Economics

CORRECT ORDER OF AUTHORS: Aakash Kalyani, Nicholas Bloom, Marcela Carvalho, Tarek Hassan, Josh Lerner, and Ahmed Tahoun. We identify phrases associated with novel technologies using textual analysis of patents, job postings, and earnings calls, enabling us to identify four stylized facts on the diffusion of jobs relating to new technologies. First, the development of new technologies is geographically highly concentrated, more so even than overall patenting: 56% of the economically most impactful technologies come from just two U.S. locations, Silicon Valley and the Northeast Corridor. Second, as the technologies mature and the number of related jobs grows, hiring spreads geographically. But..

Economists have long struggled to understand why aggregate productivity growth has dropped in recent decades while the number of new patents filed has steadily increased. I offer an explanation for this puzzling divergence: the creativity embodied in US patents has dropped dramatically over time. To separate creative from derivative patents, I develop a novel, text-based measure of patent creativity: the share of technical terminology that did not appear in previous patents. I show that only creative and not derivative patents are associated with significant improvements in firm level productivity. Using the measure, I show that inventors on average file creative patents upon entry, and file..

CORRECT ORDER OF AUTHORS: Fatih Guvenen, Serdar Ozkan, and Rocio Madera. The order of coauthors has been assigned randomly using AEA’s Author Randomization Tool. Recent empirical studies document that the distribution of earnings changes displays substantial deviations from lognormality: in particular, earnings changes are negatively skewed with extremely high kurtosis (long and thick tails), and these non-Gaussian features vary substantially both over the life cycle and with the earnings level of individuals. Furthermore, earnings changes display nonlinear (asymmetric) mean reversion. In this paper, we embed a very rich “benchmark earnings process” that captures these non-Gaussian and..

In 1979, the National Longitudinal Study of Youth 1979 (NLSY79) began following a group of US residents born between 1957 and 1964. It has continued to re-interview these same individuals for more than four decades. Despite this long sampling period, attrition remains modest. This paper shows that after 40 years of data collection, the remaining NLYS79 sample continues to be broadly representative of their national cohorts with regard to key labor market outcomes. For NLSY79 age cohorts, life-cycle profiles of employment, hours worked, and earnings are comparable to those in the Current Population Survey. Moreover, average lifetime earnings over the age range 25 to 55 closely align with the ..

We study the role of international trade risk for food security, the patterns of production and trade across sectors, and its implications for policy. We document that food import dependence across countries is associated with higher food insecurity, particularly in low-income countries. We provide causal evidence on the role of trade risk for food security by exploiting the exogeneity of the Ukraine-Russia war as a major trade disruption limiting access to imports of critical food products. Using micro-level data from Ethiopia, we empirically show that districts relatively more exposed to food imports from the conflict countries experienced a significant increase in food insecurity by consu..

Custom software is distinct from other types of capital in that it is non-rival---once a firm makes an investment in custom software, it can be used simultaneously across its many establishments. Using confidential US Census data, we document that while firms with more establishments are more likely to invest in custom software, they spend less on it as a share of total capital expenditure. We explain these empirical patterns by developing a model that incorporates the non-rivalry of custom software. In the model, firms choose whether to adopt custom software, the intensity of their investment, and their scope, balancing the cost of managing multiple establishments with the increasing return..

Stock prices often react sluggishly to news, producing gradual jumps and jump delays. Econometricians typically treat these sluggish reactions as microstructure effects and settle for a coarse sampling grid to guard against them. Synchronizing mistimed stock returns on a fine sampling grid allows us to better approximate the true common jumps in related stock prices.

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Is the recent rise in markups caused by increased monopoly power or is it a natural consequence of structural change? I show that the rise in aggregate markups has been driven by a reallocation of market share away from non-services to services-producing firms and a faster increase of services’ markups. I develop a two-sector model to assess the sources of the rise in markups, in which the two forces of structural change play opposing roles. On one hand, an increase in the relative productivity of manufacturing leads to a decline of the relative price of manufactured goods and to an increase of the goods markups. On the other hand, the increase in incomes that triggers the rise of the serv..

During the COVID pandemic there were unprecedented shortfalls in immigration. At the same time, during the economic recovery, the labor market was tight, with the number of vacancies per unemployed worker reaching 2.5, more than twice its pre-pandemic average. In this paper, we investigate whether these two trends are linked. We do not find evidence to support the hypothesis that the immigration shortfalls caused the tight labor market for two reasons. First, at the peak, we were missing about 2 million immigrant workers, but this number had largely recovered by February 2022 just as the labor market was becoming tight. Second, states, cities, and industries that were most impacted by the im..

In this paper we develop a block bootstrap approach to out-of-sample inference when real-time data are used to produce forecasts. In particular, we establish its first-order asymptotic validity for West-type (1996) tests of predictive ability in the presence of regular data revisions. This allows the user to conduct asymptotically valid inference without having to estimate the asymptotic variances derived in Clark and McCracken’s (2009) extension of West (1996) when data are subject to revision. Monte Carlo experiments indicate that the bootstrap can provide satisfactory finite sample size and power even in modest sample sizes. We conclude with an application to inflation forecasting that ..

