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What are the effects of labor market policies when the economy is sliding into a deep recession? We show that public announcements asking firms not to cut wages under H. Hoover during 1929–33 postponed entering the zero lower bound episode and reduced its duration. We develop and estimate a medium scale New Keynesian model to measure the effect of Hoover policies during the Great Depression and we find evidence that without such polices the U.S. economy would have ended up in a liquidity trap 3 years before it actually did, suffering an even deeper recession with a larger deflation. [ABSTRACT FROM AUTHOR]

This paper examines if internal migrants at the turn of the twentieth century have influenced the long-term economic development of the counties where they settled over 100 years ago. Using Census microdata from 1880 and 1910, the distance travelled by American-born migrants between birthplace and county of residence is examined to assess its relevance for the economic development of US counties today. The settlement patterns of domestic migrants across the 48 continental states are then linked to current county-level development. Factors influencing both migration at the time and the level of development of the county today are controlled for. The results of the analysis underline the economic importance of internal migration. Counties that attracted American-born migrants more than 100 years ago are significantly richer today. Moreover, distance is crucial for the impact of internal migration on long-term economic development; the larger the distance travelled by domestic migrants, the greater the long-term economic impact on the receiving territories. [ABSTRACT FROM AUTHOR]

This paper analyzes how bounded rationality affects monetary and fiscal policy via an empirically relevant enrichment of the New Keynesian model. It models agents' partial myopia toward distant atypical events using a new microfounded "cognitive discounting" parameter. Compared to the rational model, (i) there is no forward guidance puzzle; (ii) the Taylor principle changes: with passive monetary policy but enough myopia equilibria are determinate and economies stable; (iii) the zero lower bound is much less costly; (iv) price-level targeting is not optimal; (v) fiscal stimulus is effective; (vi) the model is " neo-Fisherian" in the long run, Keynesian in the short run. (JEL E12, E31, E43, E52, E62, E70) [ABSTRACT FROM AUTHOR]

This article uses a stylised vector autoregression to estimate the impact of shocks to lending standards on the depth of US recession and duration of recovery from the 2007−2008 financial crisis. It estimates that the US economic activity was about 0.5 percentage points lower every quarter than in the case when banks' lending standards had not tightened beyond the levels warranted by economic fundamentals. The article further shows empirical evidence that the economic contraction of 2008−2009 would have been 2 percentage points of GDP milder in the absence of the shocks to lending standards sentiment. Finally, the lending sentiment seemed to switch to a loosening bias when GDP recovered to its pre‐recession levels in 2012. [ABSTRACT FROM AUTHOR]

The article focuses on the measures that can be taken to improve economic conditions in the United States. The author cites the country's federal deficit, trade deficit, and slow productivity growth as basic signs on a less-than vigorous economy. Several possible courses of action for enhancing productivity, flexibility, and specialized advantages are outlined. Some advantages of the United States economy are discussed, including a highly skilled work force, a well-developed research and development infrastructure, and market size.

Comments are presented on the article "A Model of the U.S. Financial and Nonfinancial Economic Behavior," by David Backus, William C. Brainard, Gary Smith, and James Tobin, published within the issue. The author comments on the model representing the financial and nonfinancial economic behavior of the United States. Problems evident with modeling portfolio behavior are discussed, including sectoral discrepancies in balance sheets, the availability of book value data, and the degree of sectoral detail. The number of interest rate variables necessary is questioned. The relationship of real and financial sectors of the economy is examined.

The road to complete business recovery and faster economic growth for the United States is not the path of tax cuts and heavy stimulus to consumption. It is built instead upon a combination of expanded public and private investment resulting in a deepening of capital investment in new plants, technologies, and productive facilities that will increase this nation's future capacity to produce. That is the new economic frontier, this authority, one of the President's advisers, states. Will we be able to cross it successfully? Probably, he thinks, but outlines some of the challenges which must be met soon, if we are to hold our own against other countries whose economies surpass us in rates of growth. [ABSTRACT FROM AUTHOR]

The article focuses on the utilization of selective credit controls in managing the United States economy. The article attempts a more qualitative evaluation of selective credit controls by considering the relationship between aims and measures of control, the probable response of lenders and borrowers to these measures, and the implications such responses have for the effectiveness of the control measures in serving the purpose of the authorities. A brief evaluation is also presented of the American experience with selective credit controls.

