Retirement Security in an Aging Population

By James M. Poterba

American Economic Review, May 2014

Elderly individuals exhibit wide disparities in their sources of income. For those in the bottom half of the income distribution, Social Security is the most important source of support; program changes would directly affect their well-being. Income from ...

Inflation Persistence, the NAIRU, and the Great Recession

By Mark W. Watson

American Economic Review, May 2014

The rate of inflation fell far less over the period 2007-2013 than in the period 1979-1985 despite similar large increases in the unemployment rate. This paper asks why. Possible explanations include a change in the persistence of inflation, changes in NA...

The Natural Rate of Interest and Its Usefulness for Monetary Policy

By Robert Barsky, Alejandro Justiniano, and Leonardo Melosi

American Economic Review, May 2014

We estimate a state-of-the-art DSGE model to study the natural rate of interest in the United States over the last 20 years. The natural rate is highly procyclical, and fell substantially below zero in each of the last three recessions. Although the drop ...

The Future of US Economic Growth

By John G. Fernald and Charles I. Jones

American Economic Review, May 2014

Modern growth theory suggests that more than three-quarters of growth since 1950 reflects rising educational attainment and research intensity. As these transition dynamics fade, US economic growth is likely to slow at some point. However, the rise of Chi...

Recovery from Financial Crises: Evidence from 100 Episodes

By Carmen M. Reinhart and Kenneth S. Rogoff

American Economic Review, May 2014

We examine the evolution of real per capita GDP around 100 systemic banking crises. Part of the costs of these crises owes to the protracted nature of recovery. On average, it takes about 8 years to reach the pre-crisis level of income; the median is abou...

Why Has US Policy Uncertainty Risen since 1960?

By Scott R. Baker, Nicholas Bloom, Brandice Canes-Wrone, Steven J. Davis, and Jonathan Rodden

American Economic Review, May 2014

We consider two classes of explanations for the rise in policy-related economic uncertainty in the United States since 1960. The first stresses growth in government spending, taxes, and regulation. A second stresses increased political polarization and i...

The Role of Policy in the Great Recession and the Weak Recovery

By John B. Taylor

American Economic Review, May 2014

This paper reports on recent research showing that the severe recession of 2007-2009 and the weak recovery have been due to poor economic policies and the failure to implement good policies during the past decade. Monetary policy, fiscal policy, and regul...

Housing Assignment with Restrictions: Theory and Evidence from Stanford University's Campus

By Tim Landvoigt, Monika Piazzesi, and Martin Schneider

American Economic Review, May 2014

This paper studies housing markets where a subset of houses in a restricted area is available exclusively to a subset of "eligible" buyers. An empirical part shows that houses on Stanford campus (available only to faculty) trade at substantial discounts t...

Why Is Housing Finance Still Stuck in Such a Primitive Stage?

By Robert J. Shiller

American Economic Review, May 2014

The institutions for financing owner-occupied housing have not progressed as they should, and the financial innovation that has followed the financial crisis of 2007-2009 has not been focused on improving the risk management of individual homeowners. This...

The Mortgage Mess, the Press, and the Politics of Inattention

By Andrew Caplin and Roy Lowrance

American Economic Review, May 2014

In reviewing the Challenger tragedy, Richard Feynman identified a flawed O-Ring as the proximate cause and NASA's flawed safety culture as a deeper cause. There has been no similar investigation of the mortgage mess, which has been baptized rather than un...

Mandated Risk Retention in Mortgage Securitization: An Economist's View

By Paul Willen

American Economic Review, May 2014

I evaluate the empirical premise and the economic logic of the Dodd-Frank Act's requirement that issuers of asset-backed securities retain credit risk.

Is It Too Late to Bail Out the Troubled Countries in the Eurozone?

By Juan Carlos Conesa and Timothy J. Kehoe

American Economic Review, May 2014

In January 1995, US President Bill Clinton organized a bailout for Mexico that imposed penalty interest rates and induced the Mexican government to reduce its debt, ending the debt crisis. Can the Troika (European Commission, European Central Bank, and In...

Renegotiation Policies in Sovereign Defaults

By Cristina Arellano and Yan Bai

American Economic Review, May 2014

This paper studies an optimal renegotiation protocol designed by a benevolent planner when two countries renegotiate with the same lender. The solution calls for recoveries that induce each country to default or repay, trading off the deadweight costs and...

Sovereign Debt Booms in Monetary Unions

By Mark Aguiar, Manuel Amador, Emmanuel Farhi, and Gita Gopinath

American Economic Review, May 2014

We propose a continuous time model to investigate the impact of inflation credibility on sovereign debt dynamics. At every point in time, an impatient government decides fiscal surplus and inflation, without commitment. Inflation is costly, but reduces th...

The Distribution of Wealth and the MPC: Implications of New European Data

By Christopher D. Carroll, Jiri Slacalek, and Kiichi Tokuoka

American Economic Review, May 2014

Using a standard, realistically calibrated model of buffer-stock saving with transitory and permanent income shocks, we study how cross-country differences in the wealth distribution and household income dynamics affect the marginal propensity to consume ...

Measuring How Fiscal Shocks Affect Durable Spending in Recessions and Expansions

By David Berger and Joseph Vavra

American Economic Review, May 2014

We estimate how durable expenditures respond to government spending shocks at different points in the business cycle using a nonlinear VAR approach that allows for the durable multiplier to vary smoothly with the state of the economy. We find strong evide...

A Tale of Two Stimulus Payments: 2001 versus 2008

By Greg Kaplan and Giovanni L. Violante

American Economic Review, May 2014

Fiscal stimulus payments (i.e., direct lump-sum payments from the government to households) were used in the recessions of 2001 and 2008 in an attempt to simultaneously alleviate households' economic hardship and stimulate aggregate demand. Despite the si...

Consumption Inequality over the Last Half Century: Some Evidence Using the New PSID Consumption Measure

By Orazio Attanasio and Luigi Pistaferri

American Economic Review, May 2014

This paper contributes to the debate regarding trends in consumption inequality in the United States. We present a new measure of consumption inequality based on the redesigned 1999–2011 PSID. We impute consumption to the families observed before 19...

Health, Human Capital, and Life Cycle Labor Supply

By Charles Hokayem and James P. Ziliak

American Economic Review, May 2014

We use new PSID data on consumption and health, along with information on annual sick time, to estimate a structural labor supply model that incorporates a health capital stock with the traditional human capital learning-by-doing model. The estimates show...

Estimates of Annual Consumption Expenditures and Its Major Components in the PSID in Comparison to the CE

By Patricia Andreski, Geng Li, Mehmet Zahid Samancioglu, and Robert Schoeni

American Economic Review, May 2014

Comprehensive data on consumption expenditures have historically not been collected in US longitudinal household surveys. The Panel Study of Income Dynamics (PSID) expanded its expenditure data collection in 1999 and 2005. We examine these new expenditur...