Economics

We show that the optimal monetary policy and exchange rate framework depend critically on the economy’s commodity exposure. We develop a flexible but tractable model economy with commodity exports and imports, in which international financial conditions may vary with the commodity cycle, and we compute the welfare-optimal policy in the presence of price and wage rigidities. Stabilizing domestic prices is welfare-optimal for commodity exporters, in line with standard open-economy policy prescriptions. But for economies that use commodities as inputs in production, optimal policy largely ‘looks through’ the direct and indirect effects of commodity shocks on domestic prices; this contrast..

We study how global supply chain disruptions affect monetary policy transmission. Post-pandemic evidence indicates surging transportation costs, goods-market imbalances, and rising prices. We develop a model in which logistical bottlenecks (upstream slack coexisting with downstream shortages) steepen the aggregate supply curve. This convexity amplifies price responses to monetary policy while dampening output effects. Threshold VAR and Local Projection estimates are consistent with this mechanism: during disruptions, contractionary policy reduces prices more at smaller output cost, easing the stabilization trade-off.

This paper documents the wealth of California’s billionaires and the taxes they pay. California billionaires’ wealth exceeds $2 trillion today, the equivalent of 50% of California’s GDP. It has grown 144% from 2023 to 2025, fueled by the AI boom. Over the longer run, the real wealth of California’s billionaire class—the 0.0002% richest households—has been multiplied by 30 from 1982 to 2025, while average real family income in California has about doubled. California billionaires pay about 0.2% of their wealth in California income tax ($3.2 billion/year), representing 2.4% of total California income tax revenue on average over 2023-2025. Using Securities and Exchange Commission da..

Standard New Keynesian models with time-consistent policy predict minimal debt responses to conventional shocks, as a debt stabilization bias dominates tax-smoothing motives. We show that two mechanisms can generate debt movements of the magnitude observed in the data: increases in policymaker myopia and declines in real interest rates, such as during flight-to-safety episodes. Other potential drivers—changes in markups, debt maturity, government transfers, or large recessions—cannot account for such fluctuations.

This paper measures and analyzes management practices in the Kenyan health care sector, drawing on a nationally representative survey and linked administrative data. The paper adapts the World Management Survey to measure management quality in primary health care facilities and hospitals, surveying 429 primary health care facilities and 73 hospitals. Primary health care facilities are the primary point of contact for most patients, providing treatment for common infectious diseases and chronic conditions, as well as services related to maternal and child health. Management quality is low on average, and the distribution is highly compressed. The analysis uses administrative data to test the ..

We study the distributional consequences of monetary policy-induced credit supply in the German labor market. Firms in relationships with banks that are more exposed to the introduction of negative interest rates in 2014 experience a relative contraction in credit supply, associated with lower average wages. Within firms, initially lower-paid workers are more likely to leave employment, while initially higher-paid workers see a relative decline in wages. Between firms, wages fall by more at initially higher-paying employers. Our results suggest that credit affects the distribution of wages and employment both within and between firms.

States are major international financiers, but their role is poorly understood. We study state-driven cross-border lending over two centuries using a new database covering 1.2 million official loans and grants by 134 governments and 70 multilateral institutions since 1790. We document a dual, state-contingent structure of international credit. In normal times, private creditors dominate cross-border lending. In adverse states of the world, such as wars and financial crises, official creditors step in, at times on a massive scale. These official flows are driven by great powers, are highly subsidized, and are largely absent from canonical models in international macroeconomics.

We study Tennessee Promise, Tennessee’s tuition-free community college program, which preceded similar programs in over twenty states and multiple federal proposals. We examine how Promise affected college enrollment and early adult outcomes as the program expanded from a single-county pilot to statewide eligibility. Promise increased college enrollment by 5.4 percentage points among 19-year-olds, increased transfers from two-year to four-year schools, increased associate’s degree attainment by 2.9 percentage points among 21-year-olds, imprecisely increased bachelor’s degree attainment by age 24, and weakly increased income from age 21. We estimate that the program pays for itself unde..

