Creator: Kleiner, Morris and Soltas, Evan J. Series: Staff report (Federal Reserve Bank of Minneapolis. Research Department) Number: 590 Abstract:
We assess the welfare consequences of occupational licensing for workers and consumers. We estimate a model of labor market equilibrium in which licensing restricts labor supply but also affects labor demand via worker quality and selection. On the margin of occupations licensed differently between U.S. states, we find that licensing raises wages and hours but reduces employment. We estimate an average welfare loss of 12 percent of occupational surplus. Workers and consumers respectively bear 70 and 30 percent of the incidence. Higher willingness to pay offsets 80 percent of higher prices for consumers, and higher wages compensate workers for 60 percent of the cost of mandated investment in occupation-specific human capital.
Stichwort: Labor supply, Welfare analysis, Human capital, and Occupational licensing Fach: D61 - Allocative Efficiency; Cost-Benefit Analysis, K31 - Labor Law, J24 - Human Capital; Skills; Occupational Choice; Labor Productivity, J38 - Wages, Compensation, and Labor Costs: Public Policy, and J44 - Professional Labor Markets; Occupational Licensing
Creator: Arellano, Cristina, Bai, Yan, Bocola, Luigi, and test Series: Staff report (Federal Reserve Bank of Minneapolis. Research Department) Number: 547 Abstract:
This paper measures the output costs of sovereign risk by combining a sovereign debt model with firm- and bank-level data. In our framework, an increase in sovereign risk lowers the price of government debt and has an adverse impact on banks’ balance sheets, disrupting their ability to finance firms. Importantly, firms are not equally affected by these developments: those that have greater financing needs and borrow from banks that are more exposed to government debt cut their production the most in a debt crisis. We measure the extent of this heterogeneity using Italian data and parameterize the model to match these cross-sectional facts. In counterfactual analysis, we find that heightened sovereign risk was responsible for one-third of the observed output decline during the 2011-2012 crisis in Italy.
Stichwort: Business cycles, Sovereign debt crises, Firm heterogeneity, Financial intermediation, and Micro data Fach: G12 - Asset Pricing; Trading Volume; Bond Interest Rates, F34 - International Lending and Debt Problems, E44 - Financial Markets and the Macroeconomy, and G15 - International Financial Markets
Creator: Luttmer, Erzo G. J. Series: Staff report (Federal Reserve Bank of Minneapolis. Research Department) Number: 585 Abstract:
Most firms begin very small, and large firms are the result of typically decades of persistent growth. This growth can be understood as the result of some form of organization capital accumulation. In the US, the distribution of firm size k has a right tail only slightly thinner than 1/k. This is shown to imply that incumbent firms account for most aggregate organization capital accumulation. And it implies potentially extremely slow aggregate convergence rates. A benchmark model is proposed in which managers can use incumbent organization capital to create new organization capital. Workers are a specific factor for producing consumption, and they require managerial supervision. Through the lens of the model, the aftermath of the Great Recession of 2008 is unsurprising if the events of late 2008 and early 2009 are interpreted as a destruction of organization capital, or as a belief shock that made consumers want to reduce consumption and accumulate more wealth instead.
Stichwort: Business cycles, Zipf's law, Slow recoveries, and Firm size distribution Fach: E32 - Business Fluctuations; Cycles and L11 - Production, Pricing, and Market Structure; Size Distribution of Firms
Creator: Schlegl, Matthias, Trebesch, Christoph, and Wright, Mark L. J. Series: Working paper (Federal Reserve Bank of Minneapolis. Research Department) Number: 759 Abstract:
Sovereign governments owe debt to many foreign creditors and can choose which creditors to favor when making payments. This paper documents the de facto seniority structure of sovereign debt using new data on defaults (missed payments or arrears) and creditor losses in debt restructuring (haircuts). We overturn conventional wisdom by showing that official bilateral (government-to-government) debt is junior, or at least not senior, to private sovereign debt such as bank loans and bonds. Private creditors are typically paid first and lose less than bilateral official creditors. We confirm that multilateral institutions like the IMF and World Bank are senior creditors.
Stichwort: Sovereign default, IMF, International financial architecture, Pecking order, Insolvency, Official debt, Sovereign bonds, Arrears, and Priority Fach: G10 - General Financial Markets: General (includes Measurement and Data), F30 - International Finance: General, F50 - International Relations, National Security, and International Political Economy: General, and F40 - Macroeconomic Aspects of International Trade and Finance: General
Creator: Kehoe, Timothy Jerome, 1953-, Machicado, Carlos Gustavo, and Peres Cajías, José Alejandro, 1982- Series: Staff report (Federal Reserve Bank of Minneapolis. Research Department) Number: 579 Abstract:
After the economic reforms that followed the National Revolution of the 1950s, Bolivia seemed positioned for sustained growth. Indeed, it achieved unprecedented growth from 1960 to 1977. Mistakes in economic policies, especially the rapid accumulation of debt due to persistent deficits and a fixed exchange rate policy during the 1970s, led to a debt crisis that began in 1977. From 1977 to 1986, Bolivia lost almost all the gains in GDP per capita that it had achieved since 1960. In 1986, Bolivia started to grow again, interrupted only by the financial crisis of 1998–2002, which was the result of a drop in the availability of external financing. Bolivia has grown since 2002, but government policies since 2006 are reminiscent of the policies of the 1970s that led to the debt crisis, in particular, the accumulation of external debt and the drop in international reserves due to a de facto fixed exchange rate since 2012.
