| "Let's Take the Con Out of Factor Content" (with Kathryn Marshall) |
Abstract: Factor price differences are of primary importance in explaining the factor content of trade. They reflect local scarcity, and production techniques adapt accordingly. Since capital and labor are complementary inputs in almost every industry, a country that is physically scarce in a factor may well be measured as abundant in its services. |
| "A Proposal to Phase Out Ohio's Income Tax" |
| Abstract: Ohio continues to lose revenue and people as its economy stagnates. The state income tax is an important barrier to future economic growth since its high rates discourage investment and wealth creation. Indeed, an analysis of state income tax rates and economic growth revealed that Ohio’s income tax shaves 0.6 percent off its annual growth rate in population and 0.35 percent off the state’s per capita economic growth rate. |
| "The Factor Content of Trade When Countries Have Different Technologies" (with Kathryn Marshall) |
| Abstract: We develop two simple modifications of Heckscher-Ohlin-Vanek theory for countries with heterogeneous technologies: virtual endowments and modified Rybczynski effects. Virtual endowments predict factor trade using a reference country's technology. Modified Rybczynski effects show the domestic factor content of changes in foreign endowments. The empirical implications are striking. There is no missing trade, and we predict the direction of trade with significance levels exceeding 99%. We make no assumptions about home bias in consumption, not traded goods, trade costs, or trade in intermediate inputs. We make no corrections to measured endowments and estimate nothing; the data speak for themselves. |
"The Structure of the American Economy" (with Kathryn Marshall) |
Abstract: We explore the relationship between input-output accounts and the national revenue function. The generalized inverse of an economy's technology matrix carries information relating changes in endowments with changes in outputs; its transpose relates output prices and factor prices. Our primary theoretical contribution is to derive an economy's revenue function for an arbitrary Leontief technology. Our main empirical contribution is to compute the national revenue function for the American economy in 2003 and to describe its properties. We implement our ideas using two different models: one where all factors are mobile and another with capital specific to each sector in the economy. |
| "A Classroom Experiment on Exchange Rate Determination with Purchasing Power Parity" (with David Mitchell, Robert Rebelein, Patricia Schneider, and Nicole Simpson) |
Abstract: We develop a classroom experiment on exchange rate determination appropriate for undergraduate courses in macroeconomics and international economics. Students represent citizens from different countries and need to obtain currency to purchase goods. By participating in an auction to buy currency, students gain a better understanding of currency markets and exchange rates. The implicit framework for exchange rate determination is one in which prices are perfectly flexible (in the long run) so that purchasing power parity (PPP) prevails. Additional treatments allow students to examine the impact of price changes, tariffs and nontradable goods on the exchange rate and to explore the possible resulting deviations from PPP. The experiment is suitable for classes of eight to 50 students and can be run in as little as 30 minutes. |
"The Decline of Manufacturing Employment in the United States” (with Peter Rupert) |
Abstract: This paper uses panel data from the several states to assess the sources of the decline in manufacturing employment from 1986 through 2001. It estimates and calibrates a structural model where each state is a small open economy with a manufacturing sector and a service sector. The common rate of Hicks-neutral technological progress in manufacturing is 2.1% per annum and that in services is 0.5% per annum. Technological progress accounts for a loss of 1.6 million manufacturing workers, changes in international economic conditions account for a loss of 0.6 million workers, and changes in state tax policies account for a loss of 4 million workers. |
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“Exploring Elements of Exchange Rate Theory in a Controlled Environment” Abstract: This paper analyzes the simple implications of exchange rate theories in the laboratory. It shows that purchasing power parity, covered interest parity, and uncovered interest parity fare well in simple environments. Not-traded goods and non-stationary domestic prices do cause deviations from these elements of exchange rate theories. But the experimental evidence indicates that non-stationary domestic prices have a much stronger effect than not-traded goods in causing deviations from purchasing power parity and the two interest parity conditions. |
| Abstract: Using experimental data from asset markets without short selling, this paper shows that bubbles arise for two reasons. First, subjects take time to learn about the dividends, not trusting initially the experiment's instructions. Second, agents have heterogeneous prior beliefs. These data support a Bayesian model of asset prices against the alternative hypothesis that agents have common priors agreeing with the actual distribution of fundamentals. This evidence confirms a subtle version of rational expectations in which assets are priced according to agents' priors and the market's history. |
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Abstract: This paper is a short synopsis of some of the literature on experiments in international finance, and it will be published in Plott and Smith's Handbook of Experimental Economic Results. |