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Report
There Is No Excess Volatility Puzzle
We present two valuation models which we use to account for the annual data on price per share and dividends per share for the CRSP Value-Weighted Index from 1929 to 2023. We show that it is a simple matter to account for these data based purely on a model of variation over time in the expected ratio of dividends per share to aggregate consumption under two conditions. First, investors must receive news shocks regarding the expected ratio of dividends per share to aggregate consumption in the long run. Second, the discount rate used to evaluate the impact of this news on the current price per ...
Report
Innovation, firm dynamics, and international trade
We present a general equilibrium model of the response of firms' decisions to operate, innovate, and engage in international trade to a change in the marginal cost of international trade. We find that, although a change in trade costs can have a substantial impact on heterogeneous firms' exit, export, and process innovation decisions, the impact of changes in these decisions on welfare is largely offset by the response of product innovation. Our results suggest that microeconomic evidence on firms' responses to changes in international trade costs may not be informative about the implications ...
Working Paper
Putty-clay capital and energy
We evaluate the ability of models with putty-clay capital and stochastic energy prices to account for the dynamics of energy use and output. Economists have noted a close relationship between changes in the price of energy and changes in output. Moreover, they have documents that this relationship is asymmetric: energy price increases are associated with large output charges while energy prices decreases are associated with small output changes. Finally, following energy price changes, energy use adjusts slowly over time. Standard models with putty-putty capital fail to reproduce the features ...
Report
The advantage of transparency in monetary policy instruments
Monetary policy instruments differ in tightness - how closely they are linked to inflation - and transparency - how easily they can be monitored. Tightness is always desirable in a monetary policy instrument; when is transparency? When a government cannot commit to follow a given policy. We apply this argument to a classic question: Is the exchange rate or the money growth rate the better monetary policy instrument? We show that if the instruments are equally tight and a government cannot commit to a policy, then the exchange rate's greater transparency gives it an advantage as a monetary ...
Report
The Impact of Vaccines and Behavior on U.S. Cumulative Deaths from COVID-19
The CDC reports that 1.13 million Americans have died of COVID-19 through June of 2023. I use a model of the impact over the past three years of vaccines and private and public behavior to mitigate disease transmission during the COVID-19 pandemic in the United States to address two questions. First, holding the strength of the response of behavior to the level of daily deaths from COVID-19 fixed, what was the impact of vaccines on cumulative mortality from COVID-19 up through June 2023? And second, holding the pace of deployment of vaccinations fixed, what would have been the impact of ...
Working Paper
Money, interest rates, and exchange rates with endogenously segmented asset markets
This paper analyzes the effects of money injections on interest rates and exchange rates in a model in which agents must pay a Baumol-Tobin style fixed cost to exchange bonds and money. Asset markets are endogenously segmented because this fixed cost leads agents to trade bonds and money only infrequently. When the government injects money through an open market operation, only those agents that are currently trading absorb these injections. Through their impact on these agents? consumption, these money injections affect real interest rates and real exchange rates. We show that the model ...
Working Paper
The advantage of transparent instruments of monetary policy
A classic question in international economics is whether it is better to use the exchange rate or the money growth rate as the instrument of monetary policy. A common argument is that the exchange rate has a natural advantage since exchange rates provide signals of policymakers? actions that are easier to monitor than those provided by money growth rates. We formalize this argument in a simple model in which the government chooses which instrument it will use to target inflation. In it, the exchange rate is more transparent than the money growth rate in that the exchange rate is easier for ...
Report
Time-varying risk, interest rates, and exchange rates in general equilibrium
Under mild assumptions, the data indicate that fluctuations in nominal interest rate differentials across currencies are primarily fluctuations in time-varying risk. This finding is an immediate implication of the fact that exchange rates are roughly random walks. If most fluctuations in interest differentials are thought to be driven by monetary policy, then the data call for a theory which explains how changes in monetary policy change risk. Here we propose such a theory based on a general equilibrium monetary model with an endogenous source of risk variation - a variable degree of asset ...
Working Paper
Four Stylized Facts about COVID-19
We document four facts about the worldwide COVID-19 pandemic that are relevant for those studying the impact of nonpharmaceutical interventions (NPIs) on COVID-19 transmission. First, across all countries and U.S. states that we study, the growth rates of daily deaths from COVID-19 fell from a wide range of initially high levels to levels close to zero within 20–30 days after each region experienced 25 cumulative deaths. Second, after this initial period, growth rates of daily deaths have hovered around zero or below everywhere in the world. Third, the cross section standard deviation of ...
Working Paper
The transition to a new economy after the Second Industrial Revolution
During the Second Industrial Revolution, 1860?1900, many new technologies, including electricity, were invented. These inventions launched a transition to a new economy, a period of about 70 years of ongoing, rapid technical change. After this revolution began, however, several decades passed before measured productivity growth increased. This delay is paradoxical from the point of view of the standard growth model. Historians hypothesize that this delay was due to the slow diffusion of new technologies among manufacturing plants together with the ongoing learning in plants after the new ...