Effects of Fiscal Stimulus in Structural Models

By Günter Coenen, Christopher J. Erceg, Charles Freedman, Davide Furceri, Michael Kumhof, René Lalonde, Douglas Laxton, Jesper Lindé, Annabelle Mourougane, Dirk Muir, Susanna Mursula, Carlos de Resende, John Roberts, Werner Roeger, Stephen Snudden, Mathias Trabandt, and Jan in't Veld

American Economic Journal: Macroeconomics, January 2012

The paper subjects seven structural DSGE models, all used heavily by policymaking institutions, to discretionary fiscal stimulus shocks using seven different fiscal instruments, and compares the results to those of two prominent academic DSGE models. Th...

How Does the US Government Finance Fiscal Shocks?

By Antje Berndt, Hanno Lustig, and Şevin Yeltekin

American Economic Journal: Macroeconomics, January 2012

We develop a method for identifying and quantifying the fiscal channels that help finance government spending shocks. We define fiscal shocks as surprises in defense spending and show that they are more precisely identified when defense stock data are use...

The Bond Premium in a DSGE Model with Long-Run Real and Nominal Risks

By Glenn D. Rudebusch and Eric T. Swanson

American Economic Journal: Macroeconomics, January 2012

The term premium in standard macroeconomic DSGE models is far too small and stable relative to the data—an example of the "bond premium puzzle." However, in endowment economy models, researchers have generated reasonable term premiums by assuming in...

International Portfolio Allocation under Model Uncertainty

By Pierpaolo Benigno and Salvatore Nisticò

American Economic Journal: Macroeconomics, January 2012

This paper revisits an old argument, hedging real exchange rate risk, as an explanation of the international home bias in equity. In a dynamic model, the relevant risk to be hedged is the long-run risk as opposed to the short-run risk. Domestic equity is ...

Tranching, CDS, and Asset Prices: How Financial Innovation Can Cause Bubbles and Crashes

By Ana Fostel and John Geanakoplos

American Economic Journal: Macroeconomics, January 2012

We show how the timing of financial innovation might have contributed to the mortgage bubble and then to the crash of 2007-2009. We show why tranching and leverage first raised asset prices and why CDS lowered them afterward. This may seem puzzling, since...

Stories of the Twentieth Century for the Twenty-First

By Pierre-Olivier Gourinchas and Maurice Obstfeld

American Economic Journal: Macroeconomics, January 2012

A key precursor of twentieth-century financial crises in emerging and advanced economies alike was the rapid buildup of leverage. Those emerging economies that avoided leverage booms during the 2000s also were most likely to avoid the worst effects of the...

The Optimal Conduct of Monetary Policy with Interest on Reserves

By Anil K. Kashyap and Jeremy C. Stein

American Economic Journal: Macroeconomics, January 2012

In a world with interest on reserves, the central bank has two distinct tools that it can use to raise the short-term policy rate: it can either increase the interest it pays on reserve balances, or it can reduce the quantity of reserves in the system. We...

Corrigendum: Emerging Market Currency Excess Returns

By Stephen Gilmore and Fumio Hayashi

American Economic Journal: Macroeconomics, January 2012

Front Matter

American Economic Journal: Economic Policy, February 2012

The Effect of Health Insurance Coverage on the Use of Medical Services

By Michael Anderson, Carlos Dobkin, and Tal Gross

American Economic Journal: Economic Policy, February 2012

Substantial uncertainty exists regarding the causal effect of health insurance on the utilization of care. We exploit a sharp change in insurance coverage rates that results from young adults "aging out" of their parents' insurance plans to estimate the ...

Regulation, Ownership, and Costs: A Historical Perspective from Indian Railways

By Dan Bogart and Latika Chaudhary

American Economic Journal: Economic Policy, February 2012

This paper studies the relationship between operational costs and state ownership in Indian railways between 1874 and 1912. We find the move to state ownership significantly decreased working expenses. The cost declines are not driven by anticipation effe...

Green Infrastructure: The Effects of Urban Rail Transit on Air Quality

By Yihsu Chen and Alexander Whalley

American Economic Journal: Economic Policy, February 2012

The transportation sector is a major source of air pollution worldwide, yet little is known about the effects of transportation infrastructure on air quality. This paper quantifies the effects of one major type of transportation infrastructure—urban...

Sacred Cars? Cost-Effective Regulation of Stationary and Nonstationary Pollution Sources

By Meredith Fowlie, Christopher R. Knittel, and Catherine Wolfram

American Economic Journal: Economic Policy, February 2012

For political and practical reasons, environmental regulations sometimes treat point-source polluters, such as power plants, differently from mobile-source polluters, such as vehicles. This paper measures the extent of this regulatory asymmetry in the cas...

Do Strikes Kill? Evidence from New York State

By Jonathan Gruber and Samuel A. Kleiner

American Economic Journal: Economic Policy, February 2012

Hospitals now represent one of the largest union sectors of the US economy, and there is particular concern about the impact of strikes on patient welfare. We analyze the effects of nurses' strikes in hospitals on patient outcomes in New York State. Contr...

Inertia and Overwithholding: Explaining the Prevalence of Income Tax Refunds

By Damon Jones

American Economic Journal: Economic Policy, February 2012

Over three-quarters of US taxpayers receive income tax refunds, which are effectively zero-interest loans to the government. Previous explanations include precautionary and/or forced savings motives. I present evidence on a third explanation: inertia. I f...

Will There Be Blood? Incentives and Displacement Effects in Pro-social Behavior

By Nicola Lacetera, Mario Macis, and Robert Slonim

American Economic Journal: Economic Policy, February 2012

We present evidence from nearly 14,000 American Red Cross blood drives and from a natural field experiment showing that economic incentives have a positive effect on blood donations without increasing the fraction of donors who are ineligible to donate. T...

Income Taxes, Compensating Differentials, and Occupational Choice: How Taxes Distort the Wage-Amenity Decision

By David Powell and Hui Shan

American Economic Journal: Economic Policy, February 2012

The link between taxes and occupational choices is central for understanding the welfare impacts of income taxes. Just as taxes distort the labor-leisure decision, they may also distort the wage-amenity decision. Yet, there have been few studies on the fu...

Front Matter

American Economic Journal: Microeconomics, February 2012

Observational Learning and Demand for Search Goods

By Kenneth Hendricks, Alan Sorensen, and Thomas Wiseman

American Economic Journal: Microeconomics, February 2012

We develop a model of herds in which consumers observe only the aggregate purchase history, not the complete ordered history of search actions. We show that the purchasing information changes the conditions under which herds can occur for both low- and hi...

Community Structure and Market Outcomes: A Repeated Games-in-Networks Approach

By Itay P. Fainmesser

American Economic Journal: Microeconomics, February 2012

Consider a large market with asymmetric information, in which sellers have the option to "cheat" their buyers, and buyers decide whether to repurchase from different sellers. We model active trade relationships as links in a buyer-seller network and study...