Journal Cover
Review of Economic Studies
Journal Prestige (SJR): 9.589
Citation Impact (citeScore): 4
Number of Followers: 179  
  Hybrid Journal Hybrid journal (It can contain Open Access articles)
ISSN (Print) 0034-6527 - ISSN (Online) 1467-937X
Published by Oxford University Press Homepage  [409 journals]
  • Optimal Dynamic Carbon Taxes in a Climate–Economy Model with
           Distortionary Fiscal Policy
    • Authors: Barrage L.
      Pages: 1 - 39
      Abstract: How should carbon be taxed as a part of fiscal policy' The literature on optimal carbon pricing often abstracts from other taxes. However, when governments raise revenues with distortionary taxes, carbon levies have fiscal impacts. While they raise revenues directly, they may shrink the bases of other taxes (e.g. by decreasing employment). This article theoretically characterizes and then quantifies optimal carbon taxes in a dynamic general equilibrium climate–economy model with distortionary fiscal policy. First, this article establishes a novel theoretical relationship between the optimal taxation of carbon and of capital income. This link arises because carbon emissions destroy natural capital: they accumulate in the atmosphere and decrease future output. Consequently, this article shows how the standard logic against capital income taxes extends to distortions on environmental capital investments. Second, this article characterizes optimal climate policy in sub-optimal fiscal settings where income taxes are constrained to remain at their observed levels. Third, this article presents a detailed calibration that builds on the seminal DICE approach but adds features essential for a setting with distortionary taxes, such as a differentiation between climate change production impacts (e.g. on agriculture) and direct utility impacts (e.g. on biodiversity existence value). The central quantitative finding is that optimal carbon tax schedules are 8–24% lower when there are distortionary taxes, compared to the setting with lump-sum taxes considered in the literature.
      PubDate: Tue, 15 Oct 2019 00:00:00 GMT
      DOI: 10.1093/restud/rdz055
      Issue No: Vol. 87, No. 1 (2019)
  • Uncertainty Shocks as Second-Moment News Shocks
    • Authors: Berger D; Dew-Becker I, Giglio S.
      Pages: 40 - 76
      Abstract: AbstractWe provide evidence on the relationship between aggregate uncertainty and the macroeconomy. Identifying uncertainty shocks using methods from the news shocks literature, the analysis finds that innovations in realized stock market volatility are robustly followed by contractions, while shocks to forward-looking uncertainty have no significant effect on the economy. Moreover, investors have historically paid large premia to hedge shocks to realized but not implied volatility. A model in which fundamental shocks are skewed left can match those facts. Aggregate volatility matters, but it is the realization of volatility, rather than uncertainty about the future, that has been associated with declines.
      PubDate: Wed, 17 Apr 2019 00:00:00 GMT
      DOI: 10.1093/restud/rdz010
      Issue No: Vol. 87, No. 1 (2019)
  • The New Keynesian Transmission Mechanism: A Heterogeneous-Agent
    • Authors: Broer T; Harbo Hansen N, Krusell P, et al.
      Pages: 77 - 101
      Abstract: AbstractWe present a tractable heterogeneous-agent version of the New Keynesian model that allows us to study the interaction between inequality and monetary policy. Though formulated as a precautionary-saving model à la Huggett–Aiyagari, its reduced form is a two-agent model with a highly concentrated wealth distribution. When prices are sticky and wages flexible, as in the textbook representative-agent model, monetary policy affects the distribution of consumption, but has no effect on output as workers choose not to change their hours worked in response to wage movements. This highlights a transmission mechanism of the textbook model that we find implausible: in response to a monetary stimulus, the representative worker’s labor supply is greatly affected by the profits she receives. First, the lower profits induced by higher wages raise labor supply through a wealth effect and, secondly, the mere presence of profits reduces the negative income effect of a wage rise. When wages are rigid, in contrast, our model exhibits plausible responses of output and hours worked to monetary policy shocks.