The 1994-95 Fed tightening episode was one of the most notable in the Fed’s history. First, the FOMC raised the policy rate by 300 basis points in a year, even though headline and core inflation were trending lower prior to the liftoff that occurred in February 1994. Second, the Fed’s actions caught the Treasury market by surprise, triggering a sharp decline in long-term bond prices. Third, Fed Chair Alan Greenspan and the Federal Open Market Committee were regularly surprised that inflation was not rising by more than the forecasts suggested during the episode. This article presents some evidence that the Greenbook forecast systemically, albeit modestly, overpredicted CPI inflation duri..

We build a stylized model that captures the relationships between cross-border patenting, globalization, and development. Our theory delivers a gravity equation for cross-border patents. To test the model’s predictions, we compile a new dataset that tracks patents within and between countries and industries, for 1980-2019. The econometric analysis reveals a strong, positive impact of policy and globalization on cross-border patent flows, especially from North to South. A counterfactual welfare analysis suggests that the increase in patent flows from North to South has benefited both regions, with South gaining more than North post-2000, thus lowering real income inequality in the world.

As a result of the BoJ's large-scale asset purchases, the consolidated Japanese government borrows mostly at the floating rate from households and invests in longer-duration risky assets to earn an extra 3% of GDP. We quantify the impact of Japan's low-rate policies on its government and households. Because of the duration mismatch on the government balance sheet, the government's fiscal space expands when real rates decline, allowing the government to keep its promises to older Japanese households. A typical younger Japanese household does not have enough duration in its portfolio to continue to finance its spending plan and will be worse off. Low-rate policies tax younger, p..

We present a ranking of journals geared toward measuring the policy relevance of research. We compute simple impact factors that count only citations made in central bank publications, such as their working paper series. Whereas this ranking confirms the policy relevance of the major general interest journals in the field of economics, the major finance journals fare less favourably. Journals specialising in monetary economics, international economics and financial intermediation feature highly, but surprisingly not those specialising in econometrics. The ranking is topped by the Brookings Papers on Economic Activity, followed by the Quarterly Journal of Economics and the Journal of Monetary..

We calculate impulse response functions from regime-switching models where the driving variable can respond to the shock. Two methods used to estimate the impulse responses in these models are generalized impulse response functions and local projections. Local projections depend on the observed switches in the data, while generalized impulse response functions rely on correctly specifying regime process. Using Monte Carlos with different misspecifications, we determine under what conditions either method is preferred. We then extend model-average impulse responses to this nonlinear environment and show that they generally perform better than either generalized impulse response functions and ..

Using administrative data from Canada that is unique in providing information on the underlying reasons for and timing of job separations, we document that only 25 percent of mass-layoff separations, as identified through existing methods, are actual layoffs. We uncover significant differences in earnings and employer premium dynamics following layoffs and quits during mass layoffs. We also show that employers undergoing mass layoffs already experience substantial employment contractions prior to the mass layoffs, especially due to early quits. We find that employers lay off less productive workers first, but workers who quit before the mass layoff are not more productive.

This paper investigates patterns in real wage growth in 2022 to determine whether wages have kept up with rising price levels, and how this differs among labor market participants. Using the CPS for wages and imputing expenditure data from the CEX, we measure separately nominal wage growth and inflation rates at the micro level. We find that there is more heterogeneity in the former, meaning that when we combine them, an individual’s real wage growth is primarily driven by their nominal wage growth. In 2022, 57% of individuals experienced negative real wage growth, with older and less educated workers, as well as job-stayers, being hit the hardest. Conversely, younger and highly educated w..

We study the multidimensional sorting of males and females in the U.S. marriage market over the past decade using a model of targeted search. We find strong vertical sorting on income and education, and horizontal sorting on race. We find that women put significant effort into targeting men at the top of the desirability scale, while men put less effort and target women with similar characteristics. We find no improvement in quality of matching and no noticeable changes in sorting patterns or individual search behavior, despite rapid improvement in search technology. Finally, we find that targeted search substantially reduces income inequality across married couples, even when compared with ..

This paper studies differences in health care usage and health outcomes between low- and high-income individuals. Using data from the Medical Expenditure Panel Survey (MEPS) I find that early in life the rich spend significantly more on health care, whereas from midway through life until very old age the medical spending of the poor dramatically exceeds that of the rich. In addition, low-income individuals are less likely to incur any medical expenditures in a given year, yet, when they do incur medical expenditures, the amounts are more likely to be extreme. To account for these facts, I develop and estimate a life-cycle model of two distinct types of health capital: preventive and physical..

