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The rapid growth in index funds and significant consolidation in the asset- management industry over the past few decades has led to higher levels of common ownership and increased attention on the topic by academic researchers. A consensus has yet to emerge from the literature regarding the consequences of increased common ownership on firm behavior and market outcomes. Given the potential implications for firms and investors alike, it is perhaps not surprising that policymakers, legal scholars, finance and accounting academics, and practitioners have all taken a keen interest in the subject. This paper provides an overview of the theoretical underpinnings of common ownership and critically reviews the empirical literature. Measurement issues and identification challenges are detailed, and a discussion of plausible causal mechanisms is provided. Across the newest papers employing the most credible identification techniques, there is relatively little evidence that common ownership causes lower competition. However, further research is necessary before broad conclusions can be reached. JEL classification: G23, G32, G34, L22 Key words: common ownership, institutional investors, corporate governance, 1 Introduction Common ownership refers to situations in which investors own shares in multiple firms that compete in the same product market. Over the past few decades, substantial growth in [...]

This paper studies competing sources of declining dynamism. Evidence shows that an important component of this decline is accounted for by the reduction in the response of employment to shocks in US establishments. Using a plant-level dynamic optimization problem as a framework for analysis, four potential reasons for this decline are studied: (i) a change in exogenous processes for profits, (ii) an increase in impatience, (iii) increased market power, and (iv) increasing adjustment costs. We identify and quantity the contribution of each of these factors building on a simulated method of moments estimation of our structural model. Our results indicate that the reduction in responsiveness largely reflects increased costs of employment adjustment. Changes in market power, as captured by changes in the curvature of the revenue function, play a minimal role. But, in the presence of rising adjustment costs, measured sales-weighted markups using the recently popular indirect production approach rise substantially, along with rising dispersion and skewness of such measured markups. JEL classification: E24, E32, J23 Key words: declining dynamism, adjustment costs, employment, Working Paper 2024-3 1 Motivation The decline in dynamism in US establishments is well documented. In the 1980s, the pace of job reallocation across establishments in the US private non-farm [...]

This paper develops a simple approach to overcome the shortcomings of using a standard, single treatment-effect event study to assess the ability of an empirical model to measure heterogeneous treatment effects. Equally as important, we discuss how the standard errors reported in a typical event-study analysis for the posttreatment event-time effects are, without additional information, of limited use for assessing posttreatment variations in the treatment effects. The simple reformulation of the standard event-study approach described and illustrated with artificially constructed data in this paper overcomes the limitations of conventional event-study analyses. JEL classification: C22, C23 Key words: event studies, heterogeneous treatment effects, I. Introduction The event study is often used to provide a visual overview of the impact of a change in policy on behavior and outcomes. According to Currie, Kleven, and [...]

We propose an approach for Bayesian inference in time-varying structural vector autoregressions (SVARs) identified with sign restrictions. The linchpin of our approach is a class of rotation-invariant time-varying SVARs in which the prior and posterior densities of any sequence of structural parameters belonging to the class are invariant to orthogonal transformations of the sequence. Our methodology is new to the literature. In contrast to existing algorithms for inference based on sign restrictions, our algorithm is the first to draw from a uniform distribution over the sequences of orthogonal matrices given the reduced-form parameters. We illustrate our procedure for inference by analyzing the role played by monetary policy during the latest inflation surge. JEL classification: C11, C51, E52, E58 Key words: time-varying parameters, structural vector autoregressions, identification, 1 Introduction Structural vector autoregressions (SVARs) featuring time-varying parameters are commonly used in empirical macroeconomics to study a wide range of classical questions such as the economic consequences of policy [...]

We examine businesses' price-setting practices via open-ended interviews and in a quantitative survey module with business contacts from the Federal Reserve Banks of Atlanta, Cleveland, and New York in December 2022 and January 2023. Businesses indicated that their prices were strongly influenced by demand, a desire to maintain steady profit margins, and wages and labor costs. Survey respondents expected reduced growth in costs and prices of about 5 percent on average over the next year. Backward-looking, forward-looking, and hypothetical scenarios reveal average cost-price passthrough of around 60 percent, with meaningful heterogeneity across firms. JEL classification: D4, E3, L2 Key words: prices, business survey, hypothetical questions, I. Introduction At the core of the structural models with microeconomic foundations used in much of macroeconomics to analyze inflation and the effects of monetary policy are monopolistically competitive firms [...]

