The Effects of Employment Protection for Obese People

This paper uses a 1993 court case, Cook v. Rhode Island, in conjunction with the implementation of the Americans with Disabilities Act (ADA) to estimate the impact of employment protection on the labor market outcomes of obese people. In Cook, a federal appeals court ruled for the first time that obesity can be covered under the ADA. Using data from 1988 to 1999, I estimate that Cook increased employment for obese women and men relative to those whose weight was in the recommended range on the order of four and two percentage points, respectively. The results provide new evidence that obesity has important labor market implications.     

Debt Dynamics

We develop a dynamic trade‐off model with endogenous choice of leverage, distributions, and real investment in the presence of a graduated corporate income tax, individual taxes on interest and corporate distributions, financial distress costs, and equity flotation costs. We explain several empirical findings inconsistent with the static trade‐off theory. We show there is no target leverage ratio, firms can be savers or heavily levered, leverage is path dependent, leverage is decreasing in lagged liquidity, and leverage varies negatively with an external finance weighted average Q. Using estimates of structural parameters, we find that simulated model moments match data moments.     

Skin in the Game and Moral Hazard

What determines securitization levels, and should they be regulated? To address these questions we develop a model where originators can exert unobservable effort to increase expected asset quality, subsequently having private information regarding quality when selling ABS to rational investors. Absent regulation, originators may signal positive information via junior retentions or commonly adopt low retentions if funding value and price informativeness are high. Effort incentives are below first‐best absent regulation. Optimal regulation promoting originator effort entails a menu of junior retentions or one junior retention with size decreasing in price informativeness. Zero retentions and opacity are optimal among regulations inducing zero effort.     

The Cyclical Behavior of the Price-Cost Markup

A countercyclical markup of price over marginal cost is a key transmission mechanism for demand shocks in New Keynesian (NK) models. This paper reexamines the foundation of those models by studying the cyclicality of the price-cost markup in the private economy. We find that how the markup is measured matters for its unconditional cyclicality. Measures of the markup based on the inverse of the labor share are moderately procyclical, but are moderately countercyclical for some generalizations of the production function. NK models predict that the cyclicality of the markup should vary depending on the nature of the shock. Consistent with the NK model, we find that the markup is procyclical conditional on total factor productivity shocks and countercyclical conditional on investment-specific technology shocks. In contrast, we find that the markup increases in response to a positive demand shock. Thus, the transmission mechanism for the effects of demand shocks in sticky-price NK models is not consistent with the data.     

Income Redistribution,Consumer Credit,and Keeping Up with the Riches

In this study, we set up a dynamic stochastic general equilibrium (DSGE) model with upward looking consumption comparison and show that consumption externalities are an important driver of consumer credit dynamics. Our model economy is populated by two different household types. Investors, who hold the economy's capital stock, own the firms and supply credit, and workers, who supply labor and demand credit to finance consumption. Furthermore, workers condition their consumption choice on the investors' level of consumption. We estimate the model and find a significant keeping up mechanism by matching business cycle statistics. In reproducing credit moments, our proposed model significantly outperforms a model version in which we abstract from consumption externalities.     

CAPITAL FLOWS AND JAPANESE ASSET VOLATILITY

Characterizing asset price volatility is an important goal for financial economists. The literature has shown that variables that proxy for the information arrival process can help explain and/or forecast volatility. Unfortunately, however, obtaining good measures of volume and/or order flow is expensive or difficult in decentralized markets such as foreign exchange. We investigate the extent that Japanese capital flows, which are released weekly, reflect information arrival that improves foreign exchange and equity volatility forecasts. We find that capital flows can help explain transitory shocks to generalized autoregressive conditionally heteroskedastic volatility.     

Wages and Employment: A Framework for Analysis with Application to Three Policy Issues*

This paper surveys recent developments in the theory of employment and wages and describes a framework for policy analysis which recognizes the existence of monopolistic elements in labour markets. Wages are determined by firm-union bargains, firms choose the number of jobs, and workers influence the fraction of jobs that is filled through search. The framework is applied to the analysis of the wage and employment effects of indexation, tax-based incomes policies and profit-sharing.