This study investigates how the ecologically unequal exchange of carbon dioxide emissions varies with economic recessions. I propose a country-specific approach to examine (1) the relationship between carbon dioxide emissions in developing countries and the “vertical flow” of exports to the United States; and (2) the variations of the relationship before, during, and after two recent economic recessions in 2001 and 2008. Using data on 69 developing nations between 2000 and 2010, I estimate time-series cross-sectional regression models with two-way fixed effects. Results suggest that the vertical flow of exports to the United States is positively associated with carbon dioxide emissions in developing countries. The magnitude of this relationship increased in 2001, 2009, and 2010, and decreased in 2008, but remained stable in non-recession periods, suggesting that economic recessions in the United States are associated with variations of ecologically unequal exchange. Results highlight the impacts of U.S. recessions on carbon emissions in developing countries through the structure of international trade. [ABSTRACT FROM AUTHOR]

This article reviews the evolution of rules on digital trade in US Free Trade Agreements (US FTAs), and argues that the US approach has shifted from treating it largely as a traditional trade issue to recognizing its unique digital nature and tailoring the rules accordingly, as it has done in the Trans-Pacific Partnership (TPP) Agreement. The article begins with a review of the efforts to regulate e-commerce in the WTO, as well as the achievements of the pre-TPP US FTAs so far, followed by a critical appraisal of the strengths and weaknesses of the e-commerce chapter in the TPP. It is hoped that, by reviewing the evolution of the regulation of e-commerce from theWTOto the TPP, we can learn some lessons on how the rules are being shaped, as well as how they might evolve in the future. [ABSTRACT FROM AUTHOR]

What shapes the optimal degree of progressivity of the tax and transfer system? On the one hand, a progressive tax system can counteract inequality in initial conditions and substitute for imperfect private insurance against idiosyncratic earnings risk. On the other hand, progressivity reduces incentives to work and to invest in skills, distortions that are especially costly when the government must finance public goods. We develop a tractable equilibrium model that features all of these trade-offs. The analytical expressions we derive for social welfare deliver a transparent understanding of how preference, technology, and market structure parameters influence the optimal degree of progressivity. A calibration for the U.S. economy indicates that endogenous skill investment, flexible labor supply, and the desire to finance government purchases play quantitatively similar roles in limiting optimal progressivity. In a version of the model where poverty constrains skill investment, optimal progressivity is close to the U.S. value. An empirical analysis on cross-country data offers support to the theory. JEL Codes: D30, E20, H20, H40, J22, J24. [ABSTRACT FROM AUTHOR]

A reprint of the article "Only a Clean Sweep Will Do" by John H. Cochrane, which appeared in the "Wall Street Journal," is presented. Topics include the factors affecting the slow economic growth of the U.S. since 2000, the need for tax reform, overhaul of the social security program and restoration of the rule of law and economic-policy leadership in the Congress.

The authors have presented a very interesting and a very well done paper. Indeed it is so well done technically, that I have a difficult task as a discussant. I have no reason to doubt the accuracy of the computer that ground out the several simulations discussed in the paper, nor is it likely that the authors misunderstood the model employed since Professor Adams was one of the principal developers of the model while he was at the OECD. Rather my attempt to get a handle on the paper will start at a more basic level and I pose the question, why bother? Since history cannot be re-run, what is the purpose of simulating the past under more ideal conditions of macro economic balance? The authors state that they have a two-fold purpose in mind: to determine what were the causes of the deterioration of the U.S. trade balance between 1964 and 1969, and to determine what are the future prospects for the U.S. trade balance. The authors add that these determinations have 'obvious policy implications.' [ABSTRACT FROM AUTHOR]

