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Journal Articles
Publisher: Journals Gateway
The Review of Economics and Statistics (2019) 101 (4): 645–657.
Published: 01 October 2019
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We collate sixteen panel surveys from twelve developing countries to develop stylized facts from over 14,000 firms on how much firm death there is, which types of these firms are most likely to die, and why they die. Small firms die at an average rate of 8.2% per year. Death rates are higher in richer countries, for younger firms and less profitable firms, and for firms run by youth. We also find that firm death need not mean permanent exit from self-employment for the firm owner.
Includes: Supplementary data
Journal Articles
Publisher: Journals Gateway
The Review of Economics and Statistics (2019) 101 (1): 91–106.
Published: 01 March 2019
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This paper provides direct evidence that learning about demand is an important driver of firms’ dynamics. We present a model of Bayesian learning in which firms are uncertain about idiosyncratic demand in each market and update their beliefs as noisy information arrives. Firms update their beliefs to a given demand shock more, the younger they are. We test and empirically confirm this prediction, using the structure of the model, together with exporter-level data, to identify demand shocks and the firms’ beliefs about future demand. Consistent with theory, we also find the learning process to be weakened in more uncertain environments.
Includes: Supplementary data
Journal Articles
Publisher: Journals Gateway
The Review of Economics and Statistics (2019) 101 (1): 160–175.
Published: 01 March 2019
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The basic New Keynesian model predicts that positive supply shocks are less expansionary at the zero lower bound (ZLB) compared to periods of active monetary policy. We test this prediction empirically using Fernald's (2014) utilization-adjusted total factor productivity series, which we take as a measure of exogenous productivity. In contrast to the predictions of the model, positive productivity shocks are estimated to be more expansionary at the ZLB compared to normal times. We find that there is no significant difference in the response of expected inflation to a productivity shock at the ZLB compared to normal times.
Includes: Supplementary data
Journal Articles
Publisher: Journals Gateway
The Review of Economics and Statistics (2019) 101 (1): 107–120.
Published: 01 March 2019
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Research has focused on why and when firms access external technology markets. Less is known about the reliability of patents attached to licensed technologies during litigation. Unreliable patents expose a firm to loss of downstream revenues. We address this by constructing a data set of patent litigation in the pharmaceutical industry and exploit a change in patent law that exogenously increased the probability of litigation. We find that licensed patents are more likely to fall during litigation. This effect is isolated to firms with fewer intellectual property capabilities and less patenting experience, suggesting that benefits from external technology are not shared equally.
Includes: Supplementary data
Journal Articles
Publisher: Journals Gateway
The Review of Economics and Statistics (2019) 101 (1): 134–145.
Published: 01 March 2019
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We build on the intuitive (static) modeling framework of Rosen (1974) and specify a simple, forward-looking model of location choice. We use this model, along with a series of graphs, to describe the potential biases associated with the static model and relate these biases to the time series of the amenity of interest. We then derive an adjustment factor that allows the potentially biased static estimates to be converted into forwardlooking estimates. Finally, we illustrate these concepts with two empirical applications: the marginal willingness to pay to avoid violent crime and the marginal willingness to pay to avoid air pollution.
Includes: Supplementary data
Journal Articles
Publisher: Journals Gateway
The Review of Economics and Statistics (2019) 101 (1): 146–159.
Published: 01 March 2019
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This paper considers moment-based tests applied to estimated quantities. We propose a general class of transforms of moments to handle the parameter uncertainty problem. The construction requires only a linear correction that can be implemented in sample and remains valid for some extended families of nonsmooth moments. We reemphasize the attractiveness of working with robust moments, which lead to testing procedures that do not depend on the estimator. Furthermore, no correction is needed when considering the implied test statistic in the out-of-sample case. We apply our methodology to various examples with an emphasis on the backtesting of value-at-risk forecasts.
Includes: Supplementary data
Journal Articles
Publisher: Journals Gateway
The Review of Economics and Statistics (2019) 101 (1): 176–191.
Published: 01 March 2019
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How high is unemployment? How low is labor force participation? Is obesity more prevalent among men? How large are household expenditures? We study the sources of the relevant official statistics—the Current Population Survey, the Behavioral Risk Factor Surveillance System, and the Consumer Expenditure Survey—and find that the answers depend on whether we look at easy- or at difficult-to-reach respondents, measured by the number of call and visit attempts made by interviewers. A challenge to the (conditionally-)random-nonresponse assumption, these findings empirically substantiate the theoretical warning against making population-wide estimates from surveys with low response rates.
Includes: Supplementary data
Journal Articles
Publisher: Journals Gateway
The Review of Economics and Statistics (2019) 101 (1): 121–133.