      PubDate: Sat, 23 Mar 2019 00:00:00 GMT
      DOI: 10.1093/restud/rdy060
      Issue No: Vol. 87, No. 1 (2019)
  • Monetary Policy when Households have Debt: New Evidence on the
           Transmission Mechanism
    • Authors: Cloyne J; Ferreira C, Surico P.
      Pages: 102 - 129
      Abstract: AbstractUsing household survey data for the U.S. and the U.K., we show that the aggregate response of consumption to interest rate changes is driven by households with a mortgage. Outright home-owners do not adjust expenditure at all while renters change their spending but by less than mortgagors. Income rises for all households as interest rate cuts directly affect firm investment and household consumption, boosting aggregate demand. A crucial difference between the housing tenure groups is the composition of their balance sheets: mortgagors hold sizable illiquid assets but little liquid wealth. Our results reveal that general equilibrium effects on household income coupled with balance-sheet-driven heterogeneity in the marginal propensity to consume play a key role in the transmission of monetary policy.
      PubDate: Thu, 03 Jan 2019 00:00:00 GMT
      DOI: 10.1093/restud/rdy074
      Issue No: Vol. 87, No. 1 (2019)
  • Consumption Network Effects
    • Authors: De Giorgi G; Frederiksen A, Pistaferri L.
      Pages: 130 - 163
      Abstract: AbstractIn this article we study consumption network effects. Does the consumption of our peers affect our own consumption' How large is such effect' What are the economic mechanisms behind it' We use administrative panel data on Danish households to construct a measure of consumption based on tax records on income and assets. We combine tax record data with matched employer–employee data to identify peer groups based on workplace, which gives us a much tighter and credible definition of networks than used in previous literature. We use the non-overlapping network structure of one’s peers group, as well as firm-level shocks, to build valid instruments for peer consumption. We estimate non-negligible and statistically significant network effects, capable of generating sizable multiplier effect at the macro-level. We also investigate what mechanisms generate such effects, distinguishing between intertemporal and intratemporal consumption effects as well as a more traditional risk sharing view.
      PubDate: Mon, 06 May 2019 00:00:00 GMT
      DOI: 10.1093/restud/rdz026
      Issue No: Vol. 87, No. 1 (2019)
  • The Development Effects of the Extractive Colonial Economy: The Dutch
           Cultivation System in Java
    • Authors: Dell M; Olken B.
      Pages: 164 - 203
      Abstract: AbstractColonial powers typically organized economic activity in the colonies to maximize their economic returns. While the literature has emphasized long-run negative economic impacts via institutional quality, the changes in economic organization implemented to spur production historically could also directly influence economic organization in the long-run, exerting countervailing effects. We examine these in the context of the Dutch Cultivation System, the integrated industrial and agricultural system for producing sugar that formed the core of the Dutch colonial enterprise in 19th century Java. We show that areas close to where the Dutch established sugar factories in the mid-19th century are today more industrialized, have better infrastructure, are more educated, and are richer than nearby counterfactual locations that would have been similarly suitable for colonial sugar factories. We also show, using a spatial regression discontinuity design on the catchment areas around each factory, that villages forced to grow sugar cane have more village-owned land and also have more schools and substantially higher education levels, both historically and today. The results suggest that the economic structures implemented by colonizers to facilitate production can continue to promote economic activity in the long run, and we discuss the contexts where such effects are most likely to be important.
      PubDate: Mon, 18 Mar 2019 00:00:00 GMT
      DOI: 10.1093/restud/rdz017
      Issue No: Vol. 87, No. 1 (2019)
  • Backlash: The Unintended Effects of Language Prohibition in U.S. Schools
           after World War I
    • Authors: Fouka V.
      Pages: 204 - 239
      Abstract: AbstractDo forced assimilation policies always succeed in integrating immigrant groups' This article examines how a specific assimilation policy—language restrictions in elementary school—affects integration and identification with the host country later in life. After World War I, several U.S. states barred the German language from their schools. Affected individuals were less likely to volunteer in World War II and more likely to marry within their ethnic group and to choose decidedly German names for their offspring. Rather than facilitating the assimilation of immigrant children, the policy instigated a backlash, heightening the sense of cultural identity among the minority.