We study whether AI methods applied to large-scale portfolio holdings data can improve macroprudential financial regulation. We build a graph-based deep learning model tailored to security-level data on the holdings of financial intermediaries. The architecture incorporates economic priors and learns latent representations of both assets and investors from the network structure of portfolio positions. Applied to the universe of non-bank financial intermediaries, covering nearly $40 trillion in wealth, the model substantially outperforms existing approaches in out-of-sample forecasts of intermediary trading behavior, including in crisis episodes. The model has more than ten times the explanat..

This paper shows that the industrial composition of a city's local economy affects its municipal borrowing costs. In a panel of 1,177 U.S. cities from 2005 to 2022, greater sectoral concentration magnifies default risk and raises bond spreads, especially for cities dominated by industries associated with low property values. Instrumental variables exploiting national sector-employment trends and regional house-price variation support a causal interpretation. A calibrated model of city default suggests that the observed spread effect understates the gross risk created by concentration, because higher concentration can generate agglomeration benefits that reduce spreads, especially for high-pr..

Employer-side wage subsidies are widely used to promote employment among disadvantaged workers. We study how such subsidies translate into firm hiring behavior using the federal Work Opportunity Tax Credit, which subsidizes up to 40% of first-year wages and covers over two million hires annually. Using linked administrative data from Wisconsin and multiple quasi-experimental designs, we find consistent and precise null effects on hiring, earnings, retention, and related outcomes across designs and firm types. Original data on firm hiring practices suggest two mechanisms that can limit employer-side subsidy efficacy: perceived legal risks discourage eligibility screening and organizational fr..

Using four large-scale experiments across two major Canadian universities, we experimentally evaluate the effects of growth mindset and social belonging interventions on student outcomes. In a sample of nearly 12,000 students, we find no immediate or dynamic effects on student grades and no effect on persistence through university. We further combine survey and administrative data with machine learning methods to explore treatment effect heterogeneity, finding no evidence of meaningful variation in treatment effects across student subgroups. Despite the recent promise of these light-touch interventions, our findings indicate further research is required to identify the contexts in which thei..

In 2024, medical spending as a share of GDP was 15% below forecasts made in 2010 and only marginally higher than in 2010. Relative to expectations, the savings were nearly $1 trillion in 2024. In light of this prolonged period of slower growth, we ask the question: has the United States bent the health care cost curve? We start with a model of medical spending that incorporates both the development of new technologies and the equilibrium use of those technologies. Technology development and incentives around its use may add to or subtract from spending growth. We then examine the drivers of the spending slowdown empirically. We attribute slower medical spending growth to five factors: the de..

Tests are widely used to measure ability, yet performance on a test often reflects more than the ability to execute assigned tasks. It also reflects the ability to recognize which tasks are worth attempting, how they should be prioritized, and how effort should be allocated under uncertainty. This paper studies how tests can be designed to separate these capabilities. We model a test as a sequential decision problem. Tasks differ in difficulty, their ordering is uncertain, and examinees may acquire costly information about that ordering before choosing how to proceed. The testing environment is the informational structure surrounding the realized test: in particular, the examinee's beliefs a..

Concerns about negative impacts of student phone use have led to calls around the world for tighter restrictions on phones in schools. This paper evaluates the impact of a 2023 policy that banned non-pedagogical uses of phones within schools in Rio de Janeiro, Brazil. To isolate the causal effects of the policy, we contrast middle schools that already had strict rules on phone use prior to the policy ("control schools'') to similar schools that did not have strict rules ("treatment schools''), before and after the ban. While restrictions were imperfectly implemented both before and after the ban, we show that in-school phone use fell substantially in treatment schools relative to control. We..

