Ethnic Attrition and the Observed Health of Later-Generation Mexican Americans

By Francisca Antman, Brian Duncan, and Stephen J. Trejo

American Economic Review, May 2016

Numerous studies find that U.S.-born Hispanics differ significantly from non-Hispanic whites on important measures of human capital, including health. Nevertheless, almost all studies rely on subjective measures of ethnic self-identification to identify i...

HIV/AIDS and Development: A Reappraisal of the Productivity and Factor Accumulation Effects

By Théophile T. Azomahou, Raouf Boucekkine, and Bity Diene

American Economic Review, May 2016

We build an economico-epidemiological Solow-Swan model. Mortality and morbidity effects on effective labor are taken into account. A Ben-Porath-like mechanism affects the dynamics of the saving rate and reduces labor productivity. Based on optimal project...

LEP Language Disability, Immigration Reform, and English-Language Acquisition

By Alberto Dávila and Marie T. Mora

American Economic Review, May 2016

Policy might partly shape the English-language acquisition of Hispanics migrating to the U.S. mainland, particularly policies related to limited-English-language disability benefits and immigration reform. Using data from the American Community Survey, we...

On the Optimal Inflation Rate

By Markus K. Brunnermeier and Yuliy Sannikov

American Economic Review, May 2016

In our incomplete markets economy households choose portfolios consisting of risky (uninsurable) capital and money. Money is a bubble, it has positive value even though it yields no payoff. The market outcome is constrained Pareto inefficient due to a pec...

Sooner or Later: Timing of Monetary Policy with Heterogeneous Risk-Taking

By Dong Beom Choi, Thomas M. Eisenbach, and Tanju Yorulmazer

American Economic Review, May 2016

We analyze the effects and interactions of monetary policy tools that differ in terms of their timing and their targeting. In a model with heterogeneous agents, more productive agents endogenously expose themselves to higher interim liquidity risk by borr...

Money and Asset Liquidity in Frictional Capital Markets

By Wei Cui and Sören Radde

American Economic Review, May 2016

We endogenize asset liquidity and financing constraints in a dynamic general equilibrium model with search frictions on capital markets. Assets traded on frictional capital markets are only partially saleable. Liquid assets, such as fiat money, instead, a...

Secular Stagnation in the Open Economy

By Gauti B. Eggertsson, Neil R. Mehrotra, and Lawrence H. Summers

American Economic Review, May 2016

Conditions of secular stagnation--low interest rates, below target inflation, and sluggish output growth--now characterize much of the global economy. We consider a simple two-country textbook model to examine how capital markets transmit secular stagnati...

The Sovereign-Bank Diabolic Loop and ESBies

By Markus K. Brunnermeier, Luis Garicano, Philip R. Lane, Marco Pagano, Ricardo Reis, Tano Santos, David Thesmar, Stijn Van Nieuwerburgh, and Dimitri Vayanos

American Economic Review, May 2016

We propose a simple model of the sovereign-bank diabolic loop, and establish four results. First, the diabolic loop can be avoided by restricting banks' domestic sovereign exposures relative to their equity. Second, equity requirements can be lowered if b...

Safe Asset Scarcity and Aggregate Demand

By Ricardo J. Caballero, Emmanuel Farhi, and Pierre-Olivier Gourinchas

American Economic Review, May 2016

We explore the consequences of safe asset scarcity on aggregate demand in a stylized IS-LM/Mundell Fleming style environment. Acute safe asset scarcity forces the economy into a "safety trap" recession. In the open economy, safe asset scarcity spreads fro...

What Makes US Government Bonds Safe Assets?

By Zhiguo He, Arvind Krishnamurthy, and Konstantin Milbradt

American Economic Review, May 2016

US government bonds are considered to be the world's safe store of value, especially during periods of economic turmoil such as the events of 2008. But what makes US government bonds "safe assets"? We highlight coordination among investors, and build a mo...

Crises and the Development of Economic Institutions: Some Microeconomic Evidence

By Raghuram Rajan and Rodney Ramcharan

American Economic Review, May 2016

This paper studies the long run effects of financial crises using new bank and town level data from around the Great Depression. We find evidence that banking markets became much more concentrated in areas that experienced a greater initial collapse in th...

Too Big to Fail before the Fed

By Gary Gorton and Ellis W. Tallman

American Economic Review, May 2016

"Too-big-to-fail" is consistent with policies followed by private bank clearing houses during financial crises in the U.S. National Banking Era prior to the existence of the Federal Reserve System. Private bank clearing houses provided emergency lending t...

Interbank Markets and Banking Crises: New Evidence on the Establishment and Impact of the Federal Reserve

By Mark Carlson and David C. Wheelock

American Economic Review, May 2016

This paper examines the impact of the Federal Reserve's founding on seasonal pressures and contagion risk in the interbank system. Deposit flows among classes of banks were highly seasonal before 1914; amplitude and timing varied regionally. Panics interr...

Bank Leverage and Regulatory Regimes: Evidence from the Great Depression and Great Recession

By Christoffer Koch, Gary Richardson, and Patrick Van Horn

American Economic Review, May 2016

In the boom before the Great Depression, capital requirements for commercial banks were low and fixed. Bankers faced double liability. Failing banks were not bailed out. During the boom before the Great Recession, capital requirements were proportional to...

A Simple Model of Subprime Borrowers and Credit Growth

By Alejandro Justiniano, Giorgio E. Primiceri, and Andrea Tambalotti

American Economic Review, May 2016

The surge in credit and house prices that preceded the Great Recession was particularly pronounced in ZIP codes with a higher fraction of subprime borrowers (Mian and Sufi, 2009). We present a simple model with prime and subprime borrowers distributed acr...

Debt Constraints and the Labor Wedge

By Patrick Kehoe, Virgiliu Midrigan, and Elena Pastorino

American Economic Review, May 2016

Changes in household debt and employment across regions of the U.S. during the Great Recession are highly correlated: regions where the decrease in household debt was most pronounced were also regions where the decline in employment was most severe. We sh...

Anticipated Banking Panics

By Mark Gertler, Nobuhiro Kiyotaki, and Andrea Prestipino

American Economic Review, May 2016

We develop a macroeconomic model with banking instability. Sunspot runs can arise that are harmful to the economy. However, whether a run equilibrium exists depends on fundamentals. In contrast to earlier work, the probability of a sunspot run is the outc...

Bank Leverage and Social Welfare

By Lawrence Christiano and Daisuke Ikeda

American Economic Review, May 2016

We describe a general equilibrium model in which an agency problem arises because bankers must exert an unobserved and costly effort to perform their task. Suppose aggregate banker net worth is too low to insulate creditors from bad outcomes on their bala...

Capital Flows: Expansionary or Contractionary?

By Olivier Blanchard, Jonathan D. Ostry, Atish R. Ghosh, and Marcos Chamon

American Economic Review, May 2016

The workhorse open-economy macro model suggests that capital inflows are contractionary because they appreciate the currency and reduce net exports. Emerging market policy makers, however, believe that inflows lead to credit booms and rising output; the e...

The Macroprudential Role of International Reserves

By Olivier Jeanne

American Economic Review, May 2016

There has been a lot of interest since the global financial crisis in policies allowing emerging market economies to smooth the effects of the global financial cycle. Although the literature has focused mostly on capital controls emerging market governmen...