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Atkeson, Andrew; Chari, Varadarajan V.; Kehoe, Patrick J.
doi: 10.1162/qjec.2010.125.1.47pmid: N/A
In standard monetary policy approaches, interest-rate rules often produce indeterminacy. A sophisticated policy approach does not. Sophisticated policies depend on the history of private actions, government policies, and exogenous events and can differ on and off the equilibrium path. They can uniquely implement any desired competitive equilibrium. When interest rates are used along the equilibrium path, implementation requires regime-switching. These results are robust to imperfect information. Our results imply that the Taylor principle is neither necessary nor sufficient for unique implementation. They also provide a direction for empirical work on monetary policy rules and determinacy.
Kopczuk, Wojciech; Saez, Emmanuel; Song, Jae
doi: 10.1162/qjec.2010.125.1.91pmid: N/A
This paper uses Social Security Administration longitudinal earnings micro data since 1937 to analyze the evolution of inequality and mobility in the United States. Annual earnings inequality is U-shaped, decreasing sharply up to 1953 and increasing steadily afterward. Short-term earnings mobility measures are stable over the full period except for a temporary surge during World War II. Virtually all of the increase in the variance in annual (log) earnings since 1970 is due to increase in the variance of permanent earnings (as opposed to transitory earnings). Mobility at the top of the earnings distribution is stable and has not mitigated the dramatic increase in annual earnings concentration since the 1970s. Long-term mobility among all workers has increased since the 1950s but has slightly declined among men. The decrease in the gender earnings gap and the resulting substantial increase in upward mobility over a lifetime for women are the driving force behind the increase in long-term mobility among all workers.
Duarte, Margarida; Restuccia, Diego
doi: 10.1162/qjec.2010.125.1.129pmid: N/A
We investigate the role of sectoral labor productivity in explaining the process of structural transformation—the secular reallocation of labor across sectors—and the time path of aggregate productivity across countries. We measure sectoral labor productivity across countries using a model of the structural transformation. Productivity differences across countries are large in agriculture and services and smaller in manufacturing. Over time, productivity gaps have been substantially reduced in agriculture and industry but not nearly as much in services. These sectoral productivity patterns generate implications in the model that are broadly consistent with the cross-country data. We find that productivity catch-up in industry explains about 50% of the gains in aggregate productivity across countries, whereas low productivity in services and the lack of catch-up explain all the experiences of slowdown, stagnation, and decline observed across countries.
doi: 10.1162/qjec.2010.125.1.175pmid: N/A
Growing concerns over the inadequate achievement of U.S. students have led to proposals to reward good teachers and penalize (or fire) bad ones. The leading method for assessing teacher quality is “value added” modeling (YAM), which decomposes students' test scores into components attributed to student heterogeneity and to teacher quality. Implicit in the VAM approach are strong assumptions about the nature of the educational production function and the assignment of students to classrooms. In this paper, I develop falsification tests for three widely used VAM specifications, based on the idea that future teachers cannot influence students' past achievement. In data from North Carolina, each of the VAMs' exclusion restrictions is dramatically violated. In particular, these models indicate large “effects” of fifth grade teachers on fourth grade test score gains. I also find that conventional measures of individual teachers' value added fade out very quickly and are at best weakly related to long-run effects. I discuss implications for the use of VAMs as personnel tools.
Cellini, Stephanie Riegg; Ferreira, Fernando; Rothstein, Jesse
doi: 10.1162/qjec.2010.125.1.215pmid: N/A
Despite extensive public infrastructure spending, surprisingly little is known about its economic return. In this paper, we estimate the value of school facility investments using housing markets: standard models of local public goods imply that school districts should spend up to the point where marginal increases would have zero effect on local housing prices. Our research design isolates exogenous variation in investments by comparing school districts where referenda on bond issues targeted to fund capital expenditures passed and failed by narrow margins. We extend this traditional regression discontinuity approach to identify the dynamic treatment effects of bond authorization on local housing prices, student achievement, and district composition. Our results indicate that California school districts underinvest in school facilities: passing a referendum causes immediate, sizable increases in home prices, implying a willingness to pay on the part of marginal homebuyers of $1.50 or more for each $1 of capital spending. These effects do not appear to be driven by changes in the income or racial composition of homeowners, and the impact on test scores appears to explain only a small portion of the total housing price effect.