Racial disparities permeate the criminal justice system, yet indigent defense attorneys remain understudied despite representing 80% of defendants. Using quasi-randomly court-appointed attorneys in a large Texas county, we show that higher-quality attorneys are less experienced and attended lower-quality law schools. Low-quality representation disproportionately harms Black defendants: a one-standard-deviation increase in quality raises Black dismissal rates nearly twice that of Whites’ (7.1% versus 3.9%), and top-10% representation increases dismissals by 12–17% and reduces jail by 13-22% relative to Whites. Back-of-the-envelope calculations suggest if half of court-appointed attorneys ..

We document a new source of fluctuations in inflation inequality. When the cost of upstream inputs rises, varieties within a product category tend to have similar absolute price increases. However, the same absolute price increase constitutes a larger percentage change for low-price products, resulting in excess inflation at the low end (“cheapflation”). Since low-income households tend to buy lower-priced varieties, the inflation rates they face are disproportionately sensitive to upstream costs. Using data on food-at-home purchases, we show that this mechanism generates cycles in inflation inequality and excessive volatility in inflation for low-income households relative to high-incom..

We propose a novel empirical strategy to infer the extent to which firm-worker matches are inspection or experience goods. We argue that the informative content of the signals that firms and workers receive about the productivity of their match before entering an employment relationship can be inferred from the gaps between the separation rates of workers hired from unemployment, employment at low-tenure jobs, and employment at high-tenure jobs. We implement the strategy using German administrative data. We find that, before entering an employment relationship, a firm and a worker receive a signal that reduces the variance of their beliefs about the productivity of the match by 67%. The info..

Mortgage borrowers are "locked in": forgoing moves to hold on to low rates. Lock-in reduces both housing supply, through households who do not sell, and demand, through households who do not buy elsewhere, evidenced by a 40% drop in U.S. existing home sales between 2022 and 2024. We show that mortgage lock-in raises net housing demand: missing downsizers stay in larger homes, particularly in expensive areas, demanding more housing and offsetting a third of the aggregate house price decline caused by higher rates. Using individual-level mortgage data, we provide causal evidence that lock-in disproportionately reduces moves down the housing ladder. We design a spatial housing ladder model with..

This paper estimates a learning-by-doing human-capital production function in which hours affect both current productivity and future human capital. We show that the standard Ben-Porath specification is weakly identified: its objective function is nearly flat along a ridge in parameter space, undermining conventional inference. We develop a flexible sieve alternative that is well-identified, and estimate a concave hours technology using PSID data. Embedding this technology in a life-cycle model, we find very small prime-age labor-supply responses to temporary wage shocks. Despite these low elasticities, optimal labor-income taxes are flat because they distort both current labor supply and fu..

How does heterogeneity in banks' interest-rate risk exposure shape monetary policy transmission? We develop a quantitative macroeconomic model of heterogeneous banks to answer this question. We establish an irrelevance result: differences in interest-rate risk exposure between fixed- and variable-rate banking systems matter for transmission only when bank solvency concerns become relevant. Calibrating the model to the euro area, we show that idiosyncratic default risk pushes a substantial share of banks toward the solvency threshold, making heterogeneity quantitatively important. When policy rates rise, fixed-rate banks suffer net interest margin compression---funding costs increase while le..

Participants acted as loan officers deciding whether to approve real $10,000-loans issued by a private U.S. lender using an AI’s default-risk predictions. When explanations revealed that the AI penalized non-White or female borrowers, participants were more likely to override the AI’s profit-maximizing recommendation. When their bonuses depended on repayment, however, they sought predictions but avoided explanations, consistent with willful ignorance; this effect faded when explanations were framed as purely financial or demographics were hidden. A secondary experiment reveals a novel bias: participants failed to reason contingently and undervalued explanations even when these complement..

How does wartime rebel governance shape post-conflict institutions? We study this in Nepal, where the Maoist People's War (1996–2006) dismantled a 240-year caste-based monarchy and ended with Maoists entering democratic politics. During the conflict, Maoists established sub-national “People’s Governments” that administered justice, collected taxes, and delivered local services. Using a spatial regression-discontinuity design, we show that exposure to People's Governments increased political knowledge and participation especially among historically marginalized indigenous groups (Janajatis). Exposure also reshaped party institutions and inter-party competition: candidate-selection com..

