Macroeconomics

This paper presents new evidence on the dynamics of dollarization and euroization for twenty-five transition countries. Estimates of the amount of foreign currency in circulation (FCC) in transition countries are used to develop a new comprehensive dollarization index (CDI) and separate indices of currency substitution (CSI) and asset substitution (ASI). When the CDI is compared to the traditional dollarization index (DI) that relies solely on foreign currency deposits as a proxy for the extent of dollarization, I find that the comprehensive dollarization measure provides a more complete picture of the extent of de facto dollarization and euroization, and that it better reflects the separate influences of currency substitution and asset substitution. I find that the dynamic evolution of currency substitution and asset substitution in transition countries is both more variable and complex than is usually believed to be the case. These new dollarization indicators enable researchers to examine the causes of the dollarization process and its tendency to lead to irreversibility (hysteresis). Moreover, the currency substitution and asset substitution indices shed light on the dynamic consequences of these processes for the effectiveness of monetary policy. Finally, the new estimates of FCC make possible the measurement of effective currency/deposit ratios that can be used to develop new estimates of the size and growth of underground economies in transition countries. JEL classification: E4 E5 F3 H26 K42 P2 P3 Keywords: dollarization, euroization, transition economies, currency substitution, asset substitution, underground economies, foreign currency, network externalities, irreversibility.

Citation: Edgar L. Feige, (2003) “The Dynamics of Currency Substitution, Asset Substitution and de facto Dollarization and Euroization in Transition Countries” Comparative Economic Studies, Vol. 45, Issue 3, Fall 2003. pp. 358-383

A taxonomy of underground economies is elaborated based on the new institutional approach to economic development. Members of formal sectors confront different sets of transformation and transaction costs than do members of informal sectors and these differences are regarded as crucial to the development process. The paper distinguishes illegal, unreported, unrecorded and informal economies and examines the conceptual and empirical linkages among them. Alternative micro and macro methodologies for measuring underground activities are reviewed and evaluated including census and survey procedures, discrepancies and monetary methods. To be published in World Development, Vol 18, No 7, 1990.

he Soviet Union and the nations of Eastern Europe are undergoing a historically unprecedented restructuring as they move inexorably from centrally planned economies toward market economies. This historic transition must be guided by a coherent set of stabilization policies to reduce the threat of macroeconomic collapse and the threat of inflation. As a precursor to price liberalization, private property rights must be created, distributed and credibly enforced in order to ensure that these rights can be freely traded at market prices. The creation and distribution of property rights must find a balance between the competing goals of equity on the one hand and efficient governance structures on the other. Finally, provision must be made for a social safety net, sufficiently broad to minimize the short run burden of an inevitably costly adjustment process in order to avoid a crisis of constitutional authority. A program of “Socialist Privatization” is proposed as a political means of establishing market capitalism on the basis of an equitable distribution of wealth.

Recent research on the unobserved economy suggests that the phenomenon has important implications for both macroeconomic policy and public finance. Attention is focused on the public finance implications by developing a simple macro model from which it is possible to derive a Laffer curve. The model reveals that the shape and position of the Laffer curve depend upon the strength of supply side effects, the progressivity of the tax system and the size of the unobserved economy. Using alternative parameterizations of each of these effects, it is possible to obtain rough empirical estimates of the Laffer curve for Sweden.

This paper examines alternative specifications of a general currency ratio (GCR)model used to obtain macroeconomic estimates of the size and growth of the 'underground economy'. Tanzi's approach to estimating the underground economy is shown to be a variation of the GCR model. However both his conceptual specification and his empirical implementation of the model are shown to flawed, leading to significant underestimation of the size and growth of unreported income in the US economy. The paper appears in the International Monetary Fund Staff Papers, Vol. 33 No. 4 December, 1986

The paper reexamines the strengths and weakness of all direct and indirect methods of estimating the amount of US currency held abroad and concludes that between 25% -45% of US currency is held abroad. This result stands in sharp contrast to the widely cited estimates presented by Porter and Judson (1996) who claim that between 55% -70% of US currency is held abroad. The new estimates of currency held abroad are used to derive a domestic currency series which is then employed in a conventional currency ratio model to estimate the size and growth of the unreported economy in the US between 1973 and 1994.

