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Working Paper
Properties of the vacancy statistic in the discrete circle covering problem
Holst (1985) introduced a discrete spacings model that is related to the Bose-Einstein distribution and obtained the distribution of the number of vacant slots in an associated circle covering problem. We correct his expression for its probability mass function, obtain the first two moments, and describe their limiting properties. We also discuss an application of our results to a study of contagion in banking networks.
Working Paper
On the timing of innovation in stochastic Schumpeterian growth models
Recent work has revived the Schumpeterian hypothesis that recessions facilitate innovation and growth. But a major source of productivity growth, research and development, is actually procyclical. This paper argues that while it is optimal to concentrate growth enhancing activities in downturns, dynamic spillovers inherent to the R&D process lead private agents to concentrate too much of their R&D activity in booms, precisely when its social cost is highest. Thus, while previous literature has argued recessions promote growth and intertemporal substitution is a desirable consequence of ...
Journal Article
Evaluating the role of labor market mismatch in rising unemployment
Recent labor market trends have raised concerns that the unemployment rate is high not because employers are reluctant to hire but because they are unable to hire. These concerns, if true, would cast doubt on using monetary policy to stimulate the labor market, since it works by encouraging firms to hire more. Using a matching function approach, the author finds that a shock that makes it more difficult for firms to hire qualified applicants would by itself imply an unemployment rate of no more than 7.1 percent, much below the actual unemployment rate during the past two years. Hence, the ...
Working Paper
Mandatory Disclosure and Financial Contagion
This paper analyzes the welfare implications of mandatory disclosure of losses at financial institutions when it is common knowledge that some banks have incurred losses but not which ones. We develop a model that features contagion, meaning that banks not hit by shocks may still suffer losses because of their exposure to banks that are. In addition, we assume banks can profitably invest funds provided by outsiders, but will divert these funds if their equity is low. Investors thus value knowing which banks were hit by shocks to assess the equity of the banks they invest in. We find that when ...
Journal Article
The cost of business cycles and the benefits of stabilization
This article reviews the social cost of U.S. postwar business cycle fluctuations, first calculated by Lucas (1987). Recent work suggests this cost is considerably larger than suggested by Lucas. Despite this, the author argues that it is not obvious that policymakers should have pursued a more aggressive stabilization policy over the postwar period. Still, because volatility is costly, stable growth remains a desirable goal.
Journal Article
Bridging Between Policymakers’ and Economists’ Views on Bubbles
Senior economist Gadi Barlevy examines the gap between policymakers and researchers when it comes to asset bubbles. He describes policymakers? key questions about asset bubbles and asks how economic models might be used to shed light on them.
Working Paper
Robustness and macroeconomic policy
This paper considers the design of macroeconomic policies in the face of uncertainty. In recent years, several economists have advocated that when policymakers are uncertain about the environment they face and find it difficult to assign precise probabilities to the alternative scenarios that may characterize this environment, they should design policies to be robust in the sense that they minimize the worstcase loss these policies could ever impose. I review and evaluate the objections cited by critics of this approach. I further argue that, contrary to what some have inferred, concern about ...
Newsletter
Interest-Only Mortgages and Speculation in Hot Housing Markets
Even as housing markets have temporarily shut down across the U.S. during the Covid-19 pandemic, housing remains a key sector that contributes disproportionately to fluctuations in overall economic activity and that will likely play an important role as the economy reopens. Interest in this market among research economists and policymakers intensified after the exceptional boom and bust in housing between 2003 and 2008. In this Chicago Fed Letter, we describe research in Barlevy and Fisher (2020)1 that examined patterns in the kinds of mortgages homebuyers took out in different cities during ...
Working Paper
Estimating models of on-the-job search using record statistics
This paper proposes a methodology for estimating job search models that does not require either functional form assumptions or ruling out the presence of unobserved variation in worker ability. In particular, building on existing results from record- value theory, a branch of statistics that deals with the timing and magnitude of extreme values in sequences of random variables, I show how we can use wage data to identify the distribution from which workers search. Applying this insight to wage data in the NLSY dataset, I show that the data supports the hypothesis that the wage oer ...
Journal Article
Economic theory and asset bubbles
The author summarizes what economic theory tells us about when asset price bubbles can occur and what the welfare implications are from bursting them. In some cases, bursting a bubble may make society worse off by exacerbating the market distortions that give rise to the bubble in the first place.