This paper asks why openness has been such a strong catalyst for catch-up growth in some regions or countries, while in others openness has been followed by stalled convergence, divergence, or stagnation. We conclude that “openness” in today’s geoeconomically fragmented world is much more than trade intensity or trade integration. Positioning in trade networks, trade fundamentals, human capital, institutional capacity and stability matters for the potential for trade-induced productivity gains. We explore the global heterogeneity across continents between 1960 and 2024, unbalanced panel of up to 145 economies per year and estimate a growth equation using a dynamic approach for countrie..

We construct a Broad Market Factor (BMF), which is a proxy for the value-weighted equity return on all firms in the US economy (public and private). The BMF differs from the standard Value-weighted Market Factor (VMF), which reflects the value-weighted equity return on public firms. We define the difference between the VMF and the BMF to be the Idiosyncratic Financial Factor (IFF). The IFF carries no risk premium and is uncorrelated with all macroeconomic proxies for investor marginal utility we consider. CAPM betas and, consequently, discount rates are underestimated when measured with respect to the VMF compared to the BMF for most portfolios. Size factors become redundant and the size ano..

The 2025 university endowment tax hike and other sources of financial pressure may lead the schools that train the most prolific economics researchers to reduce graduate enrollment. Will this affect long-run research output? We use a novel sample of MIT Economics PhD program applicants to estimate the research value-added of eight elite schools. Our estimates mitigate selection bias by controlling for MIT admissions committee rankings—a remarkably strong predictor of long-run research success—and for applicant aspirations as revealed by their application portfolios. While rank controls substantially reduce estimated gaps between elite and non-elite graduates, large differences in value-a..

It may seem like a distant memory now, but as of the mid-2000s, U.S. natural gas production had been flat for a decade, and the U.S. was importing liquefied natural gas (LNG), with plans to import much more. Then shale gas happened. Advances in hydraulic fracturing and horizontal drilling caused U.S. natural gas production to increase significantly, and the U.S. went from being a net importer of natural gas to being the world's largest exporter. This paper calculates how much shale gas has saved U.S. natural gas consumers. Using price differences between the United States, Europe and Japan, we calculate that U.S. natural gas consumers have saved $3.1-$4.3 trillion between 2007 and 2025, equi..

The literature has long wrestled with the practical usefulness of Modern Portfolio Theory (MPT), and extensive evidence shows its performance decreases rapidly with the number of assets (N ). We present several new and counterintuitive facts about MPT. Most importantly, the performance of MPT in fact increases with N once the number of assets exceeds the number of training observations (T ). This finding holds in a variety of settings: in conjunction with popular portfolio regularization methods, in a variety of asset universes, and when T is large or small.

Large language models trained on unrestricted internet corpora inevitably embed information from the future, introducing lookahead bias that compromises the validity of backtests and causal inference in finance and the social sciences. Point-in-time language models—trained exclusively on text available up to each calendar date—eliminate this leakage by construction, but existing efforts typically produce models that lag substantially behind their unconstrained counterparts. We show that this performance gap can be narrowed through scale. Training decoder-only transformers with up to 4 billion parameters on 1 trillion chronologically filtered tokens from FineWeb, we construct a sequence o..

Transparency is a basic requirement of government accountability, allowing citizens to access the information necessary to monitor, reward, and punish politicians and bureaucrats. Yet transparency inevitably involves discretion by the same government that is being evaluated. In this paper, we show that reelection incentives affect transparency, by comparing the responsiveness of freedom-of-information requests made via the online platform MuckRock just before state and municipal elections to those filed elsewhere at the same time. Since identical requests are often made simultaneously to many agencies across the U.S., we may assess whether an agency rejects a request while holding constant t..