Published: 01 March 2019
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Environmental Engel curves (EECs) describe households’ incomes and the pollution necessary to produce the goods and services they consume. We calculate 29 annual EECs from 1984 to 2012 for point-source air pollutants in the United States, revealing three clear results: EECs slope upward, have income elasticities less than 1, and shift down over time. Even without changes to production techniques, pollution would have declined despite growing incomes. This improvement can be attributed about equally to two trends: household income growth represented by movement along inelastic EECs and economy-wide changes represented by downward shifts in EECs over time.
Includes: Supplementary data
Journal Articles
Publisher: Journals Gateway
The Review of Economics and Statistics (2019) 101 (1): 16–29.
Published: 01 March 2019
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Employment declined substantially during the 2007–2009 recession, especially in small and young firms. Using confidential firm-level data of the universe of firms and a difference-in-differences methodology, this paper estimates that financial constraints reduced employment growth by 4 to 8 percentage points in small firms relative to large firms and by 7 to 9 percentage points in young relative to old firms. I find that the effect of financial constraints on small firms is driven to a large extent by young firms. I then document that financial constraints affected employment growth in small and young firms strongly through the entry and exit of firms.
Includes: Supplementary data
Journal Articles
Publisher: Journals Gateway
The Review of Economics and Statistics (2019) 101 (1): 60–75.
Published: 01 March 2019
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Using novel firm-level microdata and leveraging a natural experiment, this paper provides causal evidence for the role of trade and multinational firms in the cross-country transmission of shocks. The scope for trade linkages to generate cross-country spillovers depends on the elasticity of substitution with respect to domestic inputs. Using the 2011 Tōhoku earthquake as an exogenous shock, we structurally estimate production elasticities at the firm level and find greater complementarities in input usage than previously thought. For Japanese affiliates in the United States, output falls roughly one-for-one with declines in imports, consistent with a relationship between imported and domestic inputs that is close to Leontief.
Journal Articles
Publisher: Journals Gateway
The Review of Economics and Statistics (2019) 101 (1): 44–59.
Published: 01 March 2019
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We examine the U.S. internal migration response to increased import competition following the granting of Permanent Normal Trade Relations to China in 2001. Using a variety of data sets and empirical approaches, we find that local labor markets most exposed to the policy change experienced a relative reduction in population growth over the following decade. The majority of the effect occurs at a lag of seven to ten years and is most pronounced among young individuals and low-education groups. Such population adjustments should influence the interpretation of evidence in the growing literature on import competition and local labor markets.
Includes: Supplementary data
Journal Articles
Publisher: Journals Gateway
The Review of Economics and Statistics (2019) 101 (1): 1–15.
Published: 01 March 2019
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We attribute the recent quadrupling of heroin death rates to the August 2010 reformulation of an oft-abused prescription opioid, OxyContin. The new abuse-deterrent formulation led many consumers to substitute an inexpensive alternative, heroin. Using structural break techniques and variation in substitution risk, we find that opioid consumption stops rising in August 2010, heroin deaths begin climbing the following month, and growth in heroin deaths was greater in areas with greater prereformulation access to heroin and opioids. The reformulation did not generate a reduction in combined heroin and opioid mortality: each prevented opioid death was replaced with a heroin death.
Includes: Supplementary data
Journal Articles
Publisher: Journals Gateway
The Review of Economics and Statistics (2019) 101 (1): 76–90.
Published: 01 March 2019
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This study examines the effect of chain store entry on drug quality and prices in India. In contrast to prevailing mom-and-pop pharmacies, chains exploit scale economies in distribution and signaling to offer high-quality drugs at lower cost. We show that chain entry leads to a 5% improvement in drug quality and a 2% decrease in prices at incumbent retailers. Effects are larger for locally distributed drug brands but do not depend on consumer SES. Our findings suggest that in markets with asymmetric information, organizational technologies such as chains can play an important role translating market expansion into higher quality.
Includes: Supplementary data
Journal Articles
Publisher: Journals Gateway
The Review of Economics and Statistics (2019) 101 (1): 192–199.
Published: 01 March 2019
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In volume 94 of this REVIEW, Adams, Blackburn, and Cotti (ABC), using Fatal Accident Reporting System data from 1998 to 2006, find that a 10% increase in the minimum wage is associated with a 7% to 11% increase in alcohol-related fatal traffic accidents involving teen drivers. We find this result does not hold when the analysis period is expanded to include 1991 through 2013. In addition, auxiliary analyses provide no support for income-driven increases in alcohol consumption, the primary mechanism posited by ABC. Together, our results suggest that minimum wage increases are not a silent killer.
