Understanding Post‐Euro Law‐of‐One‐Price Deviations

We put together a unique panel of thousands of good‐level prices before and after the euro to compare the determinants and understand the evolution of goods price dispersion across Europe over time. We find that tradeability and nontraded inputs play a significantly smaller role for cross‐country price dispersion after the adoption of the euro, and for Eurozone economies as compared to European Union ones. We then compare the distributions of law‐of‐one‐price (LOP) deviations over time to understand how the degree of integration across European economies changed after the euro. Our tests reveal that the distributions after the euro are typically significantly different from those before, consistent with a greater degree of integration. Utilizing our unique panel data set to trace the location of individual goods in the distribution of LOP deviations, we ask how the price advantage or disadvantage evident in these price distributions evolves over time, and whether goods characteristics play a role for the persistence of these LOP deviations. LOP deviations for these goods are highly correlated over 5‐ or 10‐ year horizons, and correlations remain significantly high over longer horizons. These correlations are greater for homogeneous as compared to differentiated goods and vary across countries. Finally, for most of these European economies and goods, price advantage is typically revealed to be more persistent than price disadvantage.     

Schooling and the Intergenerational Transmission of Values

We present a model of the evolution of identity via dynamic interaction between the choice of education and the transmission of values in a community from parents to children, when parents care about the preservation of their traditional community values, different from the values of the host society. We compare the educational and socioeconomic outcomes in different scenarios (melting pot versus multiculturalism). If schooling shifts children's identity away from their parents' values, parents may choose lower levels of education for their children, at the cost of reducing their future earnings. We show how this effect can be attenuated and reversed when the school or, indeed, the host society are willing to accommodate the values of the community and/or to adjust to these values; otherwise the community gradually becomes alienated. This approach may be applied to the analysis of temporal changes in values and attitudes in a community of immigrants, as well as ethnic, religious, or other minority groups.     

THE VARIOUS DIMENSIONS OF COMMODITY DEPENDENCE IN AFRICA

This paper considers whether or not the poor performance of many African countries can be ascribed to a dependency on primary commodity exports. This is a multidimensional question which concerns the Prebisch‐Singer Hypothesis, commodity price volatility, the dependence of GDP on exports and the commodity price elasticity of exchange rates (the so‐called Dutch disease problem). To consider these questions, the paper uses data on 39 commodities and ten African countries. It finds that relative to the price of manufactured goods there is a downward secular trend in less than half of the commodity prices considered. Nonetheless, most commodity prices are highly volatile. Furthermore, in the case of half of the countries considered GDP is dependent on exports. However, the paper finds limited evidence for Dutch disease.     

THE IMPORTANCE OF SKILL MEASUREMENT FOR GROWTH ACCOUNTING

In a growth accounting context one usually constructs a quality adjusted index of labor services by aggregating over predefined groups of workers, using the groups' relative wage bills as weights. In this article we suggest a method based on decomposing individual predicted wages into a skill‐related part and a part unrelated to skill, where the former consists of both observed and unobserved components. The predicted wages, associated with individual skill attributes, are sorted and classified into deciles. The median predicted skill‐related wage in each decile is used to construct an alternative skill‐adjusted index of labor services. We find that total factor productivity (TFP) growth decreases significantly when using the latter method. This means that when using the alternative method one explains more of the growth in labor productivity than what a more traditional labor quality adjustment procedure does.     

Your Privacy Is Sealed: Effects of Web Privacy Seals on Trust and Personal Disclosures

Online privacy is an issue of increasing national importance, and voluntary privacy seals provided by third‐party organizations such as TRUSTe and BBBOnline have been proposed as a means of assuring consumer privacy. Few studies have examined privacy seal effects. This study presents results of an online experiment that evaluated consumer response to privacy seals in a naturalistic exposure setting. Findings suggest that privacy seals enhance trust in the Web site and expectations that the site would inform the user of its information practices. While concern for privacy‐threatening information practices had no influence, privacy self‐efficacy, confidence in ability to protect one's privacy, moderated seal effects. Implications for the continued role of privacy seals are discussed.     

Why Don't We Agree? Evidence from a Social Network of Investors

We study sources of investor disagreement using sentiment of investors from a social media investing platform, combined with information on the users' investment approaches (e.g., technical, fundamental). We examine how much of overall disagreement is driven by different information sets versus differential interpretation of information by studying disagreement within and across investment approaches. Overall disagreement is evenly split between both sources of disagreement, but within-group disagreement is more tightly related to trading volume than cross-group disagreement. Although both sources of disagreement are important, our findings suggest that information differences are more important for trading than differences across market approaches.     

SOUTH AFRICA'S TRANSITION TO A CONSOLIDATED BUDGET

The size of South Africa's fiscal stimuli, whether intended or not, has helped to avert negative consequences of the global financial downturn. With the economic cycle turning again, consolidation of deficits and a reduction of the level of debt are again the focus of policymakers. These outcomes are generally achieved by either increasing tax rates or cutting spending (discretionary fiscal policy), whereas an alternative option is to allow automatic stabilisers to consolidate budgets. This study attempts to answer whether cyclical factors or discretionary policy minimise output volatility and which one of the two presents a better policy option regarding uncertainty in real economic recovery. For this purpose, a small open‐economy gap model is built using South African data, where the budget deficit is endogenised by way of a fiscal policy “rule.” Sensitivity analyses and robustness checks are carried out using a structural vector autoregression. Given the estimates of both the automatic stabilisers as well as the components of discretionary fiscal policy, we are able to obtain impact multipliers on output and conduct scenario testing for optimal fiscal policy response towards fiscal consolidation as well as debt sustainability.     

Is Investor Attention for Sale? The Role of Advertising in Financial Markets

Prior research documents capital market benefits of increased investor attention to accounting disclosures and media coverage; however, little is known about how investors and markets respond to attention‐grabbing events that reveal little nonpublic information. We use daily firm advertising data to test how advertisements, which are designed to attract consumers' attention, influence investors' attention and financial markets (i.e., spillover effects). Exploiting the fact that firms often advertise at weekly intervals, we use an instrumental variables approach to provide evidence that print ads, especially in business publications, trigger temporary spikes in investor attention. We further find that trading volume and quoted dollar depths increase on days with ads in a business publication. We contribute to research on how management choices influence firms' information environments, determinants and consequences of investor attention, and consequences of advertising for financial markets.