We study a simple model where a single good can be produced using a diminishing-returns technology (Malthus) and a constant-returns technology (Solow). The economy's output exhibits three stages: (i) stagnation; (ii) transition with increasing growth; (iii) constant growth in the long run. We map the Malthus technology to agriculture and show that the share of employment in agriculture is sufficient to determine both the onset of economic transition and the dynamics of output during the transition. Using 20th century data on agricultural share of employment, we project backward and estimate the onset of transition for the U.S., Western Europe, and India. We then show that the model'..

Many prominent studies in macroeconomics, labor, and trade use panel data on regions to identify the local effects of aggregate shocks. These studies construct regional-exposure instruments as an observed aggregate shock times an observed regional exposure to that shock. We argue that the most economically plausible source of identification in these settings is uncorrelatedness of observed and unobserved aggregate shocks. Even when the regression estimator is consistent, we show that inference is complicated by cross-regional residual correlations induced by unobserved aggregate shocks. We suggest two-way clustering, two-way heteroskedasticity- and autocorrelation-consistent standard errors,..

We investigate whether the losses from an increase in trade costs (protectionism) are equal to the gains from a symmetric decrease in trade costs (liberalization). We incorporate dynamics through capital accumulation into a standard Armington trade model and show that the welfare changes are asymmetric: Losses from protectionism are smaller than the gains from liberalization. In contrast, standard static trade models imply that the losses equal the gains. The intuition for asymmetry in our model is that, following protectionism, the economy can coast off of previously accumulated capital stock, so higher trade costs do not imply large losses immediately. We develop an accounting device to de..

We investigate the role financial conditions play in the composition of U.S. growth-at-risk. We document that, by a wide margin, growth-at-risk is investment-at-risk. That is, if financial conditions indicate U.S. real GDP growth will be in the lower tail of its conditional distribution, we know that the main contributor is a decline in investment. Consumption contributes under extreme financial stress. Government spending and net exports do not play a role.

We explore the ability of Large Language Models (LLMs) to produce conditional inflation forecasts during the 2019-2023 period. We use a leading LLM (Google AI's PaLM) to produce distributions of conditional forecasts at different horizons and compare these forecasts to those of a leading source, the Survey of Professional Forecasters (SPF). We find that LLM forecasts generate lower mean-squared errors overall in most years, and at almost all horizons. LLM forecasts exhibit slower reversion to the 2% inflation anchor. We argue that this method of generating forecasts is inexpensive and can be applied to other time series.

We develop a new framework to measure market-wide (systemic) tail risk in the cross-section of high-frequency stock returns. We estimate the time-varying jump intensities of asset prices and introduce a testing approach that identifies multi-asset tail risk based on the release times of scheduled news announcements. Using high-frequency data on individual U.S. stocks and sector-specific ETF portfolios, we find that most of the FOMC announcements create systemic left tail risk, but there is no evidence that macro announcements do so. The magnitude of the tail risk induced by Fed news varies over the business cycle, peaks during the global financial crisis and remains high over different phase..

We estimate the local, spillover and aggregate causal effects of government transfers on personal income. We identify exogenous changes in federal transfers to residents at the state-level using legislated social security cost-of-living adjustments between 1952 and 1974. Each effect is measured as a multiplier: the change in personal income in response to a one unit change in transfers. The local multiplier, i.e., the effect of own-state transfers on own-state income holding fixed other state's income, at a four-quarter horizon is approximately 3.4. The cross-state spillover multiplier is about -0.7, but not statistically different from zero. The aggregate multiplier, i.e., the sum of i..

The paper presents a two-country model in which a destination country chooses its immigration quota and proactive counterterrorism actions in response to immigration from a terror-plagued source country. After the destination country fixes its two policies, immigrants decide between supplying labor or conducting terrorist attacks, which helps determine equilibrium labor supply and wages. The analysis accounts for the marginal disutility of lost rights/freedoms stemming from stricter counterterror measures as well the inherent radicalization of migrants. Comparative statics involve changes to those two parameters. For example, an enhanced importance attached to lost rights is shown to limit i..

In the design of an optimal tax-transfer system, there are two complementary conventional wisdoms: the labor-efficiency argument and the debt-efficiency argument. The former emphasizes the trade-off between redistribution and distortions in the labor market, while the latter emphasizes the trade-off between gains from monopoly rents and distortions in the asset market. We use an analytically tractable infinite-horizon model with both ex-ante and ex-post heterogeneity to show that neither argument is complete in the design of the tax-transfer system. Instead, in Aiyagari-type models the optimal system should be determined at the point where the intertemporal wedge between the market interest ..

The U.S. labor force participation rate (LFPR) experienced a record drop during the early pandemic. While it has since recovered to 62.2% as of December 2022, it was still 1.41 pp below its pre-pandemic peak. This gap is explained mostly by a permanent decline in the LFPR for workers older than 55. This paper argues that wealth effects driven by the historically high returns in major asset classes such as stocks and housing may have influenced these trends. Combining an estimated model of wealth effects on labor supply with micro data on balance sheet composition, we show that changes in net worth caused by realized returns explain half of the drop in LFPR in the 2020-21 period and over 80% ..