Institutional Affiliation: Yeshiva University
|Interpreting the Great Moderation: Changes in the Volatility of Economic Activity at the Macro and Micro Levels|
with Steven J. Davis: w14048
We review evidence on the Great Moderation in conjunction with evidence about volatility trends at the micro level. We combine the two types of evidence to develop a tentative story for important components of the aggregate volatility decline and its consequences. The key ingredients are declines in firm-level volatility and aggregate volatility -- most dramatically in the durable goods sector -- but the absence of a decline in household consumption volatility and individual earnings uncertainty. Our explanation for the aggregate volatility decline stresses improved supply-chain management, particularly in the durable goods sector, and, less important, a shift in production and employment from goods to services. We provide evidence that better inventory control made a substantial cont...
Published: Steven J. Davis & James A. Kahn, 2008. "Interpreting the Great Moderation: Changes in the Volatility of Economic Activity at the Macro and Micro Levels," Journal of Economic Perspectives, American Economic Association, vol. 22(4), pages 155-80, Fall. citation courtesy of
|What Inventory Behavior Tells Us About Business Cycles|
with Mark Bils: w7310
Manufacturers' finished goods inventories move less than shipments over the business cycle. We argue that this requires marginal cost to be more procyclical than is conventionally measured. We construct, for six manufacturing industries, alternative measures of marginal cost that attribute high-frequency productivity shocks to procyclical work effort, and find that they are much more successful in accounting for inventory behavior. The difference is attributable to cyclicality in the shadow price of labor, not to diminishing returns in fact, parametric evidence suggests that the short-run slope of marginal cost is close to zero for five of the six industries. Moreover, while our measures of marginal cost are procyclical relative to output price, they are too persistent for intertemporal su...
Published: Bils, Mark and James A. Kahn. "What Inventory Behavior Tells Us About Business Cycles," American Economic Review, 2000, v90(3,Jun), 458-481. citation courtesy of
|The Design of Bank Loan Contracts, Collateral, and Renegotiation|
with Gary Gorton: w4273
Empirical evidence suggests that banks playa unique role in the savings-investment process, affecting firms' cost of capital and the level of investment. We argue that bank uniqueness is related to how the design of bank loan contracts allows banks to affect borrowers' choice of project risk. Unlike corporate bonds, bank loans are typically secured senior debt which contain embedded options allowing the bank to "call" the loan. The option allows the bank tv control borrowers' risk-taking activity via renegotiation of the loan. We analyze the renegotiation outcomes and show that: (1) debt forgiveness occurs; (2) monitoring by the bank is not always successful in preventing the borrower from increasing risk; (3) renegotiated interest rates are not monotonic in borrower type; (4) inefficient ...
Published: Gorton, G. and J. Kahn. "The Design Of Bank Loan Contracts," Review of Financial Studies, 2000, v13(2,Summer), 331-364.
|The Positive Economics of Methodology|
with Steve Landsburg, Alan C. Stockman: t0082
Does an observation constitute stronger evidence for a theory if it was made after rather than before the theory was formulated, when it may have influenced the theory's construction? Philosophers have discussed this question (of "novel confirmation") but have lacked a formal model of scientific research and incentives. The question applies to all types of research. One example in economics involves evaluating models constructed on the basis of VARs (where a researcher looks at evidence and then constructs a theory) versus structural models with formal econometric tests (where a model is constructed before some of the evidence on it is obtained). This paper develops a simple model of scientific research. It discusses the issues that affect the answer to this question of the timing and theo...
Published: Kahn, James A., Steven E. Landsburg and Alan C. Stockman. "The Positive Economics Of Methodology," Journal of Economic Theory, 1996, v68(1,Jan), 64-76.