In this paper, we identify demand shocks that can have a permanent effect on output through hysteresis effects. We call these shocks permanent demand shocks. They are found to be quantitatively important in the United States, in particular when the sample includes the Great Recession. Recessions driven by permanent demand shocks lead to a permanent decline in employment and investment, although output per worker is largely unaffected. We find strong evidence that hysteresis transmits through a rise in long-term unemployment and a decline in labor force participation and disproportionately affects the least productive workers. JEL classification: C32, E24, E32 Key words: hysteresis, structural vector autoregressions, sign restrictions, long-run restrictions, employment, labor productivity, local projections https://doi.org/10.29338/wp2021-24, Working Paper 2021-24 November 2021 1 Introduction Macroeconomists are used to decomposing output per capita into an upward stochastic trend, often thought of as determining potential output or productive capacity, [...]

This working paper reviews recent empirical evidence on large firms and nonproductive strategies that hinder creative destruction and reallocation. The focus is on three types of nonproductive strategies: political connections, nonproductive patenting, and anticompetitive acquisitions. Across different contexts using granular micro data sets, we overwhelmingly see that as firms gain market share, they increasingly rely on nonproductive strategies but reduce their productive, innovation-based strategies. I also discuss theoretical channels, aggregate implications, and potentials for some policies. JEL classification: 03, 04 Key words: creative destruction, innovation, growth, patents, political connections, firm dynamics, Working Paper 2021-23 September 2021 1 Introduction A Schumpeterian notion of creative destruction (Schumpeter, 1942), first formally introduced in growth theory by Philippe Aghion and Peter Howitt (Aghion and Howitt, [...]

Using the American Community Survey between 2005 and 2019, this paper investigates the role constraints to migration might play in explaining racial/ethnic disparities in the labor market. We find that Black workers are typically less responsive than White workers to changes in job opportunities, but responsiveness increases when those opportunities present themselves in locations with a higher share own-minority population. We construct an education/race specific Bartik shift-share instrument to control for potential endogeneity of growth in job opportunities. JEL classification: J61, J15, J18 Key words: racial labor market disparities, migration costs, Delta index, social costs, place-based, people-based, mismatch, 1 Introduction and Background Long-standing disparities in labor market outcomes by race are well documented. (1) At the opening of a conference at the Board of Governors in 2017 highlighting [...]

We propose a parsimonious framework for real rigidities, in the form of strategic complementarities, that can generate real and nominal dynamics and match key features of the data across several literatures. Existing menu-cost models featuring strategic complementarities require unrealistically volatile shocks to idiosyncratic productivity to be consistent with pricing moments. We develop a simple menu-cost model with strategic complementarities along with idiosyncratic productivity and demand shocks that are disciplined by the data. This approach allows us to overcome previous criticism from analysis of models that employ only an idiosyncratic productivity shock and calibrate solely using data from the price-adjustment literature. Despite its simplicity, the model can generate sizable monetary nonneutrality along with the magnitude of cost pass-through documented in previous studies, while also remaining consistent with micro pricing and markup evidence. JEL classification: D02, E02, E44, G21 Key words: menu costs, strategic complementarities, demand shocks, sticky prices, monetary nonneutrality, Working Paper 2023-3 1 Introduction Modeling the response of output and prices to monetary policy shocks has been a long-term quest in the macroeconomics literature. Quantitative estimates consistently indicate that [...]

Are financial intermediaries-in particular, banks-inherently unstable or fragile, and if so, why? We address this question theoretically by analyzing whether model economies with financial intermediation are more prone than those without it to multiple, cyclic, or stochastic equilibria. We consider several formalizations: insurance-based banking, models with reputational considerations, those with fixed costs and delegated investment, and those where bank liabilities serve as payment instruments. Importantly for the issue at hand, in each case banking arrangements arise endogenously. While the economics and mathematics differ across specifications, they all predict that financial intermediation engenders instability in a precise sense. JEL classification: D02, E02, E44, G21 Key words: banking, financial intermediation, instability, volatility, 1 Introduction This essay reviews, consolidates and extends several branches of the literature on banking. It is, in part, a survey, but it also goes beyond past work in several [...]