Citation: Edgar L. Feige, (1997) “Revised Estimates of the Size of the U.S. Underground Economy: The Implications of US Currency Held Abroad” in Owen Lippert and Michael Walker (ed) The Underground Economy: Global Evidence of its Size and Impact, Fraser Institute, 1997, pp. 151-208

This paper examines why some transitions are more successful than others by focusing attention on the role of productive, protective and predatory behaviors from the perspective of the new institutional economics. Many transition economies are characterized by a fundamental inconsistency between formal and informal institutions. When formal and informal rules clash, noncompliant behaviors proliferate, among them, tax evasion, corruption, bribery, organized criminality, and theft of government property. These wealth redistributing protective and predatory behaviors activities absorb resources that could otherwise be used for wealth production resulting in huge transition costs. Noncompliant behaviors--evasion, avoidance, circumvention, abuse, and/or corruption of institutional rules--comprise what we can be termed underground economies. A variety of underground economies can be differentiated according to the types of rules violated by the noncompliant behaviors. The focus of the new institutional economics is on the consequences of institutions--the rules that structure and constrain economic activity--for economic outcomes. Underground economics is concerned with instances in which the rules are evaded, circumvented, and violated. It seeks to determine the conditions likely to foster rule violations, and to understand the various consequences of noncompliance with institutional rules. Noncompliance with ‘bad” rules may actually foster development whereas non compliance with “good” rules will hinder development. Since rules differ, both the nature and consequences of rule violations will therefore depend on the particular rules violated. Institutional economics and underground economics are therefore highly complementary. The former examines the rules of the game, the latter the strategic responses of individuals and organizations to those rules. Economic performance depends on both the nature of the rules and the extent of compliance with them. Institutions therefore do affect economic performance, but it is not always obvious which institutional rules dominate. Where formal and informal institutions are coherent and consistent, the incentives produced by the formal rules will affect economic outcomes. Under these circumstances, the rule of law typically secures property rights, reduces uncertainty, and lowers transaction costs. In regimes of discretionary authority where formal institutions conflict with informal norms, noncompliance with the formal rules becomes pervasive, and underground economic activity is consequential for economic outcomes.

It is widely acknowledged that underground (unrecorded) economic activities play a major role in transition economies. Evaluations of the success and failure of the transition experience should therefore be based on total economic activity [TEA], namely, the sum of recorded and unrecorded economic activity. Substantive conclusions concerning the effects of unrecorded activities on the transition process as well as investigations of the causes and consequences of unrecorded activities have to date, relied extensively on estimates of unrecorded income based on variants of the electric consumption method [ECM] during the first half of the transition process. We first attempt to replicate these estimates employing improved data series. We then go on to extend and update alternative versions of the ECM estimates of unrecorded income for twenty five transition countries for the period 1989-2001. These new estimates enable us to examine the sensitivity of the results to alternative specifying assumptions, particularly, initial conditions. We find that our updated ECM estimates of the size of the unrecorded sector are not only highly sensitive to initial conditions, but they produce negative estimates of unrecorded income for many transition countries. Our findings are also compared to the new national accounting procedures that attempt to estimate exhaustive measures of the “non-observed economy”. Our disturbing results call into question many of the substantive conclusions reached by other scholars who relied on earlier ECM estimates to draw inferences about the transition process as well as the causes and consequences of underground economies in transition. In short, while we conclude that ECM estimates of the size of the unrecorded economy are unreliable, it is still possible to use the growth rate of the unrecorded sector to make important inferences about the transition process by examining the dynamic relationship between recorded and unrecorded sectors. The extension of our data base to cover the entire transition period will hopefully result in new investigations employing panel data rather than the more traditional method of applying simple cross country test procedures.

