Friday, January 3, 2014

Comments from the AEA meetings

Insert cliche about economists choosing January in the Northeast for weekend getaways (it's cheap!)

First, my stuff: My coauthor presented our paper on the secular decline in economic dynamism. A draft is here, but the presentation included new facts that are not in that draft. First: In the early 2000s, many researchers noted that various measures of volatility were on the rise among public firms. Davis, et al. showed that the opposite was true among private firms. Today, we showed that the trend among public firms reversed in the early 2000s, and now volatility is declining among all classes of firms.

One possible explanation for the decline in volatility of businesses is that perhaps shocks have become less volatile or dispersed. Our second new fact: Using TFP estimates from the manufacturing sector, we show that this is not the case. We also provide evidence that firm-level employment has become less sensitive to productivity shocks over time. You can imagine some of the potential explanations for this, but we think it's a step forward for this declining dynamism puzzle. There is an increasingly large wedge between shocks and employment outcomes at firms and establishments. I don't have access to the relevant charts now but will probably do a more thorough post about this later.

I attended a session called "What's natural?" Barsky, Melosi, and Justiniano presented a paper that estimates the natural rate of interest over time (using a Smets and Wouters model) and proposes a monetary rule that, roughly speaking, seeks to align the Federal Funds rate with the natural rate. In the model, the estimated natural rate is shown to be extremely volatile (and often below zero) and very procyclical. They call their proposed rule a "Generalized Wicksellian" rule. Michael Woodford was the discussant and was skeptical.

Mark Watson presented a paper about the natural rate of unemployment. He basically estimated a Phillips Curve. His estimate suggested that the NAIRU is around 6 percent currently. Robert Hall was his discussant; Hall made it clear that he doesn't believe in these natural rates. He also has concerns about Calvo pricing, noting that he has gotten in trouble for criticizing it because so many people "worship at the temple of Calvo." He ended with, "We need to get out of the Calvo straitjacket."

I admit that I am broadly sympathetic to this sentiment. Calvo pricing can be very useful, but the New Keynesian project generally often feels like curve fitting to me. We're really not getting at the constraints and decisions that drive nominal rigidity. We're using a lot of band-aids. In my Twitter conversations with Noah Smith, he eventually ended up with the position that "Saltwater" economics is basically about Calvo pricing, which I see as a pretty damning indictment of "Saltwater" economics as a source of policy advice. (Luckily I don't believe that "Saltwater" economics is even a thing, so it's all good).

John Fernald and Charles Jones had a very interesting paper about growth. They suggest that the ~2% growth we've had for the last 150 years was above the steady state--it was the result of transitional dynamics. It was a very Tyler Cowen-esque argument--low-hanging fruit, etc. Susanto Basu responded to it, noting that technology and abundance have given us increasing measurement difficulties, so growth in GDP may not be a great measure of welfare progress over time anyhow.

At a different session: Antoinette Schoar delivered two very interesting papers, one about family-owned firms and management and another about supervisor training at garment factories in the developing world. Go to her website.

Erik Brynjolfsson presented a paper he has with some Stanford economists and some Census Bureau economists (old draft here) describing an awesome survey of managers at 30,000 establishments. They find that "structured" management styles are associated with higher productivity and profits, and that this kind of management occurs, on average, at firms that (a) are large, (b) are located in the South and Midwest, (c) have educated employees, and (d) use IT. This survey is going to lead to a lot of interesting research.

I went to the Bernanke lecture, which was costly since there were sessions at the same time with papers more relevant to my own research, but I didn't want to miss the chance. He gave a speech discussing his tenure at the Fed. Ken Rogoff made some comments, as did Anil Kashyap. Kashyap was very interesting: he noted that leverage is not the only source of financial instability. Other mechanisms can cause fire sales, so we should not assume that watching leverage is enough. You can read his comments here. Kashyap also provided this video:

At the end, Bernanke got a standing ovation for his service. In my view he has been an excellent Fed chair.

I also wasn't watching where I was going coming out of a session once and almost ran over Kenneth Arrow. That would have been an inauspicious start to my career.

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