The movement of goods from origin to destination takes place over multiple modes of transportation. Correspondingly, intermodal terminals play an important role in facilitating transportation over the multimodal network. This paper studies multimodal transport networks and their impact on infrastructure investments. We propose a tractable theory of transportation across domestic transportation networks with multiple modes of transportation by embedding multimodal routes into a spatial equilibrium model with endogenous stochastic route choice. We calibrate the model to US domestic freight flows using high-resolution geographic information system information and detailed data on traffic along road, rail, and international ports. We estimate the strength of intermodal port congestion from ship dwell times and its multimodal impact on railcar dwell times. We then employ the model to evaluate the welfare effects of terminal investments across the United States. We identify important bottlenecks in the US transportation system, with the reduction of the transportation cost by 1 percent in the most important nodes generating welfare gains equivalent to $US200-300 million of additional GDP (in 2012 USD). JEL classification: F11, R12, R42 Key words: infrastructure investments, multimodal transport, spatial equilibrium https://doi.org/10.29338/wp2022-13, 1 Introduction The movement of goods takes place over multiple modes of transportation, including highways, railroads, oceans, and waterways. While trucks are mostly used to move US freight over shorter [...]

We provide a quantitative theory of deflation and secular stagnation. In our lifecycle framework, an aging population puts persistent downward pressure on the price level, real interest rates, and output. A novel feature of our theory is that it also recognizes the reactions of government policy. The central bank responds to falling prices by reducing its policy nominal interest rate, and the fiscal authority responds by allowing the public debt-gross domestic product ratio to rise. JEL classification: E52, E62, G51, D15 Key words: monetary policy, lifecycle, portfolio choice, secular stagnation, nominal government debt, aging, Tobin effect, fiscal policy, deflation, Working Paper 2022-12 September 2022 I Introduction In the years prior to the COVID pandemic, many industrialized economies experienced a protracted episode of low and even negative inflation rates and [...]

We consider the debut of a new monetary instrument, central bank digital currencies (CBDCs). Drawing on examples from monetary history, we argue that a successful monetary transformation must combine microeconomic efficiency with macroeconomic credibility. A paradoxical feature of these transformations is that success in the micro dimension can encourage macro failure. Overcoming this paradox may require politically uncomfortable compromises. We propose that such compromises will be necessary for the success of CBDCs. JEL classification: E42, E58, N10 Key words: monetary systems, banknotes, central banks, digital currencies, Every year a new cohort of economists begins their professional careers with a trip into a fantasy land, one more unlikely than anything Walt Disney ever imagined. In this make-believe [...]

This report presents a snapshot of check use as a means of payment in 20 countries from 2012 to 2021. Using charts and tables, we analyze the share of checks as a fraction of cashless payments, both in terms of volume and value and the average value of a check in US dollars based on purchase power parity (PPP) exchange rates. Then we examine and compare the rates of decline in the use of checks during the period 2012 to 2021 and the correlations between the use of checks and other cashless payments, both in terms of volume and value. JEL Classifications: E42 Keywords: use of checks, international comparison of check use, payment methods, 1. Introduction This research data report presents a snapshot of the use of checks as a means of payment in 20 countries from 2012 to 2021. Using charts and tables, [...]

This paper examines racial disparities in mortgage processing time prior to the global financial crisis. We find that Black borrowers are underrepresented and experience a longer processing time than White borrowers among the mortgages securitized by government-sponsored enterprises. At the same time, Black borrowers are overrepresented and face a similar processing time among privately securitized mortgages. Additionally, Black borrowers are strongly associated with the faster segments of mortgage markets, faster lenders within each segment, and the types of loan products that are processed faster, all of which subsequently experienced higher defaults. JEL classification: G01, G21, G23, R30 Key words: processing time, lending standards, racial disparities, mortgage loans, Working Paper 2022-1 January 2022 1 Introduction Blacks and other minorities have fallen behind in building wealth, and large racial and ethnic gaps have formed in recent decades. Expanding homeownership [...]

Despite the prevalence and high cost of real estate agents, there is limited empirical evidence as to the nature or efficacy of their services. In this paper we estimate real estate agents' value-added when either selling or buying homes using data from three large multiple listing services (MLS). We find that homeowners who forgo a conventional real estate agent, but who list their homes on the MLS via a flat fee broker, sell for between 1 and 4 percent more before commission but take longer to sell and are less likely to complete a sale. However, these average effects mask a significant amount of real estate agent heterogeneity. Using a novel aspect of our data, which allows us to identify and track agents over time, we estimate the distributions of real estate agents' fixed effects in both hedonic and time-on-the-market models. We find that exchanging a listing agent in the 25th percentile for one in the 75th would increase the final sales price by 5-6 percent, and a similar exchange for buying agents would lower purchase prices by 4-6 percent. The interquartile range of agent fixed effects from our model of time-on-the-market is 17-25 days. We do not find a significant trade-off between price and time-to-sell, however, as agents who obtain higher prices do not take longer to sell, suggesting that they are not simply setting higher reservation prices. We also show that agents who sell homes for more also appear to pay more for a home when serving as a buyer's agent, indicating that the average agent does not possess exceptional negotiating skills or that such skills are overwhelmed by principal-agent problems. Finally agents do not appear to get better at bargaining; agents do sell faster with experience, but mostly by selling for lower prices. JEL classification: R21, R31, G12, G20 Key words: real estate, housing, real estate agent, house prices, Working Paper 2022-11 September 2022 1 Introduction In many types of contract negotiations, economic actors rely on a third party to help facilitate the transaction. Examples of these types of [...]

