This appendix contains seven sections. Section A reports results from running regressions of labor earnings on GDP using data from the PSID, for comparison with the results using HRS data in the body of the paper. Section B examines the relationship between family income, aggregate shocks, and risk preferences in the PSID. Section C gives technical details on the Markov Chain Monte Carlo estimation employed in table 1 of the paper and reports the complete parameter estimates for the regressions summarized in that table. Section D reports results when the relationship between earnings and aggregate shocks is estimated with individual-specific coecients rather than common coecients for each risk-tolerance group. Section E reports results comparable to table 1 of the paper and table D.1 of this appendix using only Social Security covered earnings instead of the
combination of Social Security and W-2 earnings. Section F reports robustness checks for tables 2 and 3 of the paper under alternative definitions of the household and the consumption and income variables. Section G reports robustness checks for tables 2 and 3 under an alternative definition of the leisure variable.
Three of the arguments made by Temin (2008) in his review of Great Depressions of the Twentieth Century are demonstrably wrong: that the treatment of the data in the volume is cursory; that the definition of great depressions is too general and, in particular, groups slow growth experiences in Latin America in the 1980s with far more severe great depressions in Europe in the 1930s; and that the book is an advertisement for the real business cycle methodology. Without these three arguments — which are the results of obvious conceptual and arithmetical errors, including copying the wrong column of data from a source — his review says little more than that he does not think it appropriate to apply our dynamic general equilibrium methodology to the study of great depressions, and he does not like the conclusion that we draw: that a successful model of a great depression needs to be able to account for the effects of government policy on productivity.
In 2008, Peter Temin wrote a review of the book that appeared in the Journal of Economic Literature. This staff report and accompanying data file are in response to the review.
Citation for review: Temin, Peter. 2008. "Real Business Cycle Views of the Great Depression and Recent Events: A Review of Timothy J. Kehoe and Edward C. Prescott's Great Depressions of the Twentieth Century." Journal of Economic Literature, 46 (3): 669-84. DOI: https://doi.org/10.1257/jel.46.3.669
This file contains a listing of all banks that existed in the United States between 1784 and 1860 along with their opening and closing dates. Further, if a bank went out of existence, its disposition – whether it closed, failed, or other – is given. For the methodology to obtain beginning and ending dates see Weber, Warren E., “Early State Banks in the United States: How Many Were There and When Did They Exist?” Journal of Economic History, 433–455, June 2006.
Data supporting the chapter "Prosperity and Depression." The file Ely-Sources.xls contains the original data and constructed series used to generate the Tables 1 to 6 and the Figures 1 to 3. Each of the nine objects has its own worksheet in the file. For example the worksheet that contains series used to generate figure 1 in the paper, is entitled Fig 1. In each worksheet, original series are labeled On and constructed series are labeled Cn. Constructed series Cn are obtained from the original and/or other constructed series in the respective worksheet.
In this paper we will consider a simple small open economy with three assets - domestic capital, foreign securities and public debt - to study the government's incentives to devalue and to repay or default the debt. We show that the announcement of a devaluation is anticipated by domestic agents who reduce domestic investments and increase foreign holdings. Once a government devalues, the expectations vanish and the economy recovers its past levels of investment and GDP. However, in a country with international debt denominated in US dollars if a government devalues it requires a higher fraction of GDP to repay its external debt. In consequence, there exists a trade-off between recovering the economy and increasing the future cost of repaying the debt. Our main result is to show that, as devaluation beliefs exists, a devaluation increase government incentives to default and devalue. We calibrate our model to match the decrease in investment of domestic capital, the reduction in production, the increase in trade balance surplus, and the increase in debt levels observed throughout 2001 in Argentina. We show that for a probability of devaluation consistent with the risk premium of the Argentinian Government bonds nominated in dollars issued on April 2001 the external debt of Argentina was in a crisis zone were the government find optimal to default and to devalue.
We estimate the effects of policy distortions on aggregate productivity. Based on a model of plant production and productivity uncertainty and heterogeneity, and using Chilean manufacturing data, we focus on the effect of taxation on the exit behavior of plants. We find that taxes do distort the liquidation decisions of firms, suggesting that policy distortions reduce the extent to which factors are reallocated towards the most productive plants. Our results have important consequences for growth and development, as policies that alter the measure of plants that operate in equilibrium change the short-run response of output to exogenous shocks and the long run level of aggregate TFP. In particular, we find that the amount of productivity lost due to excessive plant shutdowns are very large.
In most developed countries, housing receives preferential tax treatment relative to other assets. In particular (i) the housing services provided by owner-occupied housing (generally referred to as imputed rents) are untaxed and (ii) mortgage interest payments reduce taxable income. The potential economic distortions resulting from the unique treatment of housing may be substantial, especially in light of the fact that residential capital accounts for more than half of the assets in the U.S. In particular, this tax treatment distorts the households' portfolio composition, their saving rates and their tenure choice. In this paper we build a general equilibrium model populated by heterogeneous agents subject to idiosyncratic risk. We use this framework to quantitatively assess the macroeconomic and distributional distortions introduced by this preferential tax treatment. We also study the effects of alternative tax schemes which could correct the current system's bias.