Benefits from U.S. Monetary Policy Experimentation in the Days of Samuelson and Solow and Lucas

A policy maker knows two models. One implies an exploitable inflation-unemployment trade-off, the other does not. The policy maker's prior probability over the two models is part of his state vector. Bayes' law converts the prior probability into a posterior probability and gives the policy maker an incentive to experiment. For models calibrated to U.S. data through the early 1960s, we compare the outcomes from two Bellman equations. The first tells the policy maker to "experiment and learn." The second tells him to "learn but don't experiment." In this way, we isolate a component of government policy that is due to experimentation and estimate the benefits from intentional experimentation. We interpret the Bellman equation that learns but does not intentionally experiment as an "anticipated utility" model and study how well its outcomes approximate those from the "experiment and learn" Bellman equation. The approximation is good. For our calibrations, the benefits from purposeful experimentation are small because random shocks are big enough to provide ample unintentional experimentation.     

OBESITY AND NUTRIENT CONSUMPTION: A RATIONAL ADDICTION?

Recent research shows that the dramatic rise in obesity in the United States is due more to the overconsumption of unhealthy foods than underactivity. This study tests for an addiction to food nutrients as a potential explanation for the apparent excessive consumption. A random coefficients (mixed) logit model is used to test a multivariate rational addiction model. The results reveal a particularly strong addiction to carbohydrates. The implication of this finding is that price-based policies, sin taxes, or produce subsidies that change the expected future costs and benefits of consuming carbohydrate-intensive foods may be effective in controlling excessive nutrient intake. ( JEL D120, I120, C230)     

Inflation Persistence, Monetary Policy, and the Great Moderation

There is growing evidence that the empirical Phillips curve within the United States has changed significantly since the early 1980s. In particular, inflation persistence has declined sharply. This paper demonstrates that this decline is consistent with a standard dynamic New Keynesian (DNK) model in which: (i) the variability of technology shocks has declined and (ii) the central bank more aggressively responds to inflation.     

Endogenous Group Formation

While the rules governing the formation of groups engaging in collective action may have significant impact on group size and behavior of members, most experiments on public goods have been conducted with the subjects in exogenously fixed groups or of fixed sizes. We study endogenous formation of groups in a public‐goods provision game by allowing subjects to change groups under three sets of rules: free entry/exit, restricted entry with free exit, and free entry with restricted exit. We find that the rules governing entry and exit do have a significant impact on individual behavior and group‐level outcomes.     

How Crashes Develop: Intradaily Volatility and Crash Evolution

This paper explores whether affine models with volatility jumps estimated on intradaily S&P 500 futures data over 1983 to 2008 can capture major daily outliers such as the 1987 stock market crash. Intradaily jumps in futures prices are typically small; self‐exciting but short‐lived volatility spikes capture intradaily and daily returns better. Multifactor models of the evolution of diffusive variance and jump intensities improve fits substantially, including out‐of‐sample over 2009 to 2016. The models capture reasonably well the conditional distributions of daily returns and realized variance outliers, but underpredict realized variance inliers. I also examine option pricing implications.     

Do Household Wealth Shocks Affect Productivity? Evidence from Innovative Workers During the Great Recession

We investigate how the deterioration of household balance sheets affects worker productivity, and in turn economic downturns. Specifically, we compare the output of innovative workers who experienced differential declines in housing wealth during the financial crisis but were employed at the same firm and lived in the same metropolitan area. We find that, following a negative wealth shock, innovative workers become less productive and generate lower economic value for their firms. The reduction in innovative output is not driven by workers switching to less innovative firms or positions. These effects are more pronounced among workers at greater risk of financial distress.     

Robustness and U.S. Monetary Policy Experimentation

We study how a concern for robustness modifies a policymaker's incentive to experiment. A policymaker has a prior over two submodels of inflation‐unemployment dynamics. One submodel implies an exploitable trade‐off, the other does not. Bayes' law gives the policymaker an incentive to experiment. The policymaker fears that both submodels and his prior probability distribution over them are misspecified. We compute decision rules that are robust to misspecifications of each submodel and of the prior distribution over submodels. We compare robust rules to ones that Cogley, Colacito, and Sargent (2007) computed assuming that the models and the prior distribution are correctly specified. We explain how the policymaker's desires to protect against misspecifications of the submodels, on the one hand, and misspecifications of the prior over them, on the other, have different effects on the decision rule.     

Why Do U.S. Firms Hold So Much More Cash than They Used To?

The average cash-to-assets ratio for U.S. industrial firms more than doubles from 1980 to 2006. A measure of the economic importance of this increase is that at the end of the sample period, the average firm can retire all debt obligations with its cash holdings. Cash ratios increase because firms' cash flows become riskier. In addition, firms change: They hold fewer inventories and receivables and are increasingly R&D intensive. While the precautionary motive for cash holdings plays an important role in explaining the increase in cash ratios, we find no consistent evidence that agency conflicts contribute to the increase.     

Expected and reported division of responsibility of household tasks among older wives in two residential settings

Literature on sex roles encompasses numerous studies on the division of responsibility in late-life marriages. Some older wives report that they continue to assume responsibility for mos: household chores and they actually perform most tasks. Other wives claim that following retirement, husbands increase their participation within the household arena. However, the increase tends to be in the level of activity involvement rather than in assuming responsibility for new or non-traditional chores. The trend toward egalitarianism in later life, especially for happy couples, is documented by numerous studies. It appears that while role expectations are less gender-specific among older people, they tend to follow the patterns established during middle-age. However, the research is not conclusive. No analysis has compared different living environments of older couples. A sample (n = 244) or older wives (mean age 72 years) living in two different residential settings were questioned via a mailed survey about their responsibility and behaviours regarding 12 household tasks: cooking meals, washing dishes, doing yard work, washing clothes, maintaining the car, writing letters, scheduling family events, getting or earning money, cleaning house, shopping, undertaking household repairs and making family decisions. High scores suggest a non-traditional approach to sex-role tasks, while low scores suggest egalitarian relationships. The views that wives have of division of responsibility of household tasks is explored: who should take responsibility for tasks and who does the tasks? Variables previously found to influence sex-role beliefs are examined. In particular, relationships between sex roles and marital quality, length of marriage, family income, frequency of interaction with children, residential environment and health are presented.