      PubDate: Sun, 26 May 2019 00:00:00 GMT
      DOI: 10.1093/restud/rdz024
      Issue No: Vol. 87, No. 1 (2019)
  • A Macroeconomic Model with Financial Panics
    • Authors: Gertler M; Kiyotaki N, Prestipino A.
      Pages: 240 - 288
      Abstract: AbstractThis article incorporates banks and banking panics within a conventional macroeconomic framework to analyse the dynamics of a financial crisis of the kind recently experienced. We are particularly interested in characterizing the sudden and discrete nature of banking panics as well as the circumstances that make an economy vulnerable to such panics in some instances but not in others. Having a conventional macroeconomic model allows us to study the channels by which the crisis affects real activity both qualitatively and quantitatively. In addition to modelling the financial collapse, we also introduce a belief driven credit boom that increases the susceptibility of the economy to a disruptive banking panic.
      PubDate: Wed, 29 May 2019 00:00:00 GMT
      DOI: 10.1093/restud/rdz032
      Issue No: Vol. 87, No. 1 (2019)
  • Middleman Minorities and Ethnic Violence: Anti-Jewish Pogroms in the
           Russian Empire
    • Authors: Grosfeld I; Sakalli S, Zhuravskaya E.
      Pages: 289 - 342
      Abstract: AbstractUsing detailed panel data from the Pale of Settlement area between 1800 and 1927, we document that anti-Jewish pogroms—mob violence against the Jewish minority—broke out when economic shocks coincided with political turmoil. When this happened, pogroms primarily occurred in places where Jews dominated middleman occupations, i.e., moneylending and grain trading. This evidence is inconsistent with the scapegoating hypothesis, according to which Jews were blamed for all misfortunes of the majority. Instead, the evidence is consistent with the politico-economic mechanism, in which Jewish middlemen served as providers of insurance against economic shocks to peasants and urban grain buyers in a relationship based on repeated interactions. When economic shocks occurred in times of political stability, rolling over or forgiving debts was an equilibrium outcome because both sides valued their future relationship. In contrast, during political turmoil, debtors could not commit to paying in the future, and consequently, moneylenders and grain traders had to demand immediate (re)payment. This led to ethnic violence, in which the break in the relationship between the majority and Jewish middlemen was the igniting factor.
      PubDate: Mon, 07 Jan 2019 00:00:00 GMT
      DOI: 10.1093/restud/rdz001
      Issue No: Vol. 87, No. 1 (2019)
  • External Validity in a Stochastic World: Evidence from Low-Income
    • Authors: Rosenzweig M; Udry C.
      Pages: 343 - 381
      Abstract: AbstractWe examine empirically the generalizability of internally valid micro-estimates of causal effects in a fixed population over time when that population is subject to aggregate shocks. Using panel data, we show that the returns to investments in agriculture in India and Ghana, small and medium non-farm enterprises in Sri Lanka, and schooling in Indonesia fluctuate significantly across time periods. We show how the returns to these investments interact with specific, measurable, and economically relevant aggregate shocks, focusing on rainfall and price fluctuations. We also obtain lower-bound estimates of confidence intervals of the returns based on estimates of the parameters of the distributions of rainfall shocks in our two agricultural samples. We find that even these lower-bound confidence intervals are substantially wider than those based solely on sampling error that are commonly provided in studies, most of which are based on single-year samples. We also find that cross-sectional variation in rainfall cannot be confidently used to replicate within-population rainfall variability. Based on our findings, we discuss methods for incorporating information on external shocks into evaluations of the returns to policy.
      PubDate: Tue, 26 Mar 2019 00:00:00 GMT
      DOI: 10.1093/restud/rdz021
      Issue No: Vol. 87, No. 1 (2019)
  • Immigrants and the Making of America
    • Authors: Sequeira S; Nunn N, Qian N.