This paper compiles alternative estimates of underground economies in twenty five transition countries during the transition decade and finds a disturbing lack of convergence between them, calling into question the reliability of GDP figures (which in varying degrees now include non-transparent imputations for the “non-observed economy”) as well as the macro model estimates of the unrecorded economy. A corollary of this finding is that substantive results from many studies examining the consequences of the radical transition from planned to market economies must be viewed with considerable skepticism. Underground (unobserved, non-observed, unrecorded) economic activities play a major role in transition economies. Evaluations of the success and failure of the transition experience should be based on estimates of total economic activity (TEA) namely, recorded plus unrecorded economic activity. We examine the conceptual and empirical relationships between new National Income and Product Accounts (NIPA) methods for obtaining “exhaustive” measures of total economic activity and the two most popular macro-model approaches (electric consumption and currency ratio models) for estimating the size and growth of the unrecorded sector. Our updated empirical results detailing the size and trajectory of unrecorded activities obtained from different estimation methods reveal a disturbing lack of convergence. Until these important differences are resolved, investigations of the relationship between economic reforms and economic outcomes during the transition decade must be viewed with considerable caution. Given the shortcomings of conventional macro model estimates of the underground economy and the lack of transparency and consistency of NOE estimates, it is high time that the profession acknowledges how little we really know about underground economies and their causes and consequences.

This paper examines the desirability and feasibility of replacing the present system of personal and corporate income, sales, excise, capital gains, import and export duties, gift and estate taxes with a single comprehensive revenue neutral Automated Payment Transaction (APT) tax. In its simplest form, the APT tax consists of a flat tax levied on all transactions. The tax is automatically assessed and collected when transactions are settled through the electronic technology of the banking/ payments system. The APT tax introduces progressivity through the tax base since the volume of final payments includes exchanges of titles to property and is therefore more highly skewed than the conventional income or consumption tax base. The wealthy carry out a disproportionate share of total transactions and therefore bear a disproportionate burden of the tax despite its flat rate structure. The automated recording of all APT tax payments by firms and individuals creates a degree of transparency and perceived fairness that induces greater tax compliance. Also, the tax has lower administrative and compliance cost. Like all taxes, the APT tax creates new distortions whose costs must be weighted against the benefits obtained by replacing the current tax system

propose the replacement of our current system of individual and corporate income, sales, excise, capital gains, import and export duties, gift and estate taxes with a single comprehensive “revenue neutral” Automated Payment Transaction (APT) tax. The APT tax consists of a flat rate tax levied on all voluntary transactions. The total volume of transactions represents the broadest conceivable tax base and therefore requires the lowest conceivable marginal tax rate. Since the efficiency (misallocation) costs of a tax system tend to rise geometrically with the marginal tax rate, a massive reduction in tax rates can save an estimated $300 billion of misallocation costs associated with the current tax system. The APT tax is automatically assessed and collected when transactions are routinely settled through the electronic technology of the bank/payments clearing system with no deductions, exemptions, or exclusions. The APT tax also imposes an automatically collected tax on cash as it enters and leaves the banking system. All income and information tax returns are eliminated as taxes are digitally assessed and collected by the financial equivalent of the E-Z pass that is now used to speed traffic through a toll booth system on highways. The annual savings in compliance and administrative costs are estimated to be $200 billion per year. Unlike the “Fair Tax” or “National Sales Tax” proposals which are highly regressive, the flat rate APT tax introduces progressivity through the tax base since the total volume of transactions includes all asset transactions involving exchanges of titles to property. The wealthy carry out a disproportionate share of these asset exchanges and therefore bear a disproportionate burden of the tax despite its flat rate structure. The perceived fairness, even handedness and simplicity of the APT tax will greatly reduce tax evasion, which the IRS estimates to total $325 billion per year. Like all taxes, the APT tax creates new distortions which must be weighed against the benefits obtained by scrapping the current tax system. Scrapping the present tax system tax promises potential benefits estimated at $825 billion annually. The proposed APT tax is simple, comprehensible, fair and efficient, with minimal administrative and compliance costs. The burden of proof therefore rests with APT tax opponents who must demonstrate that its costs exceed the $825 billion of potential annual benefits.