Stichwort: Fiscal policy, Bolivia, Public enterprises, Monetary policy, and Hyperinflation Fach: H63 - National Debt; Debt Management; Sovereign Debt, E63 - Comparative or Joint Analysis of Fiscal and Monetary Policy; Stabilization; Treasury Policy, E52 - Monetary Policy, and N16 - Economic History: Macroeconomics and Monetary Economics; Industrial Structure; Growth; Fluctuations: Latin America; Caribbean
Creator: Chari, V. V. Series: Staff report (Federal Reserve Bank of Minneapolis. Research Department) Number: 576 Abstract:
This chapter is an introductory essay to the volume Climate Change Economics: The Role of Uncertainty and Risk, edited by V. V. Chari and Robert Litterman. This volume consists of a collection of papers that were presented at "The Next Generation of Economic Models of Climate Change," a conference hosted by the Heller-Hurwicz Economics Institute at the University of Minnesota.
Stichwort: Externalities, Greenhouse gases, and Global warming Fach: G12 - Asset Pricing; Trading Volume; Bond Interest Rates and H41 - Public Goods
Creator: Kehoe, Patrick J., Midrigan, Virgiliu, and Pastorino, Elena Series: Staff report (Federal Reserve Bank of Minneapolis. Research Department) Number: 566 Abstract:
Modern business cycle theory focuses on the study of dynamic stochastic general equilibrium models that generate aggregate fluctuations similar to those experienced by actual economies. We discuss how this theory has evolved from its roots in the early real business cycle models of the late 1970s through the turmoil of the Great Recession four decades later. We document the strikingly different pattern of comovements of macro aggregates during the Great Recession compared to other postwar recessions, especially the 1982 recession. We then show how two versions of the latest generation of real business cycle models can account, respectively, for the aggregate and the cross-regional fluctuations observed in the Great Recession in the United States.
Stichwort: New Keynesian models, Financial frictions, and External validation Fach: E32 - Business Fluctuations; Cycles, E13 - General Aggregative Models: Neoclassical, E52 - Monetary Policy, and E61 - Policy Objectives; Policy Designs and Consistency; Policy Coordination
Creator: Ohanian, Lee E., Restrepo-Echavarria, Paulina, and Wright, Mark L. J. Series: Staff report (Federal Reserve Bank of Minneapolis. Research Department) Number: 563 Abstract:
After World War II, international capital flowed into slow-growing Latin America rather than fast-growing Asia. This is surprising as, everything else equal, fast growth should imply high capital returns. This paper develops a capital flow accounting framework to quantify the role of different factor market distortions in producing these patterns. Surprisingly, we find that distortions in labor markets — rather than domestic or international capital markets — account for the bulk of these flows. Labor market distortions that indirectly depress investment incentives by lowering equilibrium labor supply explain two-thirds of observed flows, while improvement in these distortions over time accounts for much of Asia’s rapid growth.
Stichwort: International capital markets, Domestic capital markets, Capital flows, and Labor markets Fach: J20 - Demand and Supply of Labor: General, E21 - Macroeconomics: Consumption; Saving; Wealth, F41 - Open Economy Macroeconomics, and F21 - International Investment; Long-term Capital Movements
Creator: Luttmer, Erzo G. J. Series: Working paper (Federal Reserve Bank of Minneapolis. Research Department) Number: 748 Abstract:
Most firms begin very small, and large firms are the result of typically decades of persistent growth. This growth can be understood as the result of some form of capital accumulation-organization capital. In the US, the distribution of firm size k has a right tail only slightly thinner than 1/k. This means that most capital accumulation must be accounted for by incumbent fi rms. This paper describes a range of circumstances in which this implies aggregate convergence rates that are only about half of what they are in the standard Cass-Koopmans economy. Through the lens of the models described in this paper, the aftermath of the Great Recession of 2008 is unsurprising if the events of late 2008 and early 2009 are interpreted as a destruction of organization capital.
Stichwort: Slow recoveries, Firm size distribution, Zipf's law, and Business cycles Fach: E32 - Business Fluctuations; Cycles and L11 - Production, Pricing, and Market Structure; Size Distribution of Firms
Creator: Mongey, Simon J. Series: Staff report (Federal Reserve Bank of Minneapolis. Research Department) Number: 558 Abstract:
I propose an equilibrium menu cost model with a continuum of sectors, each consisting of strategically engaged firms. Compared to a model with monopolistically competitive sectors that is calibrated to the same data on good-level price flexibility, the dynamic duopoly model features a smaller inflation response to monetary shocks and output responses that are more than twice as large. The model also implies (i) four times larger welfare losses from nominal rigidities, (ii) smaller menu costs and idiosyncratic shocks are needed to match the data, (iii) a U-shaped relationship between market concentration and price flexibility, for which I find empirical support.
Stichwort: Firm dynamics, Menu costs, Oligopoly, and Monetary policy Fach: L13 - Oligopoly and Other Imperfect Markets, E30 - Prices, Business Fluctuations, and Cycles: General (includes Measurement and Data), E51 - Money Supply; Credit; Money Multipliers, L11 - Production, Pricing, and Market Structure; Size Distribution of Firms, and E39 - Prices, Business Fluctuations, and Cycles: Other