- Melissas, N., and P. Heidhues, "Rational Exuberance," European Economic Review, 6 (2012): 1220-1240.
We study a two-player investment game with information externalities. Necessary and sufficient conditions for a unique switching equilibrium are provided. When public news indicates that the investment opportunity is very profitable, too many types are investing early and investments should therefore be taxed. Conversely, any positive investment tax is suboptimally high if the public information is sufficiently unfavorable.
2. Pratap, S., and C. Urrutia, "Financial Frictions and Total Factor Productivity: Accounting for the Real Effect of Financial Crises," Review of Economic Dynamics, 15-3 (2012): 336-358.
The financial crises or "sudden stops" of the las decade in emerging economies were accompanied by a alarge fall in total factor productivity. In this paper we explore the tole of financial frictions in exacerbating the misallocation of resources and explaining this drop in TFP. We build a dynamic two-sector model of a small open economy with a cash in advance constraint where firms have to finance a part of ther purchase of intermediate goods prior to production. The model is calibrated to the Mexican economy before the 1995 crisis and subject to an unexpected schock to interes rates. The financial friction can generate an endogenous fall in TFP of about 3.5 percent and can explain 74 percent of the observed fall in GDP per worker. Adding a cost of adjunsting labor between the two sectors and sectorial specificity of capital also generates the sectoral patterns of output and resource use observed int the data after the sudden stop. The results highlight, the interaction between interest rates and allocative inefficiencies as an explanation of the real effects of the financial crisis.
3. Celasun, O., Cooper, D., Dagher, J. and R. Giri, "U.S. Household Wealth and Saving: The Micro Story Behind the Macro Dynamics," International Monetary Fund, 5-19 (2012).
Aggregate savings statistics reveal little about the types of households that drove down the U.S. saving rate before the 2008 crisis and its subsequent recovery. Using PSID micro data, this paper demonstrates that households with consistently lower income growth in the years prior to the crisis experienced larger declines in their saving rates and a larger rise in their indebtedness before the crisis, contributing significantly to the dynamics of the mean saving rate. Households with a larger share of total assets in housing and higher debt-to income ratios raised their saving rates more sharply after the crisis, from depressed levels. The findings indicate that groups whose balance sheets were more adversely affected by the housing bust have made limited progress in rebuilding their net worth through active savings, suggesting that in the absence of asset price appreciation these households may wish to save more in the future. International Monetary Fund, Selected Issues Paper for the United States, August 2, 2012.
4. Gutiérrez, E. and P. Suárez-Becerra, "The Relationship between Civil Unions and Fertility in France: Preliminary Evidence," Review of Economics of the Household, 10-1 (2012): 115-132.
This paper explores the relationship between fertility and the introduction of new laws regulating cohabitation, in a context of low fertility and high out of wedlock childbearing. We show that in France, while fertility and marriage rates moved closely together before 1999, since the introduction (in 1999) of the "Pacte Civil de Solidarité" (PACS) - a cohabitation contract less binding than marriage - this relationship is much weaker. Surprisingly, legal unions (defined as marriage plus PACS) and fertility continue to move together after this date. We provide evidence of the relationship between the introduction of PACS and fertility, utilizing the regional variation in the number of PACS per woman (PACS intensity) and the differences in fertility before and after 1999. We show that French Departments with high PACS intensity (excluding Metropolitan Paris). However, they did experience and increase in their fertility levels after the introduction of PACS. This suggests the need to collect better and more detailed data, in order to assess whether the recent increases in French fertility can be partially explained by the availability of PACS.
5. Duersch, P., J. Oechssler, and R.Vadovic, "Sick Pay Provision in Laboratory Labor Markets," European Economic Review,56-1 (2012):1-19.
Sick pay is a common provision in most labor contracts. This paper employs an experimental gift exchange environment to explore two related questions using both managers and undergraduates as subjects. First, do workers reciprocate generous sick pay with higher effort? Second, do firms benefit from offering sick pay? Our main finding is that workers do reciprocate generous sick pay with higher effort. However, firms benefit from offering sick pay in terms of profits only if there is competition among firms for workers. Consequently, competition leads to a higher voluntary provision of sick pay relative to a monopsonistic labor market.
6. Giri, R., "Local Costs of Distribution, International Trade Costs and Micro Evidence on the Law of One Price," Journal of International Economics, 86-1 (2012): 82-100.
This paper connects trade flows to deviations from the law of one price (LOOP) in a structural model of trade and retailing. It accounts for the observed cross-country dispersion in prices of goods, based on retail price survey data, by focusing on two sources of goods market segmentation — (i) international trade costs, and (ii) non-traded input costs of distribution. I find that a multi-sector Ricardian trade model, ala Eaton–Kortum, augmented with a distribution sector, can account for the average price dispersion for a basket of goods fully and generates 70% of the variation in price dispersion across goods within the basket. While tradability of goods is important in explaining the average price dispersion for the basket of goods, distribution costs are important in explaining why, within the basket, some goods show more price dispersion than others.