Dynamic Stochastic General Equilibrium (DSGE) models are now considered attractive by the profession not only from the theoretical perspective but also from an empirical standpoint. As a consequence of this development, methods for diagnosing the fit of these models are being proposed and implemented. In this article we illustrate how the concept of statistical identification, that was introduced and used by Spanos(1990) to criticize traditional evaluation methods of Cowles Commission models, could be relevant for DSGE models. We conclude that the recently proposed model evaluation method, based on the DSGE-VAR(λ), might not satisfy the condition for statistical identification. However, our application also shows that the adoption of a FAVAR as a statistically identified benchmark leaves unaltered the support of the data for the DSGE model and that a DSGE-FAVAR can be an optimal forecasting model.

ABSTRACT_____________________________________________________________ A sudden stop of capital flows into a developing country tends to be followed by a rapid switch from trade deficits to surpluses, a depreciation of the real exchange rate, and decreases in output and total factor productivity. Substantial reallocation takes place from the nontraded sector to the traded sector. We construct a multisector growth model, calibrate it to the Mexican economy, and use it to analyze Mexico's 1994-95 crisis. When subjected to a sudden stop, the model accounts for the trade balance reversal and the real exchange rate depreciation, but it cannot account for the decreases in GDP and TFP. Extending the model to include labor frictions and variable capital utilization, we still find that it cannot quantitatively account for the dynamics of output and productivity without losing the ability to account for the movements of other variables.

We examine the bilateral trade patterns of countries involved in significant trade liberalizations using detailed data on the value of trade flows by commodity. We find a striking relationship between a good's pre-liberalization share in trade and its growth subsequent to liberalization. The goods that were traded the least before the liberalization account for a disproportionate share in trade following the reduction of trade barriers. The set of goods that accounted for only ten percent of trade before the liberalization may account for as much as 40 percent of trade following the liberalization. This new finding cannot be accounted for by the standard models of trade, which rely on increases in previously traded goods to produce trade growth. We modify the standard Dornbusch-Fischer-Samuelson model of Ricardian trade to provide a model capable of delivering these new facts. Our specification improves on previous Ricardian models by providing a technology process that can be calibrated using data on intra-industry trade. ________________________________________________________________________ *© 2002, Timothy J. Kehoe and Kim J. Ruhl. We would like to thank

Governments determine the size of the unit of value just as they determine the length of the length and weight of physical units of measure. What are the different ways that a government can control the size of the unit of value, that is, control the price level? In general, the government designates a resource-gold, paper currency, another country's currency-and defines its unit of value as a particular amount of that resource. An interesting variant-proposed by Irving Fisher in 1913 and implemented more recently in Chile-is to alter the resource content of the unit to stabilize the price level. Another idea is to alter the interest rate paid on reserves in a way that stabilizes the price level.

I show that the full-insurance model of consumption choice is a reasonable approximation to the more realistic case of no insurance when the adverse shocks take the form of spells of unemployment. Further, my results support the assumption of the Mortensen-Pissarides model that the flow amenity value of unemployment-the value of not having to work-is a constant when stated in units of consumption. By accumulating precautionary balances, workers are able to keep the common value of the marginal utility of consumption and the marginal value of wealth reasonably close to constant, despite a realistic hazard of unemployment.

A vast empirical literature has documented delayed and persistent effects of monetary policy shocks on output. We show that this finding results from the aggregation of output impulse responses that differ sharply depending on the timing of the shock:

This paper explores ways to integrate model uncertainty into policy evaluation. We first describe a general framework for the incorporation of model uncertainty into standard econometric calculations. This framework employs Bayesian model averaging methods that have begun to appear in a range of economic studies. Second, we illustrate these general ideas in the context of assessment of simple monetary policy rules for some standard New Keynesian specifications. The specifications vary in their treatment of expectations as well as in the dynamics of output and inflation. We conclude that the Taylor rule has good robustness properties, but may reasonably be challenged in overall quality with respect to stabilization by alternative simple rules that also condition on lagged interest rates, even though these rules employ parameters that are set without accounting for model uncertainty.

