing Market

By Philippe Bracke and Silvana Tenreyro

American Economic Journal: Macroeconomics, April 2021

Using data on the universe of housing transactions in England and Wales over a 20-year period, we document that sale prices and selling propensities are affected by house prices prevailing in the period in which properties were previously bought. Using ad...

Monetary Policy and Inequality under Labor Market Frictions and Capital-Skill Complementarity

By Juan J. Dolado, Gergő Motyovszki, and Evi Pappa

American Economic Journal: Macroeconomics, April 2021

We provide a new channel through which monetary policy has distributional consequences at business cycle frequencies. We show that an unexpected monetary easing increases labor income inequality between high-skilled and less-skilled workers. To rationaliz...

Monetary Policy and Bubbles in a New Keynesian Model with Overlapping Generations

By Jordi Galí

American Economic Journal: Macroeconomics, April 2021

I analyze an extension of the New Keynesian model that features overlapping generations of finitely lived agents and (stochastic) transitions to inactivity. In contrast with the standard model, the proposed framework allows for the existence of rational e...

The Choice Channel of Financial Innovation

By Felipe S. Iachan, Plamen T. Nenov, and Alp Simsek

American Economic Journal: Macroeconomics, April 2021

Financial innovation in recent decades has expanded portfolio choice. We investigate how greater choice affects investors' savings and asset returns. We establish a choice channel by which greater portfolio choice increases investors' savings—by enablin...

Oil, Equities, and the Zero Lower Bound

By Deepa D. Datta, Benjamin K. Johannsen, Hannah Kwon, and Robert J. Vigfusson

American Economic Journal: Macroeconomics, April 2021

From late 2008 to 2014, oil and equity returns were more positively correlated than in other periods. In addition, we show that both oil and equity returns became more responsive to macroeconomic news. We provide empirical evidence that these changes resu...

Transmission of Monetary Policy with Heterogeneity in Household Portfolios

By Ralph Luetticke

American Economic Journal: Macroeconomics, April 2021

This paper assesses the importance of heterogeneity in household portfolios for the transmission of monetary policy in a New Keynesian business cycle model with uninsurable income risk and assets with different liquidity. In this environment, monetary tra...

Sovereign Debt Restructurings

By Maximiliano Dvorkin, Juan M. Sánchez, Horacio Sapriza, and Emircan Yurdagul

American Economic Journal: Macroeconomics, April 2021

Sovereign debt crises involve debt restructurings characterized by a mix of face value haircuts and maturity extensions. The prevalence of maturity extensions has been hard to reconcile with economic theory. We develop a model of endogenous debt restructu...

Climate change and migration

[Research Highlight]

March 24, 2021

Klaus Desmet discusses how accounting for spatial shifts changes estimates of how rising sea levels will affect the economy.

Front Matter

American Economic Review, April 2021

Behavioral Constraints on the Design of Subgame-Perfect Implementation Mechanisms

By Ernst Fehr, Michael Powell, and Tom Wilkening

American Economic Review, April 2021

We study subgame-perfect implementation (SPI) mechanisms that have been proposed as a solution to incomplete contracting problems. We show that these mechanisms, which are based on off-equilibrium arbitration clauses that impose large fines for lying and ...

Parental Resources and College Attendance: Evidence from Lottery Wins

By George Bulman, Robert Fairlie, Sarena Goodman, and Adam Isen

American Economic Review, April 2021

We examine US children whose parents won the lottery to trace out the effect of financial resources on college attendance. The analysis leverages federal tax and financial aid records and substantial variation in win size and timing. While per-dollar effe...

Impacts of Performance Pay for Hospitals: The Readmissions Reduction Program

By Atul Gupta

American Economic Review, April 2021

US policy increasingly ties payments for providers to performance on quality measures, though little empirical evidence guides the design of such incentives. I deploy administrative data to study a large federal program that penalizes hospitals with high ...

The Macroeconomic Effects of Oil Supply News: Evidence from OPEC Announcements

By Diego R. Känzig

American Economic Review, April 2021

This paper studies how changes in oil supply expectations affect the oil price and the macroeconomy. Using a novel identification design, exploiting institutional features of OPEC and high-frequency data, I identify an oil supply news shock. These shocks ...

Reference Points for Retirement Behavior: Evidence from German Pension Discontinuities

By Arthur Seibold

American Economic Review, April 2021

This paper studies the large concentration of retirement behavior around statutory retirement ages, a puzzling stylized fact. To investigate this fact, I estimate bunching responses to 644 pension benefit discontinuities, using administrative data on the ...

Myopia and Anchoring

By George-Marios Angeletos and Zhen Huo

American Economic Review, April 2021

We develop an equivalence between the equilibrium effects of incomplete information and those of two behavioral distortions: myopia, or extra discounting of the future; and anchoring of current behavior to past behavior, as in models with habit persistenc...

Risk-Based Selection in Unemployment Insurance: Evidence and Implications

By Camille Landais, Arash Nekoei, Peter Nilsson, David Seim, and Johannes Spinnewijn

American Economic Review, April 2021

This paper studies whether adverse selection can rationalize a universal mandate for unemployment insurance (UI). Building on a unique feature of the unemployment policy in Sweden, where workers can opt for supplemental UI coverage above a minimum manda...

Connecting buyers and sellers in the countryside

[Research Highlight]

April 02, 2021

E-commerce development in rural China may not be as promising as many expected.

Connecting the Countryside via E-Commerce: Evidence from China

By Victor Couture, Benjamin Faber, Yizhen Gu, and Lizhi Liu

American Economic Review: Insights, March 2021

This paper estimates the impact of the first nationwide e-commerce expansion program on rural households. To do so, we combine a randomized control trial with new survey and administrative microdata. In contrast to existing case studies, we find little ev...