Includes: Supplementary data
Journal Articles
Publisher: Journals Gateway
The Review of Economics and Statistics (2019) 101 (1): 30–43.
Published: 01 March 2019
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This paper estimates the elasticity of substitution between capital and skill in manufacturing using immigration-induced variation in skill mix across U.S. counties between 1860 and 1930. We find that capital initially complemented both high- and low-skill labor (determined by literacy) and, unlike today, was more complementary with low-skill labor. Around 1890, capital increased its relative complementarity with high-skill labor. Simulations calibrated to our estimates imply the level of capital-skill complementarity after 1890 allowed the manufacturing sector to absorb the large wave of Eastern and Southern European immigrants with only a modest decline in less-skilled relative wages. This would not have been possible under the older production technology.
Includes: Supplementary data
Journal Articles
Publisher: Journals Gateway
The Review of Economics and Statistics (2018) 100 (5): 831–843.
Published: 01 December 2018
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Here’s why. (a) The Hodrick-Prescott (HP) filter introduces spurious dynamic relations that have no basis in the underlying data-generating process. (b) Filtered values at the end of the sample are very different from those in the middle and are also characterized by spurious dynamics. (c) A statistical formalization of the problem typically produces values for the smoothing parameter vastly at odds with common practice. (d) There is a better alternative. A regression of the variable at date t on the four most recent values as of date t - h achieves all the objectives sought by users of the HP filter with none of its drawbacks.
Journal Articles
Publisher: Journals Gateway
The Review of Economics and Statistics (2018) 100 (5): 799–815.
Published: 01 December 2018
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We propose a new model for measuring uncertainty and its effects on the economy, based on a large vector autoregression with stochastic volatility driven by common factors representing macroeconomic and financial uncertainty. The uncertainty measures reflect changes in both the conditional mean and volatility of the variables, and their impact on the economy can be assessed within the same framework. Estimates with U.S. data show substantial commonality in uncertainty, with sizable effects of uncertainty on key macroeconomic and financial variables. However, historical decompositions show a limited role of uncertainty shocks in macroeconomic fluctuations.
Includes: Supplementary data
Journal Articles
Publisher: Journals Gateway
The Review of Economics and Statistics (2018) 100 (5): 844–860.
Published: 01 December 2018
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We formalize the optimal design of experiments when there is interference between units, that is, an individual’s outcome depends on the outcomes of others in her group. We focus on randomized saturation designs, two-stage experiments that first randomize treatment saturation of a group, then individual treatment assignment. We map the potential outcomes framework with partial interference to a regression model with clustered errors, calculate standard errors of randomized saturation designs, and derive analytical insights about the optimal design. We show that the power to detect average treatment effects declines precisely with the ability to identify novel treatment and spillover effects.
Journal Articles
Publisher: Journals Gateway
The Review of Economics and Statistics (2018) 100 (5): 916–932.
Published: 01 December 2018
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This paper builds on the composite likelihood concept of Lindsay (1988) to develop a framework for parameter identification, estimation, inference, and forecasting in dynamic stochastic general equilibrium (DSGE) models allowing for stochastic singularity. The framework consists of four components. First, it provides a necessary and sufficient condition for parameter identification, where the identifying information is provided by the first- and second-order properties of nonsingular submodels. Second, it provides a procedure based on Markov Chain Monte Carlo for parameter estimation. Third, it delivers confidence sets for structural parameters and impulse responses that allow for model misspecification. Fourth, it generates forecasts for all the observed endogenous variables, irrespective of the number of shocks in the model. The framework encompasses the conventional likelihood analysis as a special case when the model is nonsingular. It enables the researcher to start with a basic model and then gradually incorporate more shocks and other features, meanwhile confronting all the models with the data to assess their implications. The methodology is illustrated using both small- and medium-scale DSGE models. These models have numbers of shocks ranging between 1 and 7.
Includes: Supplementary data
Journal Articles
Publisher: Journals Gateway
The Review of Economics and Statistics (2018) 100 (5): 769–782.
Published: 01 December 2018
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This paper studies the effects of violent crime on market prices and size using plant-level panel data in Colombia. To estimate causal effects, I exploit reductions in violence driven by increases in security expenditures during Álvaro Uribe’s presidency; these resulted in greater violence reductions in municipalities that voted for him in the 2002 elections as he was looking for reelection. I find that firms that face higher violence also face lower output and input prices. Output prices fall more than the prices of inputs, which drives firms to reduce production, and some firms exit the market. Workers see reductions in their real income.
Includes: Supplementary data
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