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Report
Behavior and the Transmission of COVID-19
We show that a simple model of COVID-19 that incorporates feedback from disease prevalence to disease transmission through an endogenous response of human behavior does a remarkable job fitting the main features of the data on the growth rates of daily deaths observed across a large number countries and states of the United States from March to November of 2020. This finding, however, suggests a new empirical puzzle. Using an accounting procedure akin to that used for Business Cycle Accounting as in Chari et al. (2007), we show that when the parameters of the behavioral response of ...
Working Paper
Money, interest rates, and exchange rates with endogenously segmented asset markets
This paper analyzes the effects of money injections on interest rates and exchange rates in a model in which agents must pay a Baumol-Tobin style fixed cost to exchange bonds and money. Asset markets are endogenously segmented because this fixed cost leads agents to trade bonds and money only infrequently. When the government injects money through an open market operation, only those agents that are currently trading absorb these injections. Through their impact on these agents? consumption, these money injections affect real interest rates and real exchange rates. We show that the model ...
Report
Industry evolution and transition: measuring investment in organization
We use a calibrated model of the dynamics of organization capital and industry evolution to measure the size of investment in organization capital in the steady state and the dynamics of organization capital during the transition following a major reform. We find that, in the steady state, aggregate net investment in organization capital is roughly one-fifth of measured output. During the initial phase of transition, the failure rate of plants rises 200-400 percent, measured output and aggregate productivity stagnate, physical investment falls, and net investment in organization capital rises ...
Working Paper
The advantage of transparent instruments of monetary policy
A classic question in international economics is whether it is better to use the exchange rate or the money growth rate as the instrument of monetary policy. A common argument is that the exchange rate has a natural advantage since exchange rates provide signals of policymakers? actions that are easier to monitor than those provided by money growth rates. We formalize this argument in a simple model in which the government chooses which instrument it will use to target inflation. In it, the exchange rate is more transparent than the money growth rate in that the exchange rate is easier for ...
Report
Aggregate implications of innovation policy
In this paper we present a tractable model of innovating firms and the aggregate economy that we use to assess quantitatively the link between the responses of firms to changes in innovation policy and the impact of those policy changes on aggregate output and welfare. We show that, to a first-order approximation, a wide range of policy changes have a long-run impact in direct proportion to the fiscal expenditures on those policies, and that to evaluate the aggregate impact of a policy change, there is no need to calculate changes in firms' decisions in response to these policy changes. ; We ...
Report
A Parsimonious Behavioral SEIR Model of the 2020 COVID Epidemic in the United States and the United Kingdom
I present a behavioral epidemiological model of the evolution of the COVID epidemic in the United States and the United Kingdom over the past 12 months. The model includes the introduction of a new, more contagious variant in the UK in early fall and the US in mid December. The model is behavioral in that activity, and thus transmission, responds endogenously to the daily death rate. I show that with only seasonal variation in the transmission rate and pandemic fatigue modeled as a one-time reduction in the semi-elasticity of the transmission rate to the daily death rate late in the year, the ...
Report
Transitional Dynamics in Aggregate Models of Innovative Investment
What quantitative lessons can we learn from models of endogenous technical change through innovative investments by firms for the impact of changes in the economic environment on the dynamics of aggregate productivity in the short, medium, and long run? We present a unifying model that nests a number of canonical models in the literature and characterize their positive implications for the transitional dynamics of aggregate productivity and their welfare implications in terms of two sufficient statistics. We review the current state of measurement of these two sufficient statistics and ...
Working Paper
On the optimality of transparent monetary policy
We analyze the optimal design of monetary rules. We suppose there is an agreed upon social welfare function that depends on the randomly fluctuating state of the economy and that the monetary authority has private information about that state. We suppose the government can constrain the policies of the monetary authority by legislating a rule. In general, well-designed rules trade-off the need to constrain policymakers from the standard time consistency problem arising from the temptation for unexpected inflation with the desire to give them flexibility to react to their private information. ...
Working Paper
External and Public Debt Crises
The recent debt crises in Europe and the U.S. states feature similar sharp increases in spreads on government debt but also show important differences. In Europe, the crisis occurred at high government indebtedness levels and had spillovers to the private sector. In the United States, state government indebtedness was low, and the crisis had no spillovers to the private sector. We show theoretically and empirically that these different debt experiences result from the interplay between differences in the ability of governments to interfere in private external debt contracts and differences in ...
Report
How Deadly is COVID-19? Understanding the Difficulties with Estimation of its Fatality Rate
To understand how best to combat COVID-19, we must understand how deadly is the disease. There is a substantial debate in the epidemiological literature as to whether the fatality rate is 1% or 0.1% or somewhere in between. In this note, I use an SIR model to examine why it is difficult to estimate the fatality rate from the disease and how long we might have to wait to resolve this question absent a large-scale randomized testing program. I focus on uncertainty over the joint distribution of the fatality rate and the initial number of active cases at the start of the epidemic around January ...