National Bureau of Economic Research Working PapersThe Latest NBER Working Papers
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Perturbation Methods for Markov-Switching DSGE Models -- by Andrew Foerster, Juan Rubio-Ramirez, Daniel F. Waggoner, Tao ZhaMarkov-switching DSGE (MSDSGE) modeling has become a growing body of literature on economic and policy issues related to structural shifts. This paper develops a general perturbation methodology for constructing high-order approximations to the solutions of MSDSGE models. Our new method, called "the partition perturbation method,'' partitions the Markov-switching parameter space to keep a maximum number of time-varying parameters from perturbation. For this method to work in practice, we show how to reduce the potentially intractable problem of solving MSDSGE models to the manageable problem of solving a system of quadratic polynomial equations. We propose to use the theory of Groebner bases for solving such a quadratic system. This approach allows us to first obtain all the solutions and then determine how many of them are stable. We illustrate the tractability of our methodology through two examples.
http://papers.nber.org/papers/w20390#fromrss
http://papers.nber.org/papers/w20390#fromrssEvidence for Relational Contracts in Sovereign Bank Lending -- by Peter Benczur, Cosmin L. IlutThis paper presents direct evidence for relational contracts in sovereign bank lending. Unlike the existing empirical literature, its instrumental variables method allows for distinguishing a direct influence of past repayment problems on current spreads (a "punishment" effect in prices) from an indirect effect through higher expected future default probabilities ("loss of reputation"). Such a punishment provides positive surplus to lenders after a default and decreases the borrower's present discounted value of the net benefits of future borrowing, which create dynamic incentives. Using data on bank loans to developing countries between 1973-1981 and constructing continuous variables for credit history, we find evidence that most of the influence of past repayment problems is through the direct, punishment channel.
http://papers.nber.org/papers/w20391#fromrss
http://papers.nber.org/papers/w20391#fromrssOn the Measure of Distortions -- by Hugo A. HopenhaynAbstract The paper considers formally the mapping from distortions in the allocations of resources across firms to aggregate productivity. TFP gaps are characterized as the integral of a strictly concave function with respect to an employment-weighted measure of distortions. Size related distortions are shown to correspond to a mean preserving spread of this measure, explaining the stronger effects on TFP found in the literature. In general, the effect of correlation between distortions and productivity is shown to be ambiguous; conditions are given to determine its sign. An empirical lower bound on distortions based on size distribution of firms is derived and analyzed, revealing that substantial rank reversals in firm size are necessary for distortions to explain large TFP gaps. The effect of curvature on the impact and measurement of distortions is also considered.
http://papers.nber.org/papers/w20404#fromrss
http://papers.nber.org/papers/w20404#fromrssPrice Setting in Online Markets: Basic Facts, International Comparisons, and Cross-border Integration -- by Yuriy Gorodnichenko, Oleksandr TalaveraWe document basic facts about prices in online markets in the U.S. and Canada, a rapidly growing segment of the retail sector. Relative to prices in regular stores, prices in online markets are more flexible as well as exhibit stronger pass-through (60-75 percent) and faster convergence (half-life less than 2 months) in response to movements of the nominal exchange rate. Multiple margins of adjustment (frequency of price changes, direction of price changes, size of price changes, exit of sellers) are active in the process of responding to nominal exchange rate shocks. Furthermore, we use the richness of our dataset to show that degree of competition, stickiness of prices, synchronization of price changes, reputation of sellers, and returns to search effort are important determinants of pass-through and speed of price adjustment for international price differentials.
http://papers.nber.org/papers/w20406#fromrss
http://papers.nber.org/papers/w20406#fromrss