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2005 Working Papers

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Optimal Wealth Taxes with Risky Human Capital
By Tomasz Piskorski & Borys Grochulski
Working Paper 05-13
Released: December 2005

We study the structure of optimal wealth and labor income taxes in a Mirrlees economy in which the productivity of labor (i.e., skill) is private, stochastic, and endogenous. Individual agents' skills are determined by their level of human capital. Human...

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A Quantitative Study of the Role of Wealth Inequality on Asset Prices
By Juan Carlos Hatchondo
Working Paper 05-12
Released: November 2005

This paper studies the equilibrium properties of asset prices in a Lucas-tree model when agents display a concave coefficient of absolute risk tolerance. The latter introduces a role for wealth inequality, even under the presence of complete markets. The...

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Firms as Clubs in Walrasian Markets with Private Information: Technical Appendix
By Robert M. Townsend & Edward Simpson Prescott
Working Paper 05-11
Released: November 2005

This paper proves the Welfare Theorems and the existence of a competitive equilibrium for the club economies with private information in Prescott and Townsend (2005). The proofs cover lottery economies with a finite number of goods and without free...

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Avoiding the Inflation Tax
By Huberto M. Ennis
Working Paper 05-10
Released: October 2005

See WP 07-06 for updated version. I study the effects of inflation on the purchasing behavior of buyers in an economy where money is essential for certain transactions (as in Lagos and Wright, 2005). A long-standing intuition in this subject is that when...

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A Quantitative Theory of the Gender Gap in Wages
By Diego Restuccia, Luisa Fuster & Andrés Erosa
Working Paper 05-9
Released: September 2005

Using panel data from the National Longitudinal Survey of Youth (NLSY), we document that gender differences in wages almost double during the first 20 years of labor market experience and that there are substantial gender differences in employment and...

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A General Equilibrium Analysis of Parental Leave Policies
By Diego Restuccia, Luisa Fuster & Andrés Erosa
Working Paper 05-8
Released: September 2005

An important feature of the U.S. labor market is that, even after controlling for measurable differences in education and experience, the average wage of women with children is 89 percent of the average wage of women without children. This "family gap" ...

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Asymmetric Information and the Lack of International Portfolio Diversification
By Juan Carlos Hatchondo
Working Paper 05-7
Released: September 2005

There is pervasive evidence that individuals invest primarily in domestic assets and thus hold poorly diversified portfolios. Empirical studies suggest that informational asymmetries may play a role in explaining the bias towards domestic assets. In...

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The Value of Information with Heterogeneous Agents and Partially Revealing Prices
By Juan Carlos Hatchondo
Working Paper 05-6
Released: September 2005

This paper studies how the arrival of information affects welfare in a general equilibrium exchange economy with incomplete and differential information. It considers a setup in which agents differ in their attitudes toward risk. This introduces gains...

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Should the FDIC Worry about the FHLB? The Impact of Federal Home Loan Bank Advances on the Bank Insurance Fund
By Timothy J. Yeager, Mark D. Vaughan & Rosalind L. Bennett
Working Paper 05-5
Released: August 2005

Does growing commercial-bank reliance on Federal Home Loan Bank (FHLBank) advances increase expected losses to the Bank Insurance Fund (BIF)? Our approach to this question begins by modeling the link between advances and expected losses. We then quantify...

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A Theory of Political Cycles
By Leonardo Martinez
Working Paper 05-4
Released: July 2005

The literature on political cycles argues that the proximity of elections affects policy choices. This literature considers that opportunistic policymakers manipulate policy to increase their reelection probability. Previous theoretical studies assume...

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Firm Fragmentation and Urban Patterns
By Raymond E. Owens, Pierre-Daniel G. Sarte & Esteban Rossi-Hansberg
Working Paper 05-3
Released: June 2005

We document several empirical regularities regarding the evolution of urban structure in the largest U.S. metropolitan areas over the period 1980-1990. These regularities relate to changes in resident population, employment, occupations, as well as the...

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Do Technological Improvements in the Manufacturing Sector Raise or Lower Employment?
By Jay H. Hong & Yongsung Chang
Working Paper 05-2
Released: April 2005

We find that technology's effect on employment varies greatly across manufacturing industries. Some industries exhibit a temporary reduction in employment in response to a permanent increase in TFP, whereas far more industries exhibit an employment...

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The Replacement Problem in Frictional Economies: A Near-Equivalence Result
By Giovanni L. Violante, Per Krusell & Andreas Hornstein
Working Paper 05-1
Released: April 2005

We examine how technological change affects wage inequality and unemployment in a calibrated model of matching frictions in the labor market. We distinguish between two polar cases studied in the literature: a "creative destruction" economy...

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