This paper has develop a simple approach to valuing stocks in the presence of learning about average profitability. The market-to-book ratio (M/B) increases with uncertainty about average profitability, especially for firms that pay no dividends. M/B is predicted to decline over a firm's lifetime due to learning, with steeper decline...
This paper introduces the concept of debt intolerance,' which manifests itself in the extreme duress many emerging markets experience at debt levels that would seem manageable by advanced country standards. Debt intolerance is linked to the phenomenon of serial default that has plagued many countries over the past two centuries....
This paper is about a simple model of corporate investment to determine when investment will be sensitive to non-fundamental movements in stock prices. The key cross-sectional prediction of the model is that stock prices will have a stronger impact on the investment of firms that are 'equity dependent' - firms...
This paper investigates the reasons for discrepancies between the pension plan type reported by respondents to the Health and Retirement Study HRS and pension plan type obtained from documents produced by their employers, called Summary Plan descriptions SPDs. The analysis suggests the discrepancies are sizable and are mainly due to...
This paper examines the investment decision problem of a group whose members have heterogeneous time preferences. In particular, they have different discount factors for utility, possibly not exponential. It characterizes the properties of efficient allocations of resources and of shadow prices that would decentralize such allocations. The paper shows in...
This paper develops a general equilibrium model of multi-product firms and analyzes their behavior during trade liberalization. Firm productivity in a given product is modeled as a combination of firm-level "Ability" and firm-product-level "Expertise", both of which are stochastic and unknown prior to the firm's payment of a sunk cost...
This paper investigates the international transmission of productivity shocks in a sample of five G7 countries. For each country, using long-run restrictions, the authors identify shocks that increase permanently domestic labor productivity in manufacturing our measure of tradables relative to an aggregate of other industrial countries including the rest of...
Over the last half-century, around the world, many nations have seen plummeting fertility rates and mounting life expectancies. These two factors are the engine behind unprecedented global aging. This paper explores how the demographic transition may influence financial markets and, in turn, how financial market innovation might help resolve concerns...
A century ago, everyone thought time and distance were well defined physical concepts. But neither proved absolute. Instead, measures/reports of time and distance were found to depend on one's reference point, specifically one's direction and speed of travel, making the apparent physical reality, in Einstein's words, "Merely an illusion." Like...
This paper examines the frequency, pervasiveness and determinants of product switching among U.S. manufacturing firms. It is found that two-thirds of firms alter their mix of five-digit SIC Standard Industrial Classification products every five years, that one-third of the increase in real U.S. manufacturing shipments between 1972 and 1997 is...
In this paper, the authors formulate a time-scale decomposition of an international version of the CAPM that accounts for both market and exchange-rate risk. In addition, an analytical formula is derived for time-scale value at risk and marginal Value at Risk VaR of a portfolio. The methodology is applied to...
This paper examines episodes of current account adjustment in industrial countries to assess the validity of these concerns. The main findings are larger deficits take longer to adjust and are associated with significantly slower income growth during the current account recovery than smaller deficits, consumption-driven current account deficits involve significantly...
The declines in job tenure have coincided with a shift away from traditional Defined Benefit DB pensions, which reward long tenure. The evidence also points to an increase in job-to-job movements by workers, and documents gains in relative wages of job-to-job movers over a similar period. This article develops a...
Managed care health insurers in the US restrict their enrollees' choice of hospitals to within specific networks. This paper considers the implications of these restrictions. A three-step econometric model is used to predict consumer preferences over health plans conditional on the hospitals they offer. The results indicate that consumers place...
Trade theory consists of a portfolio of models. What elements might be useful in modeling the offshoring of white-collar services, or do these issues call for an entirely fresh approach? This paper identifies some of the important aspects of this phenomenon and then argue that modeling could focus on vertical...
Managed care health insurers in the US restrict their enrollees' choice of hospitals to specific networks. This paper investigates the causes and welfare effects of the observed hospital networks. A simple profit maximization model explains roughly 63 per cent of the observed contracts between insurers and hospitals. The paper explains...
The social value of an innovation is comprised of the value to consumers and the value to innovators. This paper estimates that for the HIV/AIDS therapies that entered the market from the late 1980's onwards, innovators appropriated only 5% of the social surplus arising from these new technologies. Despite the...
Central bankers and financial supervisors often have different goals. While monetary policymakers want to ensure that there are always sufficient lending activities to maintain high and stable economic growth, supervisors work to limit banks lending capacities in order to prevent excessive risk-taking. To avoid working at cross-purposes, central bankers need...
Habit persistence, general equilibrium model with multiple assets matches both the time series properties of the market portfolio and the cross-sectional predictability of returns on price sorted portfolios, the value premium. Consistent with empirical evidence, the paper depicts about a model which shows that value stocks are those with higher...
As health care costs continue to rise, medical expenses have become an increasingly important contributor to financial risk. Economic theory suggests that when background risk rises, individuals will reduce their exposure to other risks. This paper presents a test of this theory by examining the effect of medical expenditure risk...