This paper develops a general framework for conducting local robustness analysis. By local robustness, we refer to the calculation of control solutions that are chosen so as to be optimal against the least favorable model within a small set of possible models. This set is defined local to an initial baseline model. We provide Nash and Stackelberg equilibrium characterizations of the choice of control in such contexts. We then apply this abstract formulation to the analysis of how a desire for robustness influences the choice of control for discrete time control problems of the type often found in macroeconomics.

Many traditional macroeconomic models do not have determinate predictions for the path of inflation: even for a given specification of money supplies, many paths of inflation are consistent with equilibrium. According to the fiscal theory of the price level, fiscal policy can be used to select which of these many paths actually occur. This article explains the fiscal theory of the price level and discusses its empirical and policy implications. The article argues that the theory is equivalent to giving the government an ability to choose among equilibria.

Business cycles appear to be large, persistent, and asymmetric relative to the shocks hitting the economy. This observation suggests the existence of an asymmetric amplification and propagation mechanism, which transforms the shocks into the observed movements in aggregate output. This article demonstrates, in a small open economy, how credit constraints can be such a mechanism. The article also shows, however, that the quantitative significance of the amplification which credit constraints can provide is sensitive to the quantitative specification of the underlying economy (especially factor shares).

Many traditional macroeconomic models do not have determinate predictions for the path of inflation: even for a given specification of money supplies, many paths of inflation are consistent with equilibrium. According to the fiscal theory of the price level, fiscal policy can be used to select which of these many paths actually occur. This article explains the fiscal theory of the price level and discusses its empirical and policy implications. The article argues that the theory is equivalent to giving the government an ability to choose among equilibria.

Business cycles appear to be large, persistent, and asymmetric relative to the shocks hitting the economy. This observation suggests the existence of an asymmetric amplification and propagation mechanism, which transforms the shocks into the observed movements in aggregate output. This article demonstrates, in a small open economy, how credit constraints can be such a mechanism. The article also shows, however, that the quantitative significance of the amplification which credit constraints can provide is sensitive to the quantitative specification of the underlying economy (especially factor shares).

In this paper, we consider economies in which agents are privately informed about their skills, which evolve stochastically over time. We require agents'preferences to be weakly separable between the lifetime paths of consumption and labor. However, we allow for intertemporal nonseparabilities in preferences like habit formation. We show that such nonseparabilities imply that optimal asset income taxes are necessarily retrospective in nature. We show that under weak conditions, it is possible to implement a socially optimal allocation using a social security system in which taxes on wealth are linear, and taxes/transfers are history-dependent only at retirement. The average asset income tax in this system is zero.

Web site: http://www.pitt.edu/˜jfeigen. The results here can be simply generalized to the entire hyperbolic absolute risk aversion (HARA) family of preferences. However, analytic results already exist for the most interesting representatives of the HARA class not covered here, i.e. constant absolute risk aversion (CARA) (Caballero (1990)) and quadratic utility, although the preference shocks have to be turned off (m t = 0) in the case of CARA utility.

Precautionary saving in response to uninsurable income risk can explain the stylized fact that aggregate saving increases with the crosssectional variation in income, but it is questionable how much of this variation can be ascribed to uninsurable risk and how much is, in fact, predictable. Borrowing constraints offer an alternative explanation for this observation that does not require consumers to be uncertain about their future income. This paper employs a three-cohort, overlapping generations model with quadratic utility and no capital to show that, if agents are patient enough, heterogeneity alone can account for more than half the decrease in the equilibrium interest rate caused by a borrowing constraint. The possibility of facing a binding borrowing constraint in the future induces saving, and this saving increases with the cross-sectional variation in income. However, another channel through which the interest rate decreases is the direct effect that currently constrained agents borrow less. For low discount factors, this direct effect dominates. If agents are patient enough, the two channels have roughly the same impact on the interest rate.

Contrary to the usual presumption that welfare is maximized if consumers behave rationally, we show in a two-period overlapping generations model that there always exists a consumption rule that can weakly improve upon the lifecycle/permanent-income rule in general equilibrium.