By replacing the current income tax with a national sales tax, the FairTax proposal would end the double taxation of saving inherent in the existing tax code and, by doing so, raise output, employment, investment and capital stock relative to the benchmark economy. While these positive effects would be felt almost immediately, the FairTax is very much an investment in the future. Its full benefits would be realized only after the economy achieved a new 'steady state,' some 20-25 years into implementation. Only by that point, will the effects on growth have been fully absorbed into the economy and the wellbeing of most households across most income groups improved. The policy choice, then, is between the status quo, and a new policy that would inflict some short-run pain as the price of a permanently expanded economy. [ABSTRACT FROM AUTHOR]

The article discusses the role of constitutional law in the economic and social structures of U.S. society. The author reflects on the forthcoming book "The Anti-Oligarchy Constitution," by Joseph Fishkin and William E. Forbath. Emphasis is given to topics such as the constitutionality of economic opportunity for the middle class, interpretation of constitutional language, and the influence of the New Deal and the Great Society programs under President Lyndon B. Johnson.

We examine legislative activity to determine when Congress threatens the Fed and whether this pressure affects monetary policy. By the late-1980s Congress shifted from threatening when unemployment was high to threatening when inflation was high. We use the Romer and Romer monetary shocks to isolate changes in the federal funds rate that cannot be explained by economic conditions and ask whether these shocks respond to pressure. In the 1970s, the Fed responded to bills credibly threatening Fed powers by lowering the federal funds target below that prescribed by current and forecast economic conditions. However, this accommodation ceased in the mid-1980s. [ABSTRACT FROM AUTHOR]

We examine the pricing of financial crash insurance during the 2007-2009 financial crisis in US option markets, and we show that a large amount of aggregate tail risk is missing from the cost of financial sector crash insurance during the crisis. The difference in costs between out-of-the-money put options for individual banks and puts on the financial sector index increases four-fold from its precrisis 2003-2007 level. We provide evidence that a collective government guarantee for the financial sector lowers index put prices far more than those of individual banks and explains the increase in the basket-index put spread. (JEL E44, G01, G13, G21, G28, H81) [ABSTRACT FROM AUTHOR]

This paper summarizes the book and assesses the reviews contained in the four contributed papers. Gregory Clark provides convincing arguments that extend the book's forecast that future technological change will be slower. Nicholas Crafts shows declining mortality and shorter work hours greatly increase welfare-augmented TFP growth during 1929-50. Benjamin Friedman points out that optimism about future technological change casts doubt on future employment growth, while technological pessimism implies employment optimism. Daron Acemoglu and co-authors emphasize the institutional environment that influences the timing and magnitude of innovation. [ABSTRACT FROM AUTHOR]

This paper reexamines the behavior of inflation and unemployment and reaches four conclusions: 1) The U.S. Phillips curve is alive and well (at least as well as in the past). 2) Inflation expectations however have become steadily more anchored. 3) The slope of the curve has substantially declined. But the decline dates back to the 1980s rather than to the crisis. 4) The standard error of the residual in the relation is large, especially in comparison to the low level of inflation. Each of the four conclusions presents challenges for the conduct of monetary policy. [ABSTRACT FROM AUTHOR]

The United States faces a rising future ratio of debt to GDP that, if allowed to continue, would have serious adverse consequences for the American economy. Fortunately, policy changes can increase the size of the future GDP and shrink the future budget deficits. Relatively small reductions in future annual deficits could reverse the increasing ratio of national debt to GDP. Those annual deficit reductions could be best achieved by slowing the growth of Social Security and Medicare and by raising revenue by limiting tax expenditures or increasing the tax on gasoline. [ABSTRACT FROM AUTHOR]

We exploit regional variations in U.S. house price fluctuations during the boom-bust cycle of the 2000s to study the impact of the housing cycle on young Americans' choices related to education and employment. We find that in MSAs which experienced large increases in house prices between 2001 and 2006, young adults were substantially more likely to forego a higher education and join the workforce, lowering skill formation. During the bust years, the young, especially those without higher education, were more likely to be unemployed in areas which experienced higher declines in house prices. [ABSTRACT FROM AUTHOR]

