Religious Festivals and Economic Development: Evidence from the Timing of Mexican Saint Day Festivals

By Eduardo Montero and Dean Yang

American Economic Review, October 2022

Does variation in how religious festivals are celebrated have economic consequences? We study the economic impacts of the timing of Catholic patron saint day festivals in Mexico. For causal identification, we exploit cross-locality variation in festival d...

Understanding the Soft Budget Constraint

By János Kornai, Eric Maskin, and Géard Roland

Journal of Economic Literature, December 2003

We propose a clarification of the notion of a soft budget constraint, a concept widely used in the analysis of socialist, transitional, and market economies. Our interpretation is broad enough to embrace most existing approaches to soft budget constraint ...

Posterior Separable Cost of Information

By Tommaso Denti

American Economic Review, October 2022

We provide testable conditions under which the cost of acquiring information is given by the expected reduction of a measure of uncertainty (e.g., entropy). The assumption, under the name of posterior separability, is nearly universal in the literature of...

Valid t-Ratio Inference for IV

By David S. Lee, Justin McCrary, Marcelo J. Moreira, and Jack Porter

American Economic Review, October 2022

In the single-IV model, researchers commonly rely on t-ratio-based inference, even though the literature has quantified its potentially severe large-sample distortions. Building on Stock and Yogo (2005), we introduce the tF critical valu...

Credit, Attention, and Externalities in the Adoption of Energy Efficient Technologies by Low-Income Households

By Susanna B. Berkouwer and Joshua T. Dean

American Economic Review, October 2022

We study an energy efficient charcoal cookstove in an experiment with 1,000 households in Nairobi. We estimate a 39 percent reduction in charcoal spending, which matches engineering estimates, generating a 295 percent annual return. Despite fuel savings o...

Demagogues and the Economic Fragility of Democracies

By Dan Bernhardt, Stefan Krasa, and Mehdi Shadmehr

American Economic Review, October 2022

We investigate the susceptibility of democracies to demagogues, studying tensions between representatives who guard voters' long-run interests and demagogues who cater to voters' short-run desires. Parties propose consumption and investment. Voters base c...

Fake News, Voter Overconfidence, and the Quality of Democratic Choice

By Melis Kartal and Jean-Robert Tyran

American Economic Review, October 2022

This paper studies, theoretically and experimentally, the effects of overconfidence and fake news on information aggregation and the quality of democratic choice in a common-interest setting. We theoretically show that overconfidence exacerbates the adver...

Reference Dependence in the Housing Market

By Steffen Andersen, Cristian Badarinza, Lu Liu, Julie Marx, and Tarun Ramadorai

American Economic Review, October 2022

We quantify reference dependence and loss aversion in the housing market using rich Danish administrative data. Our structural model includes loss aversion, reference dependence, financial constraints, and a sale decision, and matches key nonparametric mo...

How Merchant Towns Shaped Parliaments: From the Norman Conquest of England to the Great Reform Act

By Charles Angelucci, Simone Meraglia, and Nico Voigtländer

American Economic Review, October 2022

We study the emergence of urban self-governance in the late medieval period. We focus on England after the Norman Conquest of 1066, building a novel comprehensive dataset of 554 medieval towns. During the Commercial Revolution (twelfth to thirteenth centu...

Front Matter

American Economic Journal: Macroeconomics, October 2022

How Wage Announcements Affect Job Search—A Field Experiment

By Michèle Belot, Philipp Kircher, and Paul Muller

American Economic Journal: Macroeconomics, October 2022

In a field experiment, we study how job seekers respond to posted wages by assigning wages randomly to pairs of otherwise similar vacancies in a large number of professions. Higher wages attract significantly more interest. Still, a nontrivial number of a...

Expectations-Driven Liquidity Traps: Implications for Monetary and Fiscal Policy

By Taisuke Nakata and Sebastian Schmidt

American Economic Journal: Macroeconomics, October 2022

We study optimal time-consistent monetary and fiscal policy in a New Keynesian model where occasional declines in agents' confidence give rise to persistent liquidity trap episodes. Insights from widely studied fundamental-driven liquidity traps are not a...

The Economic Design of Sporting Contests

By Stefan Szymanski

Journal of Economic Literature, December 2003

This paper reviews the literature on commercial sport through the lens of the economic theory of contests/tournaments. It seeks to draw together research on incentives in individualistic sports such as golf and footraces with the research on uncertainty o...

Mind the Gap! Stylized Dynamic Facts and Structural Models

By Fabio Canova and Filippo Ferroni

American Economic Journal: Macroeconomics, October 2022

We study what happens to identified shocks and to dynamic responses when the data generating process features q disturbances but q1 < q variables are used in an empirical model. Identified shocks are linear combinations of current and past valu...

Age Structure and the Impact of Monetary Policy

By John V. Leahy and Aditi Thapar

American Economic Journal: Macroeconomics, October 2022

We exploit cross-sectional variation in the response of US states to an identified monetary policy shock to study how the impact of monetary policy varies with the age structure of the population. We find that the economy's response is weaker the greater ...

Short-Term Planning, Monetary Policy, and Macroeconomic Persistence

By Christopher Gust, Edward Herbst, and David López-Salido

American Economic Journal: Macroeconomics, October 2022

We estimate a behavioral New Keynesian (NK) model in which households and firms plan over a finite horizon. The finite-horizon planning (FHP) model outperforms rational expectations versions of the NK model as well as other behavioral NK models. In the FH...

News Shocks under Financial Frictions

By Christoph Görtz, John D. Tsoukalas, and Francesco Zanetti

American Economic Journal: Macroeconomics, October 2022

We examine the dynamic effects of TFP news shocks in the context of frictions in financial markets. We document two new facts. First, a shock to future TFP generates a significant decline in credit spread indicators along with a robust improvement in cred...

Fiscal Rules and the Sovereign Default Premium

By Juan Carlos Hatchondo, Leonardo Martinez, and Francisco Roch

American Economic Journal: Macroeconomics, October 2022

We study fiscal rules using a sovereign default model. A debt-brake (spread-brake) rule imposes a ceiling on the fiscal deficit when the sovereign debt (spread) is above a threshold. For our benchmark calibration, similar gains can be achieved with the op...

Distortions and the Structure of the World Economy

By Lorenzo Caliendo, Fernando Parro, and Aleh Tsyvinski

American Economic Journal: Macroeconomics, October 2022

We model the world economy as one system of endogenous input-output relationships subject to frictions and study how the world's input-output structure and world's GDP change due to changes in frictions. We derive a sufficient statistic to identify fricti...

Monetary Policy and Liquidity Constraints: Evidence from the Euro Area

By Mattias Almgren, José-Elías Gallegos, John Kramer, and Ricardo Lima

American Economic Journal: Macroeconomics, October 2022

We quantify the relationship between the response of output to monetary policy shocks and the share of liquidity-constrained households. We do so in the context of the euro area, using a Local Projections Instrumental Variables estimation. We construct an...