We examine the role of central bank transparency when the private sector is modeled as adaptive learners. In our model, transparent policies enable the private sector to adopt correctly specified models of inflation and output while intransparent policies do not. In the former case, the private sector learns the rational expectations equilibrium while in the latter case it learns a restricted perceptions equilibrium. These possibilities arise regardless of whether the central bank operates under commitment or discretion. We provide conditions under which the policy loss from transparency is lower (higher) than under intransparency, allowing us to assess the value of transparency when agents are learning. JEL classification: D83; E52; E58.

We include learning in a standard equilibrium business cycle model with explicit growth. We use the model to study how the economy's agents could learn in real time about the important trend-changing events of the postwar era in the U.S., such as the productivity slowdown, increased labor force participation by women, and the "new economy" of the 1990s. We find that a large fraction of the observed variance of output relative to trend can be attributed to structural change in our model. However, we also find that the addition of learning and occasional structural breaks to the standard and widely-used growth model results in a balanced growth puzzle, as our approach cannot completely account for observed trends in U.S. aggregate consumption and investment. Finally, we argue that a model-consistent detrending approach, such as the one we suggest here, is necessary if the goal is to obtain an accurate assessment of an equilibrium business cycle model.

We build a directed search model of the labor market in which workers' transitions between unemployment, employment, and across employers are endogenous. We prove the existence, uniqueness and efficiency of a recursive equilibrium with the property that the distribution of workers across employment states does not affect the agents' values and strategies. Because of this property, we are able to compute the equilibrium outside the non-stochastic steady-state. We use a calibrated version of the model to measure the effect of productivity shocks on the US labor market. We find that productivity shocks generate procyclical fluctuations in the rate at which unemployed workers become employed and countercyclical fluctuations in the rate at which employed workers become unemployed. Moreover, we find that productivity shocks generate large countercyclical fluctuations in the number of vacancies opened for unemployed workers and even larger procyclical fluctuations in the number of vacancies created for employed workers. Overall, productivity shocks alone can account for 80 percent of unemployment volatility, 30 percent of vacancy volatility and for the nearly perfect negative correlation between unemployment and vacancies. JEL Codes: E24, E32, J64.

We study economies with multiple assets that are valued both for their return and liquidity. Exchange occurs in decentralized markets with frictions making a medium of exchange essential. Some assets are better suited for this role because they are more liquid -more likely to be accepted in trade -even if they have a lower return. The reason assets are more or less likely to be accepted is modeled using informational frictions, or recognizability. While everyone understands e.g. what currency is and what it is worth, some might be less sure about other claims. In our model, agents who do not recognize assets do not accept them in trade. Recognizability is endogenized by letting agents invest in information, potentially generating multiple equilibria with different liquidity. We discuss implications for asset pricing and for monetary policy. In particular, we show explicitly that what may look like a cash-in-advance constraint is not invariant to policy interventions or other changes in the economic environment.

time diaries and expenditure data for the United States for 1985 and 2003, I examine how income and time prices affect time and goods inputs into eating. Both inputs increase with income, and higher time prices reduce time inputs. Between 1985 and 2003 the goods intensity of eating increased, especially lower in the income distribution, and average time inputs dropped, particularly time spent shopping, preparing, and cleaning up after meals. The results are consistent with relatively difficult goods-time substitution in eating that becomes more difficult as household production expands.

This paper uses the Panel Study of Income Dynamics to provide some of the first direct evidence that wealth is systematically higher for consumers with predictably greater income uncertainty. However, the apparent pattern of precautionary wealth is not consistent with a standard parameterization of the life cycle model in which consumers are patient enough to begin saving for retirement early in life: wealth is estimated to be far less sensitive to uncertainty than implied by that model. Instead, our results suggest that over most of their working lifetime, consumers behave in accordance with the "buffer-stock" models of saving described in or , in which consumers hold wealth principally to insulate consumption against near-term fluctuations in income.