Bertrand, Marianne; Karlan, Dean; Mullainathan, Sendhil; Shafir, Eldar; Zinman, Jonathan
doi: 10.1162/qjec.2010.125.1.263pmid: N/A
Firms spend billions of dollars developing advertising content, yet there is little field evidence on how much or how it affects demand. We analyze a direct mail field experiment in South Africa implemented by a consumer lender that randomized advertising content, loan price, and loan offer deadlines simultaneously. We find that advertising content significantly affects demand. Although it was difficult to predict ex ante which specific advertising features would matter most in this context, the features that do matter have large effects. Showing fewer example loans, not suggesting a particular use for the loan, or including a photo of an attractive woman increases loan demand by about as much as a 25% reduction in the interest rate. The evidence also suggests that advertising content persuades by appealing “peripherally” to intuition rather than reason. Although the advertising content effects point to an important role for persuasion and related psychology, our deadline results do not support the psychological prediction that shorter deadlines may help overcome time-management problems; instead, demand strongly increases with longer deadlines.
Keys, Benjamin J.; Mukherjee, Tanmoy; Seru, Amit; Vig, Vikrant
doi: 10.1162/qjec.2010.125.1.307pmid: N/A
A central question surrounding the current subprime crisis is whether the securitization process reduced the incentives of financial intermediaries to carefully screen borrowers. We examine this issue empirically using data on securitized subprime mortgage loan contracts in the United States. We exploit a specific rule of thumb in the lending market to generate exogenous variation in the ease of securitization and compare the composition and performance of lenders' portfolios around the ad hoc threshold. Conditional on being securitized, the portfolio with greater ease of securitization defaults by around 10%–25% more than a similar risk profile group with a lesser ease of securitization. We conduct additional analyses to rule out differential selection by market participants around the threshold and lenders employing an optimal screening cutoff unrelated to securitization as alternative explanations. The results are confined to loans where intermediaries' screening effort may be relevant and soft information about borrowers determines their creditworthiness. Our findings suggest that existing securitization practices did adversely affect the screening incentives of subprime lenders.
Riboni, Alessandro; Ruge-Murcia, Francisco J.
doi: 10.1162/qjec.2010.125.1.363pmid: N/A
This paper studies the theoretical and empirical implications of monetary policy making by committee under four different voting protocols. The protocols are a consensus model, where a supermajority is required for a policy change; an agenda-setting model, where the chairman controls the agenda; a dictator model, where the chairman has absolute power over the committee; and a simple majority model, where policy is determined by the median member. These protocols give preeminence to different aspects of the actual decision-making process and capture the observed heterogeneity in formal procedures across central banks. The models are estimated by maximum likelihood using interest rate decisions by the committees of five central banks, namely the Bank of Canada, the Bank of England, the European Central Bank, the Swedish Riksbank, and the U.S. Federal Reserve. For all central banks, results indicate that the consensus model fits actual policy decisions better than the alternative models. This suggests that despite institutional differences, committees share unwritten rules and informal procedures that deliver observationally equivalent policy decisions.
doi: 10.1162/qjec.2010.125.1.417pmid: N/A
Residential segregation by jurisdiction generates disparities in public services and education. The distinctive American pattern—in which blacks live in cities and whites in suburbs—was enhanced by a large black migration from the rural South. I show that whites responded to this black influx by leaving cities and rule out an indirect effect on housing prices as a sole cause. I instrument for changes in black population by using local economic conditions to predict black migration from southern states and assigning predicted flows to northern cities according to established settlement patterns. The best causal estimates imply that each black arrival led to 2.7 white departures.
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