Changes in household debt and employment across regions of the U.S. during the Great Recession are highly correlated: regions where the decrease in household debt was most pronounced were also regions where the decline in employment was most severe. We show that the drop in employment in the regions that have experienced the largest decrease in household debt is mostly accounted for by changes in the labor wedge (deviations from a static consumption-leisure choice) as opposed to changes in real wages. We argue that such a pattern is consistent with fluctuations in debt constrain01/2ts in a standard Bewley-Aiyagari model. [ABSTRACT FROM AUTHOR]

This paper reviews some of the major claims in Robert Gordon's Rise and Fall of American Growth. His argument that growth of conventional real GDP per person is well below that of real living standards is accepted. It is shown that adding an imputation to GDP for reductions in mortality raises growth substantially, especially between 1929 and 1950. Gordon is also right that total factor productivity growth peaked in the second and third quarters of the twentieth century but his claim that there was a 'great leap forward' in the 1940s, stimulated by World War 2, is not persuasive. [ABSTRACT FROM AUTHOR]

This comment assesses the claim of The Rise and Fall of American Growth that for coming decades, growth in US TFP will continue the disappointing pace of the last decade. While predicting future technological advance is difficult, there are indications that Gordon may actually be too optimistic on future TFP growth. The share of output from manufacturing, which still generates the majority of R&D expenditures, and has historically more rapid TFP growth, will continue to fall. There are substantial obstacles to rapid TFP advance in much of the rest of the economy: construction, transport, health care and other services. [ABSTRACT FROM AUTHOR]

US government bonds are considered to be the world's safe store of value, especially during periods of economic turmoil such as the events of 2008. But what makes US government bonds 'safe assets'? We highlight coordination among investors, and build a model in which two countries with heterogeneous sizes issue bonds that may be chosen as safe asset. Our model illustrates the benefit of a large absolute debt size as safe asset investors have 'nowhere else to go' in equilibrium, and the large country's bonds are chosen as the safe asset. Moreover, the effect becomes stronger in crisis periods. [ABSTRACT FROM AUTHOR]

The fact that actual economic advance over time normally means producing and consuming different things is usually left implicit in modern models of economic growth. By contrast, qualitative change--new goods and services, and better versions of what already existed--is central to Robert Gordon's history of the improvement of American living standards since 1870. A major contribution of his fine-grained account of this experience is to make clear what this improvement has meant, and why it has mattered to ordinary citizens. [ABSTRACT FROM AUTHOR]

We study how unexpected changes in uncertainty about fiscal policy affect economic activity. First, we estimate tax and spending processes for the United States with time-varying volatility to uncover evidence of time-varying volatility. Second, we estimate a VAR for the US economy using the time-varying volatility found in the previous step. Third, we feed the tax and spending processes into an otherwise standard New Keynesian model. Both in the VAR and in the model, we find that unexpected changes in fiscal volatility shocks can have a sizable adverse effect on economic activity. An endogenous increase in markups is a key mechanism. (JEL E12, E23, E32, E52, E62) [ABSTRACT FROM AUTHOR]

Federal budget policy should focus on raising incomes for lower- and middle-income people, because they have benefited little from economic growth in the past few decades. That goal would be advanced by maintaining federal investment as a share of total output, reforming the tax code, encouraging innovation, reducing federal debt slowly, and reducing uncertainty about future policy. However, the likely effects of budget policy on income growth should not be exaggerated. [ABSTRACT FROM AUTHOR]

Business economists work within the confines of an imperfect economy. Economic theory can only take us so far. A less-than-perfect economy is characterized by imperfect information, dynamic adjustments over time and economic policy inconsistencies. Forecasts and scenario analysis must account for these factors for our analysis to deliver results that will better inform both private and public decision makers. [ABSTRACT FROM AUTHOR]