Emerging Market Currency Excess Returns

By Stephen Gilmore and Fumio Hayashi

American Economic Journal: Macroeconomics, October 2011

We consider the excess return from 20 internationally tradable emerging market (EM) currencies against the US dollar. It has two contributions. First, we document stylized facts about EM currencies. EM currencies have provided significant equity-like exce...

Monetary Policy and the Financing of Firms

By Fiorella De Fiore, Pedro Teles, and Oreste Tristani

American Economic Journal: Macroeconomics, October 2011

How should monetary policy respond to changes in financial conditions? We consider a simple model where firms are subject to shocks which may force them to default on their debt. Firms' assets and liabilities are nominal and predetermined. Monetary policy...

Contrasting Trends in Firm Volatility

By David Thesmar and Mathias Thoenig

American Economic Journal: Macroeconomics, October 2011

Over the past decades, the real and financial volatility of listed firms has increased, while the volatility of private firms has decreased. We first provide panel data evidence that, at the firm level, sales and employment volatility are impacted by chan...

Input and Output Inventory Dynamics

By Yi Wen

American Economic Journal: Macroeconomics, October 2011

This paper develops an analytically tractable general equilibrium model of inventory dynamics based on a precautionary stockout-avoidance motive. The model's predictions are broadly consistent with the US business cycle and key features of inventory beha...

Front Matter

American Economic Review, October 2011

Includes: "Martin Shubik: Distinguished Fellow 2010"

Searching and Learning by Trial and Error

By Steven Callander

American Economic Review, October 2011

I study a dynamic model of trial-and-error search in which agents do not have complete knowledge of how choices are mapped into outcomes. Agents learn about the mapping by observing the choices of earlier agents and the outcomes that are realized. The key...

Trends in Quality-Adjusted Skill Premia in the United States, 1960-2000

By Pedro Carneiro and Sokbae Lee

American Economic Review, October 2011

This paper presents new evidence that increases in college enrollment lead to a decline in the average quality of college graduates between 1960 and 2000, resulting in a decrease of 6 percentage points in the college premium. A standard demand and supply...

Nudging Farmers to Use Fertilizer: Theory and Experimental Evidence from Kenya

By Esther Duflo, Michael Kremer, and Jonathan Robinson

American Economic Review, October 2011

We model farmers as facing small fixed costs of purchasing fertilizer and assume some are stochastically present biased and not fully sophisticated about this bias. Such farmers may procrastinate, postponing fertilizer purchases until later periods, when ...

Aggregation and the PPP Puzzle in a Sticky-Price Model

By Carlos Carvalho and Fernanda Nechio

American Economic Review, October 2011

We study the purchasing power parity (PPP) puzzle in a multisector, two-country, sticky-price model. Sectors differ in the extent of price stickiness, leading to heterogeneous sectoral real exchange rate dynamics. Deviations from PPP are more volatile and...

Private Monitoring and Communication in Cartels: Explaining Recent Collusive Practices

By Joseph E. Harrington and Andrzej Skrzypacz

American Economic Review, October 2011

Motivated by recent cartel practices, a stable collusive agreement is characterized when firms' prices and quantities are private information. Conditions are derived whereby an equilibrium exists in which firms truthfully report their sales and then make ...

International Prices, Costs, and Markup Differences

By Gita Gopinath, Pierre-Olivier Gourinchas, Chang-Tai Hsieh, and Nicholas Li

American Economic Review, October 2011

Relative cross-border retail prices, in a common currency, comove closely with the nominal exchange rate. Using product-level prices and wholesale costs from a grocery chain operating in the United States and Canada, we decompose this variation into relat...

The Nature of Credit Constraints and Human Capital

By Lance J. Lochner and Alexander Monge-Naranjo

American Economic Review, October 2011

We develop a human capital model with borrowing constraints explicitly derived from government student loan (GSL) programs and private lending under limited commitment. The model helps explain the persistent strong positive correlation between ability and...

Risk Matters: The Real Effects of Volatility Shocks

By Jesús Fernández-Villaverde, Pablo Guerrón-Quintana, Juan F. Rubio-Ramírez, and Martin Uribe

American Economic Review, October 2011

We show how changes in the volatility of the real interest rate at which small open emerging economies borrow have an important effect on variables like output, consumption, investment, and hours. We start by documenting the strong evidence of time-varyin...

The Potential of Social Identity for Equilibrium Selection

By Roy Chen and Yan Chen

American Economic Review, October 2011

When does a common group identity improve efficiency in coordination games? To answer this question, we propose a group-contingent social preference model and derive conditions under which social identity changes equilibrium selection. We test our predict...

Bayesian Persuasion

By Emir Kamenica and Matthew Gentzkow

American Economic Review, October 2011

When is it possible for one person to persuade another to change her action? We consider a symmetric information model where a sender chooses a signal to reveal to a receiver, who then takes a noncontractible action that affects the welfare of both player...

The Fundamental Law of Road Congestion: Evidence from US Cities

By Gilles Duranton and Matthew A. Turner

American Economic Review, October 2011

We investigate the effect of lane kilometers of roads on vehicle-kilometers traveled (VKT) in US cities. VKT increases proportionately to roadway lane kilometers for interstate highways and probably slightly less rapidly for other types of roads. The sour...

Bid Preference Programs and Participation in Highway Procurement Auctions

By Elena Krasnokutskaya and Katja Seim

American Economic Review, October 2011

We use data from highway procurement auctions subject to California's Small Business Preference program to study the effect of bid preferences on auction outcomes. Our analysis is based on an estimated model of firms' bidding and participation decisions,...

Clearing the Air? The Effects of Gasoline Content Regulation on Air Quality

By Maximilian Auffhammer and Ryan Kellogg

American Economic Review, October 2011

This paper examines whether US gasoline content regulations, which impose substantial costs on consumers, have successfully reduced ozone pollution. We take advantage of spatial and temporal variation in the regulations' implementation to show that federa...

The Chinese Warrants Bubble

By Wei Xiong and Jialin Yu

American Economic Review, October 2011

In 2005-2008, over a dozen put warrants traded in China went so deep out of the money that they were almost certain to expire worthless. Nonetheless, each warrant was traded more than three times each day at substantially inflated prices. This bubble is ...

Estimating Marginal Returns to Education

By Pedro Carneiro, James J. Heckman, and Edward J. Vytlacil

American Economic Review, October 2011

This paper estimates marginal returns to college for individuals induced to enroll in college by different marginal policy changes. The recent instrumental variables literature seeks to estimate this parameter, but in general it does so only under strong ...