James A. Kahn

Tariffs and aggregate economic activity: Lessons from the Great Depression

Abstract We argue against the prevailing view that the macroeconomic role of tariffs during the Great Depression was small. To understand the economic channels through which tariffs could have large effects we build a multi-sector dynamic equilibrium trade model that captures key features of trade in the 1930s: A substantial share of trade was in material inputs, and the persistence of the tariff increases had the potential for significant effects on capital accumulation. Both of these features are important in generating the conclusion that, even when trade only represents a small share of output, tariffs can have a significant impact on GDP. Simulation of the model suggests that the global escalation of the tariff war precipitated the collapse of world trade, along with declines of several percent in international output and investment.

Skilled Labor-Augmenting Technical Progress in U. S. Manufacturing

This paper examines the role of skilled labor in the growth of total factor productivity. We use panel data from manufacturing industries within the United States to assess the extent to which productivity growth in yearly cross-sections of U.S. manufacturing industries is tied to industry shares of skilled labor inputs. We find evidence of an explosion in skilled-labor augmenting technological progress during the period from approximately 1972 to 1981, which precedes a period of suddenly increasing wage inequality and rapid growth in the relative wages of educated and experienced workers. We also provide evidence from aggregate manufacturing data that confirm this shift pre- and post-1972, and show that all of the findings are broadly consistent with the behavior of relative wages and employment.

Social security, liquidity, and early retirement

Abstract This paper investigates the effect of Social Security on retirement decisions. It argues that it is important to take realistic account of how recipients evaluate potential benefit flows. The paper presents a simple retirement model in which liquidity constraints prompt individuals to use higher than market discount rates in evaluating future pension benefits. As a consequence, even an apparently actuarially fair early retirement benefit could (on average) discourage continued work. Using data on individual retirement decisions, I find support for the argument that this phenomenon contributes to some of the observed increase in early retirement.

A consistent test for the null of stationarity against the alternative of a unit root

Abstract This paper constructs a consistent test for the null of stationarity against the alternative of a unit root, utilizing the regression properties investigated by Kahn and Ogaki (1990).

MORAL HAZARD, IMPERFECT RISK-SHARING, AND THE BEHAVIOR OF ASSET RETURNS

Abstract This paper develops a model of endogenous idiosyncratic risk in a simple two-period general equilibrium setting, and examines its implications for the behavior of asset returns. The model readily generates empirically plausible idiosyncratic risk in consumption and yields more realistic behavior of asset returns than comparable models with perfect insurance. The most dramatic effects of imperfect risk-sharing, however, are not on the spreads between asset returns but on their absolute levels. Overall the results suggest allowing for incomplete markets can contribute to a resolution of the equity premium puzzle.

Productivity Swings and Housing Prices

The housing boom and bust of the last decade, often attributed to “bubbles” and credit market irregularities, may owe much to shifts in economic fundamentals. A resurgence in productivity that began in the mid-1990s contributed to a sense of optimism about future income that likely encouraged many consumers to pay high prices for housing. The optimism continued until 2007, when accumulating evidence of a slowdown in productivity helped dash expectations of further income growth and stifle the boom in residential real estate.

A chi-square test for a unit root

Abstract The present paper develops a chi-square test for a unit root that has higher power than Dickey-Fuller tests when the sample size is small and the autoregressive root is close to one.

Durable Goods Inventories and the Great Moderation

This paper revisits the hypothesis that changes in inventory management were an important contributor to volatility reductions during the Great Moderation. It documents how changes in inventory behavior contributed to the stabilization of the U.S. economy within the durable goods sector, in particular, and develops a model of inventory behavior that is consistent with the key facts about volatility decline in that sector. The model is calibrated to evidence from survey data showing that lead times for materials orders in manufacturing shrank after the early 1980s. Simulations of the model show large reductions in the volatility of output growth and more modest reductions in the volatility of sales growth. In addition, the model addresses concerns raised by a number of researchers who criticize the inventory literatures focus on finished goods inventories, given that stocks of works-in-process and materials are actually larger and more volatile that those of finished goods. The model adapts the stockout-avoidance concept to a production-to-order setting and shows that much of the intuition and results regarding production volatility still apply.

Finite Horizons, Political Economy, and Growth

This paper analyzes the political economy of growth as an issue of inter-generational distribution. The first part of the paper develops a model of endogenous growth via accumulation of knowledge in a finite-horizon overlapping generations setting. equilibrium growth is enefficient due to the presence of an intergenerational externality. We than analyze the outcome when the planners objective mirrors those of the individuals to the economy.

An empirical model of inventory investment by durable commodity intermediaries: A comment

George Hall and John Rust have made an important contribution to the growing literature on the microeconomics of inventory behavior. They have assembled fascinating data on the inventory behavior of a wholesaler of steel products, and have formulated a theoretical model that captures many aspects of that data. My comments will touch on three issues: First, the strengths and weaknesses of the data set; second, the specification of the model, and its connection with existing literature; and, third, broader implications of their findings.