Slow Recoveries: A Structural Interpretation

An analysis of the performance of GDP, employment, and other labor market variables following the troughs in postwar U.S. business cycles points to much slower recoveries in the three most recent episodes, but does not reveal any significant change over time in the relation between GDP and employment. This leads us to characterize the last three episodes as slow recoveries, as opposed to jobless recoveries. We use the estimated New Keynesian model in Galí, Smets, and Wouters (2011) to provide a structural interpretation for the slower recoveries since the early nineties.     

The Effective Protection Rate Under Uncertainty: A Note*

This note presents a measure of the effective protection rate in a general equilibrium model under uncertainty where a stock market exists and international trade in securities takes place. Real equity prices replace the final commodity prices since, in the presence of uncertainty, resource allocation and therefore the output of each industry is governed by real equity prices. Using expected utility as a welfare criterion, it is shown that second-best optimum can be achieved by a tariff on the intermediate good at a rate given by setting the new measure to zero. This note provides the theoretical foundations to the measure estimated by Eldor (1984).     

Good News for Value Stocks: Further Evidence on Market Efficiency

This article examines the hypothesis that the superior return to so-called value stocks is the result of expectational errors made by investors. We study stock price reactions around earnings announcements for value and glamour stocks over a 5-year period after portfolio formation. The announcement returns suggest that a significant portion of the return difference between value and glamour stocks is attributable to earnings surprises that are systematically more positive for value stocks. The evidence is inconsistent with a risk-based explanation for the return differential.     

What Works in Securities Laws?

We examine the effect of securities laws on stock market development in 49 countries. We find little evidence that public enforcement benefits stock markets, but strong evidence that laws mandating disclosure and facilitating private enforcement through liability rules benefit stock markets.     

Expectations and the Cross-Section of Stock Returns

Previous research has shown that stocks with low prices relative to book value, cash flow, earnings, or dividends (that is, value stocks) earn high returns. Value stocks may earn high returns because they are more risky. Alternatively, systematic errors in expectations may explain the high returns earned by value stocks. I test for the existence of systematic errors using survey data on forecasts by stock market analysts. I show that investment strategies that seek to exploit errors in analysts' forecasts earn superior returns because expectations about future growth in earnings are too extreme.     

PIRACY ON THE SILVER SCREEN*

Using survey data on movie consumption by about 500 University of Pennsylvania undergraduate students, we ask whether unpaid consumption of movies displaces paid consumption. A variety of cross‐sectional and longitudinal empirical approaches show large and statistically significant evidence of displacement. In the most appropriate empirical specification, we find that unpaid first consumption reduces paid consumption by about 1 unit. Unpaid second consumption has a smaller effect, about 0.20 units. Our analysis indicates that unpaid consumption, which makes up 5.2 per cent of movie viewing in our sample, reduced paid consumption in our sample by 3.5 per cent.     

Diagnostic Expectations and Stock Returns

We revisit La Porta's finding that returns on stocks with the most optimistic analyst long‐term earnings growth forecasts are lower than those on stocks with the most pessimistic forecasts. We document the joint dynamics of fundamentals, expectations, and returns of these portfolios, and explain the facts using a model of belief formation based on the representativeness heuristic. Analysts forecast fundamentals from observed earnings growth, but overreact to news by exaggerating the probability of states that have become more likely. We find support for the model's predictions. A quantitative estimation of the model accounts for the key patterns in the data.     

The role of the Spanish imperial state in the mining‐led growth of Bourbon Mexico's economy1

Colonial Mexico's economy experienced a long phase of growth during the eighteenth century. Around 1800, silver exports and fiscal surplus remittances from the colony rose to unprecedented levels. We study the contribution of the Spanish imperial state's policy to the expansion of silver production and the leading role of mining in economic growth and its fiscal implications. We find evidence to support a more favourable view of both the mining sector and the imperial state than that commonly presented in the literature. The interruption of colonial ‘mining‐led growth’ helps to explain the ‘lost decades’ for the economic development of Mexico after independence.     

Legal Determinants of External Finance

Using a sample of 49 countries, we show that countries with poorer investor protections, measured by both the character of legal rules and the quality of law enforcement, have smaller and narrower capital markets. These findings apply to both equity and debt markets. In particular, French civil law countries have both the weakest investor protections and the least developed capital markets, especially as compared to common law countries.