Macroeconomics

We discuss the evolution in macroeconomic thought on the monetary policy transmission mechanism and present related empirical evidence. The core channels of policy transmission — the neoclassical links between short-term policy interest rates, other asset prices such as long-term interest rates, equity prices, and the exchange rate, and the consequent effects on household and business demand — have remained steady from early policy-oriented models (like the Penn-MIT-SSRC MPS model) to modern dynamic, stochastic general equilibrium (DSGE) models.

We use detailed data from New York City to estimate how the characteristics of school principals relate to school performance, as measured by students' standardized exam scores and other outcomes. We find little evidence of any relationship between school performance and principal education and pre-principal work experience, although we do find some evidence that experience as an assistant principal at the principal's current school is associated with higher performance among inexperienced principals.

The heated debate about how to reform Social Security has come to a standstill because the view of most Democrats (that Social Security must be a defined benefits plan similar in spirit to the current system) seems irreconcilable with the proposals supported by many Republicans (to create a defined contribution system of personal accounts holding marketed assets).

We revisit and critically reevaluate the widely accepted modernization hypothesis which claims that per capita income causes the creation and the consolidation of democracy. Existing studies find support for this hypothesis because they fail to control for the presence of omitted variables. Controlling for these factors either by including country fixed effects in a linear model or by including parameterized random effects in a non-linear double hazard model removes the correlation between income and the likelihood of transitions to and from democratic regimes.

Two leading scholars of business and finance introduce a bold idea for the world's poorest countries. Over the past twenty years, more citizens in China and India have raised themselves out of poverty than anywhere else at any time in history. They accomplished this through the local business sector—the leading source of prosperity for all rich countries. In most of Africa and other poor regions, the business sector is weak, but foreign aid continues to fund government and NGOs.

The literature on the benefits and costs of financial globalization for developing countries has exploded in recent years, but along many disparate channels with a variety of apparently conflicting results. There is still little robust evidence of the growth benefits of broad capital account liberalization, but a number of recent papers in the finance literature report that equity market liberalizations do significantly boost growth.

This paper studies the joint impact of corruption on the entry mode and volume of inward foreign direct investment (FDI) using a unique firm-level data set. We find that corruption not only reduces inward FDI, but also shifts the ownership structure towards joint ventures. The latter finding supports the view that corruption increases the value of using a local partner to cut through the bureaucratic maze. However, R&D intensive firms are found to favor sole ownership.

In a recent paper, Ichino and Moretti (2009) present evidence from a large Italian bank that much of the gap in absenteeism between women and men can be explained by absences with a 28-day cycle. These cyclical absences are interpreted as an effect of menstruation which can explain 14% of the gender earnings gap. While the health consequences of menstruation are undeniable, the general importance of menstruation in explaining gender gaps in absenteeism and earnings is unclear.

This paper argues that the U.S. mortgage debacle must be analyzed in the broader setting of global real estate markets. Recent U.S. home price growth closely tracked increases in other developed economies. The analysis distinguishes among market regions in terms of supply elasticity and localized transactions-costs. A series of user-cost models are presented which imply that interest rate fluctuations must figure prominently in any explanation of movements in price/rent ratios. National factors such as the expansion of subprime credit must also be accounted for.