Search Results
Journal Article
The Great Depression in the United States from a neoclassical perspective
Can neoclassical theory account for the Great Depression in the United States?both the downturn in output between 1929 and 1933 and the recovery between 1934 and 1939? Yes and no. Given the large real and monetary shocks to the U.S. economy during 1929?33, neoclassical theory does predict a long, deep downturn. However, theory predicts a much different recovery from this downturn than actually occurred. Given the period?s sharp increases in total factor productivity and the money supply and the elimination of deflation and bank failures, theory predicts an extremely rapid recovery that ...
Working Paper
Long-term changes in labor supply and taxes: evidence from OECD countries, 1956-2004
We document large differences in trend changes in hours worked across OECD countries over the period 1956-2004. We then assess the extent to which these changes are consistent with the intratemporal first order condition from the neoclassical growth model. We find large and trending deviations from this condition, and that the model can account for virtually none of the changes in hours worked. We then extend the model to incorporate observed changes in taxes. Our findings suggest that taxes can account for much of the variation in hours worked both over time and across countries.
Journal Article
The Direction of Capital Flows
Little is known about the comparative quantitative importance of international versus domestic market imperfections on international capital flows.
Working Paper
The Impact of Bretton Woods International Capital Controls on the Global Economy and the Value of Geopolitical Stability: A General Equilibrium Analysis
This paper quantifies the positive and normative impacts of Bretton Woods capital controls on global economic activity. It applies a three-region DSGE model consisting of the U.S., Western Europe, and the Rest of the World (ROW) to measure de facto capital controls and analyze their effects. Counterfactual analyses show Bretton Woods controls significantly prevented ROW capital from flowing to the U.S., had large negative welfare effects on the U.S., raised welfare in the ROW, and increased global output. Why did the U.S. support controls, given lower welfare? By keeping capital in the ROW, ...
Working Paper
Foreclosure delay and U.S. unemployment
Through a purely positive lens, we study and document the growing trend of mortgagors who skip mortgage payments as an extra source of "informal" unemployment insurance during the 2007 recession and the subsequent recovery. In a dynamic model, we capture this behavior by treating both delinquency and foreclosure not as one period events, but rather as protracted and potentially reversible episodes that influence job search behavior and wage acceptance decisions. With a relatively conservative parameterization, we find that the observed foreclosure delays increase the unemployment rate by an ...
Report
Pay with Promises or Pay as You Go? Lessons from the Death Spiral of Detroit
As part of compensation, municipal employees typically receive promises of future benefits. Motivated by the recent bankruptcy of Detroit, we develop a model of the equilibrium size of a city and use it to analyze how pay-with-promises schemes interact with city growth. The paper examines the circumstances under which a death spiral arises, where cutbacks of city services and increases in taxes lead to an exodus of residents, compounding financial distress. The model is put to work to analyze issues such as the welfare effects of having cities absorb pension risk and how unions affect the ...
Working Paper
The Consequences of Bretton Woods’ International Capital Controls and the High Value of Geopolitical Stability
This paper quantifies the positive and normative effects of international capital controls on global and regional economic activity under The Bretton Woods international financial system and thereafter. A three region, open economy, DSGE capital flows accounting framework consisting of the U.S., Western Europe, and the Rest of the World, is developed to identify capital controls and quantify their impact. We find these controls had large positive and normative effects by restricting international capital flows. Counterfactual analyses show world output would have been 0.6% higher had there ...
Report
Bad Investments and Missed Opportunities? Postwar Capital Flows to Asia and Latin America
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 ...
Working Paper
The International Consequences of Bretton Woods Capital Controls and the Value of Geopolitical Stability
This paper quantifies the positive and normative effects of capital controls on international economic activity under The Bretton Woods international financial system. We develop a three region world economic model consisting of the U.S., Western Europe, and the Rest of the World. The model allows us to quantify the impact of these controls through an open economy general equilibrium capital flows accounting framework. We find these controls had large effects. Counterfactuals show that world output would have been 6% larger had the controls not been implemented. We show that the controls led ...
Discussion Paper
Who Defaults on Their Mortgage, and Why? Policy Implications for Reducing Mortgage Default
To design mortgage modification policies that successfully stem default and allow borrowers to keep their homes, policymakers need to understand why borrowers default. Is it because they?re truly unable to pay, or are they able to pay but have negative equity? {{p}} New research finds that both motives were important during the Great Recession, but that ability to pay plays the greater role, accounting for over 60 percent of defaults. Moreover, the analysis?which matches borrowers? income, employment, and assets with their mortgage characteristics and payment status?shows that cash-strapped ...