International Spillover Effects and Monetary Policy Activism

This paper examines how the preferences of a large economy’s central bank affect the trade‐off between output and inflation volatility faced by the central bank of a small open economy by analyzing the impact of a global cost‐push shock. We demonstrate that under the assumption of producer currency pricing, the trade‐off faced by the small open economy is likely to worsen as the foreign central bank becomes more focused on output stabilization relative to inflation stabilization; but the opposite is true in the case of local currency pricing.     

The Federal Home Loan Bank System: The Lender of Next‐to‐Last Resort?

The Federal Home Loan Bank (FHLB) System is a large cooperatively owned government‐sponsored liquidity facility that lends predominately to U.S. depository institutions. This paper documents the significant role played by the FHLB System at the outset of the recent financial crisis and provides evidence on the uses of FHLB funding by member banks and thrifts during that time. We then compare lending activity by the FHLB System and the Federal Reserve during 2007 and 2008, discuss the types of institutions seeking government‐sponsored liquidity at various times, and identify the trade‐offs faced by borrowers eligible to tap liquidity from both facilities.     

Do CEOs Matter? Evidence from Hospitalization Events

Using variation in firms’ exposure to their CEOs resulting from hospitalization, we estimate the effect of chief executive officers (CEOs) on firm policies, holding firm-CEO matches constant. We document three main findings. First, CEOs have a significant effect on profitability and investment. Second, CEO effects are larger for younger CEOs, in growing and family-controlled firms, and in human-capital-intensive industries. Third, CEOs are unique: the hospitalization of other senior executives does not have similar effects on the performance. Overall, our findings demonstrate that CEOs are a key driver of firm performance, which suggests that CEO contingency plans are valuable.     

BOOMING SECTOR AND WAGE EFFECTS: AN EMPIRICAL ANALYSIS ON NORWEGIAN DATA

Within the framework of a segmented labour market model, andunder the assumption of market clearing wages in all sub-markets,this paper analyzes demand and cost-of-living effects whicha booming sector may create. The tests are based on data beforeand after the most intensive building-up period of the Norwegianpetroleum sector The empirical results indicate significantdemand effects for the most petroleum relevant occupations,and also positive cost-of-living effects in areas which areregionally close to this sector Overall there is evidence thatthe Norwegian petroleum sector has caused weak manufacturingperformance     

MATCHING OWN PRICES,RIVALS' PRICES OR BOTH?*

Many retailers promise that they will not be undersold by rivals and extend their promise to include their own future prices. That is, many retailers combine elements of both price‐matching guarantees and retroactive most‐favored‐customer clauses. This is puzzling because the extant literature has shown that each practice independently has the potential to facilitate supracompetitive prices, and thus one might think the two practices are substitutes. In this paper, we show that price‐matching guarantees and most‐favored‐customer clauses complement each other when offered unilaterally by a single firm and can lead to higher prices than either one could have facilitated by itself.     

Private Equity and Long‐Run Investment: The Case of Innovation

A long‐standing controversy is whether leveraged buyouts (LBOs) relieve managers from short‐term pressures from public shareholders, or whether LBO funds themselves sacrifice long‐term growth to boost short‐term performance. We examine one form of long‐run activity, namely, investments in innovation as measured by patenting activity. Based on 472 LBO transactions, we find no evidence that LBOs sacrifice long‐term investments. LBO firm patents are more cited (a proxy for economic importance), show no shifts in the fundamental nature of the research, and become more concentrated in important areas of companies' innovative portfolios.     

Deep Habits

This paper generalizes the standard habit-formation model to an environment in which agents form habits over individual varieties of goods as opposed to over a composite consumption good. We refer to this preference specification as deep habit formation. Under deep habits, the demand function faced by individual producers depends on past sales. This feature is typically assumed ad hoc in customer-market and brand-switching-cost models. A central result of the paper is that deep habits give rise to countercyclical mark-ups, which is in line with the empirical evidence. This result is important, because ad hoc formulations of customer-market and switching-cost models have been criticized for implying procyclical and hence counterfactual mark-up movements. Under deep habits, consumption and wages respond procyclically to government-spending shocks. The paper provides econometric estimates of the parameters pertaining to the deep-habit model.     

How Smart Is Smart Money? A Two‐Sided Matching Model of Venture Capital

I find that companies funded by more experienced VCs are more likely to go public. This follows both from the direct influence of more experienced VCs and from sorting in the market, which leads experienced VCs to invest in better companies. Sorting creates an endogeneity problem, but a structural model based on a two‐sided matching model is able to exploit the characteristics of the other agents in the market to separately identify and estimate influence and sorting. Both effects are found to be significant, with sorting almost twice as important as influence for the difference in IPO rates.     

Economic Incentives,Business Cycles,and Long‐Term Sickness Absence

We investigate long‐term absenteeism in Norway, on the basis of register data covering 8 years and more than two million absence spells. Key findings are that: (1) a tighter labor market yields lower work resumption rates for persons who are absent, and higher relapse rates for persons who have already resumed work; and (2) the work resumption rates increase when sickness benefits are exhausted, but work resumptions at this stage tend to be short‐lived.     

Illiquidity in the Interbank Payment System Following Wide‐Scale Disruptions

We show how the interbank payment system can become illiquid following wide‐scale disruptions. Two forces are at play in such disruptions—operational problems and changes in participants’ behavior. If the disruption is large enough, hits a key geographic area, or hits a “too‐big‐to‐fail” participant, then the smooth processing of payments can break down, and central bank intervention might be required to reestablish the socially efficient equilibrium. The paper provides a theoretical framework to analyze the effects of events such as the September 11 attack. In addition, the model can be reinterpreted to analyze shocks to fundamentals that affect the parameters of the intraday liquidity management game. We demonstrate this by showing how processing behavior changed in response to heightened credit risk at the time of the Lehman Brothers failure.