The (Un-) importance of Chapter 7 wealth exemption levels

This paper examines the effects of the Chapter 7 wealth exemption level on welfare, bankruptcy filings, debt, and on asset holdings. I build a heterogeneous agent life cycle model which features uninsurable income and expense shocks. Moreover, households can borrow and save simultaneously. When a borrower defaults on her debt by filing for Chapter 7 bankruptcy, she can keep her assets up to the wealth exemption level. Wealth exemption levels are important for two reasons. First, they explain the extensive and intensive margin of the credit card debt puzzle. Around thirty percent of borrowers, both in the model and in the data, who borrow at high interest rates simultaneously save at low interest rates. However, these borrowers borrow and save only relatively small amounts, a few thousand U.S. Dollars. Second, ignoring the exemption level biases results because it overstates the costs of defaulting. The welfare gains from Chapter 7 compared to the European system, where debt is not discharged, are twice as high when exemption levels are positive compared to when they are ignored. At the same time, wealth exemption levels are unimportant in the sense that they have an impact only at low exemption levels. The effects of increases in the exemption level fade out very quickly. There is no strong positive relationship between exemption levels, which vary across U.S. states, and default rates in the model. This is in contrast to the previous literature, but consistent with the data. The reason is that those borrowers who might default do not own much wealth. Therefore, only very few households are affected by increases in the exemption level.     

All in the best possible taste: Adam Smith and the leaders of fashion

Adam Smith devotes a great deal of attention to the role of fashion in the relationship between the social classes. Smith's general account of fashion is grounded on the transmission of fashion from the rich to the poor. However, when it comes to accounting for the generation of fashion amongst the wealthy class, Smith's account moves away from wealth distinctions and focuses instead on more sophisticated forms of social judgement. This paper examines Smith's general account of fashion between the classes and then identifies the refinements to the account that he provides when he considers the operation of fashion amongst the rich. The paper suggests that the operative distinction among the wealthy is not relative wealth, but rather reputation for taste, and concludes with a discussion of the “man of taste” in Smith's account of fashion.     

International financial integration and risk sharing among countries: A production-based approach

This paper develops a production-based model for analyzing a role of asset trade in pooling risks among countries and provides new evidence for the international consumption-output puzzle and risk sharing among countries. Efficient risk sharing rules among countries are the same as the conditions for full financial integration. Input prices and interest rates as well as technology shocks are found to be the driving variables for cross-country output co-movements. The international correlation puzzle reflects an inability to account for production risk sharing among countries in previous studies. The degree of international risk sharing is substantial relative to earlier estimates, which is largely realized from pooling production risks rather than consumption risks among countries.     

A Fabian paradise or a one-man show? How the interwar Queensland economy seduced two prominent English economists

This article tells how the two British economists Hugh Dalton and Colin Clark, came to regard Queensland in the 1930s as an enviable model of economic development. Both men were Fabian socialists and impressed by Queensland's authoritarian premier and by its array of economic controls. Clark even surrendered a promising career at Cambridge to become an economic advisor there. In turn, Queensland, and a personal spiritual crisis, would propel Clark to discard Fabianism for Distributivism. In the final analysis Queensland's agrarian socialism was not drawn upon Fabian lines but rather impelled by a mix of rural development and electoral pragmatism.     

Analyzing the effects of US monetary policy shocks in dollarized countries

Identifying monetary policy shocks is difficult. Therefore, instead of trying to do this perfectly, this paper exploits a natural setting that reduces the consequences of shock misidentification. It does so by basing conclusions upon the responses of variables in three dollarized countries (Ecuador, El Salvador, and Panama). They import US monetary policy just as genuine US states do, but have the advantage that non-monetary US shocks are not imported perfectly. Consequently, this setting reduces the effects of any mistakenly included non-monetary US shocks, while leaving the effects of true monetary shocks unaffected. Results suggest that prices fall after monetary contractions; output does not show a clear response.     

严复的富国策与亚当·斯密的《国富论》

亚当·斯密的《国富论》对现代经济学产生了极其深远的影响，而严复的译作《原富》也给当时的中国带来了西方最新的思潮，启发了国人的心智。通过比较亚当·斯密的《国富论》原文和严复的译作《原富》，从经济自由主义、反重商主义和最小政府三个方面，研究二者之间的异同点，在更深层次上把握严复对于亚当·斯密观点的传承和发展，从而探究严复的富国策。     

Dissecting the China Puzzle: Asymmetric Liberalization and Cost Distortion

We attempt to explain the China Puzzle, the coexistence of accelerating economic growth, and a worsening growth outlook. The root cause lies in China's unique liberalization approach, that is, the combination of a complete liberalization of product markets and continued distortions in factor markets. Repressed costs of labor, capital, land, and resources artificially raise the profits of production, increase the returns to investment, and improve the international competitiveness of Chinese products. The asymmetric liberalization approach not only promoted economic growth, but also caused structural risks. It also contributed to global imbalances as well as regional integration. Therefore, future reform policies should focus on the liberalization of the factor markets and the elimination of cost distortions.     

The ethics behind efficiency

The normative elements underlying efficiency are more complex than generally portrayed and rely upon ethical frameworks that are generally absent from classroom discussions. Most textbooks, for example, ignore the ethical differences between Pareto efficiency (based on voluntary win-win outcomes) and the modern Kaldor-Hicks efficiency used in public policy assessments (in which winners gain more than losers lose). For the latter to be ethically palatable, society must have in place basic institutions of justice, transparency, and accountability. Normative economics thus requires a pluralist approach that includes considerations of virtue and duty, closer to Adam Smith's Enlightenment conceptions. This surprising finding should embolden economics teachers to engage students with critical thinking problems that are controversial and relevant, and which better prepare students for a complex world.     

Costly external finance and labor market dynamics

We study the role of agency frictions and costly external finance in cyclical labor market dynamics, with a focus on how credit-market frictions may amplify aggregate TFP shocks. The main result is that aggregate TFP shocks lead to large fluctuations of labor market quantities if the model is calibrated to the empirically observed countercyclicality of the finance premium. A financial accelerator mechanism thus amplifies labor market fluctuations by rendering rigidity in real wage dynamics. In contrast, if the finance premium is procyclical, which the model can be parameterized to accommodate, amplification is absent, and labor-market fluctuations display the Shimer (2005) puzzle.