Why Are Banks Exposed to Monetary Policy?

By Sebastian Di Tella and Pablo Kurlat

American Economic Journal: Macroeconomics, October 2021

We propose a model of banks' exposure to movements in interest rates and their role in the transmission of monetary shocks. Since bank deposits provide liquidity, higher interest rates allow banks to earn larger spreads on deposits. Therefore, if risk ave...

Micro-level Misallocation and Selection

By Mu-Jeung Yang

American Economic Journal: Macroeconomics, October 2021

How large are the aggregate productivity losses from the misallocation of resources across firms? With endogenous selection, microfrictions can induce extensive margin misallocation among firms: too many unproductive firms are active (Zombies), and too ma...

Uncertainty and Business Cycles: Exogenous Impulse or Endogenous Response?

By Sydney C. Ludvigson, Sai Ma, and Serena Ng

American Economic Journal: Macroeconomics, October 2021

Uncertainty about the future rises in recessions. But is uncertainty a source of business cycles or an endogenous response to them, and does the type of uncertainty matter? We propose a novel SVAR identification strategy to address these questions via ine...

Long-Term Finance and Investment with Frictional Asset Markets

By Julian Kozlowski

American Economic Journal: Macroeconomics, October 2021

Trading frictions in financial markets affect more long-term than short-term bonds, generating an upward-sloping yield curve. Long-term financing is more expensive in economies with higher trading frictions so firms choose to borrow and invest in shorter ...

Fussing and Fuming over Fannie and Freddie: How Much Smoke, How Much Fire?

By W. Scott Frame and Lawrence J. White

Journal of Economic Perspectives, Spring 2005

The roles of Fannie Mae and Freddie Mac have become increasingly controversial in the modern world of residential mortgage finance. We describe the special features of these two companies and their roles in the mortgage markets. We then discuss the contro...

Consumption Inequality and the Frequency of Purchases

By Olivier Coibion, Yuriy Gorodnichenko, and Dmitri Koustas

American Economic Journal: Macroeconomics, October 2021

We document a decline in the frequency of shopping trips in the United States since 1980 and consider its implications for the measurement of consumption inequality. A decline in shopping frequency as households stock up on storable goods (i.e., inventory...

Agglomeration, Misallocation, and (the Lack of) Competition

By Wyatt J. Brooks, Joseph P. Kaboski, and Yao Amber Li

American Economic Journal: Macroeconomics, October 2021

Industrial agglomeration policies may limit competition. We develop, validate, and apply a novel approach for measuring competition based on the comovement of markups and market shares among firms in the same location and industry. Then we develop a model...

Front Matter

American Economic Review, October 2021

Direct Democracy Works

By John G. Matsusaka

Journal of Economic Perspectives, Spring 2005

The purpose of this essay is to describe the practice and theory of the increasingly important political phenomenon of direct democracy and the main lessons from the scholarly literature. Many questions remain to be answered, but the emerging view is that...

Jobs for Sale: Corruption and Misallocation in Hiring

By Jeffrey Weaver

American Economic Review, October 2021

Corrupt government hiring is common in developing countries. This paper uses original data to document the operation and consequences of corrupt hiring in a health bureaucracy. Hires pay bribes averaging 17 months of salary, but contrary to conventional w...

Oligopolistic Price Leadership and Mergers: The United States Beer Industry

By Nathan H. Miller, Gloria Sheu, and Matthew C. Weinberg

American Economic Review, October 2021

We study a repeated game of price leadership in which a firm proposes supermarkups over Bertrand prices to a coalition of rivals. Supermarkups and marginal costs are recoverable from data on prices and quantities using the model's structure. In an applica...

Mistakes, Overconfidence, and the Effect of Sharing on Detecting Lies

By Marta Serra-Garcia and Uri Gneezy

American Economic Review, October 2021

Mistakes and overconfidence in detecting lies could help lies spread. Participants in our experiments observe videos in which senders either tell the truth or lie, and are incentivized to distinguish between them. We find that participants fail to detect ...

Labor Rationing

By Emily Breza, Supreet Kaur, and Yogita Shamdasani

American Economic Review, October 2021

This paper measures excess labor supply in equilibrium. We induce hiring shocks—which employ 24 percent of the labor force in external month-long jobs—in Indian local labor markets. In peak months, wages increase instantaneously and local aggregate em...

Neighborhood-Based Information Costs

By Benjamin Hébert and Michael Woodford

American Economic Review, October 2021

We derive a new cost of information in rational inattention problems, the neighborhood-based cost functions, starting from the observation that many settings involve exogenous states with a topological structure. These cost functions are uniformly posteri...

Projection of Private Values in Auctions

By Tristan Gagnon-Bartsch, Marco Pagnozzi, and Antonio Rosato

American Economic Review, October 2021

We explore how taste projection—the tendency to overestimate how similar others' tastes are to one's own—affects bidding in auctions. In first-price auctions with private values, taste projection leads bidders to exaggerate the intensity of competitio...

From Mad Men to Maths Men: Concentration and Buyer Power in Online Advertising

By Francesco Decarolis and Gabriele Rovigatti

American Economic Review, October 2021

This paper analyzes the impact of intermediary concentration on the allocation of revenue in online platforms. We study sponsored search documenting how advertisers increasingly bid through a handful of specialized intermediaries. This enhances automated ...

The Effect of High-Tech Clusters on the Productivity of Top Inventors

By Enrico Moretti

American Economic Review, October 2021

The high-tech sector is concentrated in a small number of cities. The ten largest clusters in computer science, semiconductors, and biology account for 69 percent, 77 percent, and 59 percent of all US inventors, respectively. Using longitudinal data on 10...

Quantifying the Supply Response of Private Schools to Public Policies

By Michael Dinerstein and Troy D. Smith

American Economic Review, October 2021

School policies that cause a large demand shift between public and private schooling may cause some private schools to enter or exit the market. We study how the policy effects differ under a fixed versus changing market structure in the context of a publ...

Assortative Matching or Exclusionary Hiring? The Impact of Employment and Pay Policies on Racial Wage Differences in Brazil

By François Gerard, Lorenzo Lagos, Edson Severnini, and David Card

American Economic Review, October 2021

We measure the effects of firm policies on racial pay differences in Brazil. Non-Whites are less likely to be hired by high-wage firms, explaining about 20 percent of the racial wage gap for both genders. Firm-specific pay premiums for non-Whites are also...

Data Watch: Tort-uring the Data

By Eric Helland, Jonathan Klick, and Alexander Tabarrok

Journal of Economic Perspectives, Spring 2005

This article discusses data available for researchers interested in the U.S. civil justice system and illustrates the uses of the various datasets with some interesting findings. Our focus is on torts, defined as an injury to person or property that is no...