      Pages: 382 - 419
      Abstract: AbstractWe study the effects of European immigration to the U.S. during the Age of Mass Migration (1850–1920) on economic prosperity. Exploiting cross-county variation in immigration that arises from the interaction of fluctuations in aggregate immigrant flows and of the gradual expansion of the railway network, we find that counties with more historical immigration have higher income, less poverty, less unemployment, higher rates of urbanization, and greater educational attainment today. The long-run effects seem to capture the persistence of short-run benefits, including greater industrialization, increased agricultural productivity, and more innovation.
      PubDate: Tue, 12 Mar 2019 00:00:00 GMT
      DOI: 10.1093/restud/rdz003
      Issue No: Vol. 87, No. 1 (2019)
  • Coarse Pricing Policies
    • Authors: Stevens L.
      Pages: 420 - 453
      Abstract: AbstractThe muted volatility of inflation during the Great Recession and its aftermath has refocused attention on the constraints that firms face when adjusting prices. Using new empirical and theoretical results, I argue that each firm’s choice of how much information to acquire to set prices plays a central role in determining the patterns of pricing at the product level and the degree of aggregate price rigidity in response to shocks. In support of the information channel, I present product-level evidence that firms price goods using coarse pricing policies that are updated infrequently and consist of a small menu of prices. Firms are heterogeneous in the complexity and duration of their pricing policies, and this heterogeneity is reflected in differential responses to the Great Recession cycle, with firms exhibiting more complex policies responding more aggressively. I develop a theory of information-constrained price setting that generates coarse pricing endogenously, and quantitatively matches the discreteness, duration, and volatility of policies in the data. The information friction dampens the responsiveness of prices to shocks, and, coupled with heightened volatility, induces firms to keep prices relatively high, to protect against losses in an uncertain environment.
      PubDate: Mon, 22 Jul 2019 00:00:00 GMT
      DOI: 10.1093/restud/rdz036
      Issue No: Vol. 87, No. 1 (2019)
  • Gifts of the Immigrants, Woes of the Natives: Lessons from the Age of Mass
    • Authors: Tabellini M.
      Pages: 454 - 486
      Abstract: AbstractIn this article, I jointly investigate the political and the economic effects of immigration, and study the causes of anti-immigrant sentiments. I exploit exogenous variation in European immigration to U.S. cities between 1910 and 1930 induced by World War I and the Immigration Acts of the 1920s, and instrument immigrants’ location decision relying on pre-existing settlement patterns. I find that immigration triggered hostile political reactions, such as the election of more conservative legislators, higher support for anti-immigration legislation, and lower redistribution. Exploring the causes of natives’ backlash, I document that immigration increased natives’ employment, spurred industrial production, and did not generate losses even among natives working in highly exposed sectors. These findings suggest that opposition to immigration was unlikely to have economic roots. Instead, I provide evidence that natives’ political discontent was increasing in the cultural differences between immigrants and natives. Results in this article indicate that, even when diversity is economically beneficial, it may nonetheless be socially hard to manage.
      PubDate: Mon, 06 May 2019 00:00:00 GMT
      DOI: 10.1093/restud/rdz027
      Issue No: Vol. 87, No. 1 (2019)
  • Optimality of Debt under Flexible Information Acquisition
    • Authors: Yang M.
      Pages: 487 - 536
      Abstract: AbstractThis article studies a security design problem featuring flexible information acquisition. To raise liquidity, a seller issues a security backed by her asset in place at the price she proposes to a buyer. Before deciding whether to accept the offer, the buyer can acquire costly information about the underlying asset. This case differs from the existing literature on security design, in that the buyer has the full flexibility of choosing not only the amount of resources to spend in information acquisition, but also how to allocate them, depending on the shape of the security. Debt is shown to be the unique optimal security for the seller, as its payoff is the least sensitive to the value of its underlying asset. This minimizes the buyer’s incentive to acquire information and mitigates the resulting adverse selection. I do not assume monotonicity of the feasible securities nor impose various distributional assumptions on information structures. Instead, I identify conditions for general information costs that support the results.
      PubDate: Thu, 04 Jul 2019 00:00:00 GMT
      DOI: 10.1093/restud/rdz035
      Issue No: Vol. 87, No. 1 (2019)
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Heriot-Watt University
Edinburgh, EH14 4AS, UK
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