AEJ: Applied, 5 (1) "Real Wage Inequality," Enrico Moretti
Abstract
While nominal wage differences between skilled and unskilled workers have increased since 1980, college graduates have experienced larger increases in cost of living because they have increasingly concentrated in cities with high cost of housing. Using a city-specific CPI, I find that real wage differences between college and high school graduates have grown significantly less than nominal differences. Changes in the geographical location of different skill groups are to a significant degree driven by city-specific shifts in relative demand. I conclude that the increase in utility differences between skilled and unskilled workers since 1980 is smaller than previously thought based on nominal wage differences.
AEJ: Macro, 5 (3), "Credit Risk and Disaster Risk," François Gourio
Abstract
Credit spreads are large, volatile, and countercyclical, and recent empirical work suggests that risk premia, not expected credit losses, are responsible for these features. Building on the idea that corporate debt, while fairly safe in ordinary recessions, is exposed to economic depressions, this paper embeds a trade-off theory of capital structure into a real business cycle model with a small, exogenously timevarying risk of economic disaster. The model replicates the level, volatility and cyclicality of credit spreads, and variation in the corporate bond risk premium amplifies macroeconomic fluctuations in investment, employment, and GDP.
AEJ: Micro, 4 (1), "Observational Learning and Demand for Search Goods," Kenneth Hendricks, Alan Sorensen and Thomas Wiseman
Abstract
We develop a model of herds in which consumers observe only the aggregate purchase history, not the complete ordered history of search actions. We show that the purchasing information changes the conditions under which herds can occur for both low- and high-quality products. Inferior products are certain to be ignored; high quality products may be ignored, but complete learning may also occur. We obtain closed form solutions for the probabilities of these events and conduct comparative statics. We test the model's predictions using data from an online music market created by Salganik, Dodds, and Watts (2006).
AEJ: Economic Policy, 4 (2),"Measuring the Output Responses to Fiscal Policy," Alan J. Auerbach and Yuriy Gorodnichenko
Abstract
A key issue in current research and policy is the size of fiscal multipliers when the economy is in recession. We provide three insights. First, using regime-switching models, we find large differences in the size of spending multipliers in recessions and expansions with fiscal policy being considerably more effective in recessions than in expansions. Second, we estimate multipliers for more disaggregate spending variables which behave differently relative to aggregate fiscal policy shocks, with military spending having the largest multiplier. Third, we show that controlling for predictable components of fiscal shocks tends to increase the size of the multipliers in recessions.
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