We consider the open economy consequences of U.S. monetary policy, extending the identification approach of Romer and Romer [2004] and adapting it for use with asset prices. Intended policy changes are orthogonalized against the economy's expected future path, which captures any effects from open economy variables. Estimated from a set of bilateral VARs, the dynamic responses of the exchange rate, foreign interest rate, and foreign output are consistent with recent work that identifies U.S. policy via futures market changes and a priori impulse response bounds. We compare the two approaches, finding important commonalities. We also outline some advantages of our approach. JEL Classification: E52, F31, F41 Keywords: open economy monetary policy identification, exchange rate adjustment, interest rate pass-through † This paper supersedes Nuffield College Working Papers 2005-w18 and 2006-w04. The authors acknowledge financial support from British Academy post-doctoral fellowships. We would like to thank

We develop a novel system of re-classifying historical exchange rate regimes. One difference between our study and previous classification efforts is that we employ an extensive data base on market-determined parallel exchange rates. Our "natural" classification algorithm leads to a stark reassessment of the post-war history of exchange rate arrangements. When the official categorization is a form of peg, roughly half the time our classification reveals the true underlying monetary regime to be something radically different, often a variant of a float. Conversely, when official classification is floating, our scheme routinely suggests that the reality was a form of de facto peg. Our new classification scheme points to a complete rethinking of economic performance under alternative exchange rate regimes. Indeed, the breakup of Bretton Woods had a far less dramatic impact on most exchange rate regimes than is popularly believed. Also, contrary to an influential empirical literature, our evidence suggests that exchange rate arraignments may be quite important for growth, trade and inflation. Our newly compiled monthly data set on market-determined exchange rates goes back to 1946 for 153 countries.

This paper tests between the standard "random matching function" approach and "stock-flow" matching while controlling for temporal aggregation bias. Consistent with previous empirical work, the random matching function fits the matching data reasonably well. But match flows are more highly correlated with vacancy inflows than is consistent with the random matching approach. Instead the data support stock-flow matching, where unemployed workers match directly with suitable new vacancies as such vacancies come on to the market.

This paper tests whether manufacturing exporters pay more to educated workers in an e¤ort to ascertain whether the productivity of human capital is raised by exports. Using a panel of matched employer-employee data from Morocco, we …nd no evidence that the education wage premium is higher in exporting sectors and …rms. Although exporters pay more on average, much of the wage di¤erential can be explained by the fact that exporters have a larger workforce and more capital. Educated workers who start working for an exporter do not experience a larger wage increase relative to their previous job. We …nd a mild positive association between exports, technology, and product quality, part of which is due di¤erences in …rm size. We discuss why our results di¤er from those obtained using di¤erent countries and methodologies.

This paper tests the efficiency of insurance markets in the Pakistan Punjab by examining how crop choices are affected by the presence of price and yield risk. We estimate reduced-form and structural models of crop choices. Although we cannot reject the hypothesis that village members efficiently share risk among themselves, production choices are shown to depend on risk. Existing risk sharing and selfinsurance mechanisms thus imperfectly protect Punjab farmers against village-level shocks. Results also indicate that households respond to consumption price risk, thereby suggesting that empirical and theoretical work on risk should avoid putting an exclusive emphasis on yield and output price risk.

Does capital-embodied technological change play an important role in shaping labor market inequalities? This paper addresses the question in a model with vintage capital and search-matching frictions where costly capital investment leads to heterogeneity in productivity among vacancies in equilibrium. The paper Þrst demonstrates analytically 1) how technology growth affects equilibrium wage inequality, income shares and unemployment, and 2) how its impact depends on the presence of labor market institutions (welfare beneÞts, Þring taxes). Next, it applies the model to a quantitative evaluation of vintage capital as an origin of wage inequality: through labor market frictions, a 10-year age differential in capital translates into a 4% wage gap among exante equal workers. Finally, the model allows a U.S.-continental Europe comparison: a common embodied technological acceleration interacted with different labor market institutions can explain a substantial part of the differential rise in unemployment and capital share and some of the differential dynamics in wage inequality.