Firm-level productivity differences are big and largely ascribed to ex-ante heterogeneity in the entrepreneurs' growth potential at birth. Where do these ex-ante differences come from, and what can the policy do to encourage the entry of high-growth entrepreneurs? I study empirically and by means of a quantitative growth model the spinout firms: the firms founded by former employees of the incumbent firms. By focusing on innovating spinouts identified through the inventor mobility in the patent data, I document that spinout entrants significantly outperform regular entrants throughout their life. Firms with a bigger technological lead spawn more successful spinouts. Building on these observations, I build a structural model of innovation and firm dynamics, where firm heterogeneity arises from endogenous decisions of innovation workers to become entrepreneurs and create spinouts. The spinout dynamics affect productivity growth through four main channels: direct entry, incumbents' disincentive effect, knowledge diffusion, and the firm composition channel. Growth decompositions show that accounting for spinout dynamics is quantitatively important for our understanding of the growth process. I analyze the role of noncompete laws affecting employee entrepreneurship for aggregate innovation and growth. JEL classification: O30, O43 Key words: innovation, spinouts, entrepreneurship, noncompete laws, firm dynamics, Working Paper 2022-10 September 2022 1 Introduction Firm-level productivity differences are large, with only a handful of high-growth firms accounting for the majority of innovation and productivity growth in the [...]

In this paper, we study the interplay between sovereign risk and global financial risk. We show that a substantial portion of the comovement among sovereign spreads is accounted for by changes in global financial risk. We construct bond-level sovereign spreads for dollar-denominated bonds issued by more than 50 countries from 1995 to 2020 and use various indicators to measure global financial risk. Through panel regressions and local projection analysis, we find that an increase in global financial risk causes a large and persistent widening of sovereign bond spreads. These effects are strongest when measuring global risk using the excess bond premium, which is a measure of the risk-bearing capacity of US financial intermediaries. The spillover effects of global financial risk are more pronounced for speculative-grade sovereign bonds. JEL classification: E43, E44, F33, G12 Key words: sovereign bonds, CDS, global financial risk, excess bond premium, global financial cycle https://doi.org/10.29338/wp2021-27, 1 Introduction In this paper, we study the interplay between sovereign risk and financial risk. In the increasingly interconnected world economy, global financial institutions play a more important role in [...]

Ljungqvist and Sargent (2017) (LS) show that unemployment fluctuations can be understood in terms of a quantity they call the 'fundamental surplus.' However, their analysis ignores risk premia, a force that Hall (2017) shows is important in understanding unemployment fluctuations. We show how the LS framework can be adapted to incorporate risk premia. We derive an equivalence result that relates parameters in economies with risk premia to those of an artificial economy without risk premia. We show how to use properties of the artificial economy to deduce how risk premia affect unemployment dynamics in the original economy. JEL classification: E23, E24, E32, E44, J23, J24, J31, J41, J63 Key words: risk premia, fundamental surplus, time-varying discounts, unemployment fluctuations, Working Paper 2021-22 September 2021 1 Introduction In a recent paper, Ljungqvist and Sargent (2017) (henceforth 'LS') show that existing search-based models which amplify productivity shocks to generate realistic model-implied [...]

How many interest rate hikes is quantitative tightening (QT) equivalent to? In this paper, I examine this question based on the preferred-habitat model in Vayanos and Vila (2021). I define the equivalence between rate hikes and QT such that they both have the same impact on the 10-year yield. Based on the model calibrated to fit the nominal Treasury data between 1999 and 2022, I show that a passive roll-off of $2.2 trillion over three years is equivalent to an increase of 29 basis points in the current federal funds rate at normal times. However, during a crisis period with risk aversion being doubled, it is equivalent to a 74 basis point increase. I also quantify the effect of QT implemented by active sales. Lastly, based on the model-based estimates, I show that if the Treasury were to issue bills to offset maturing securities, the resulting equivalent rate hikes in the current federal funds rate would decrease dramatically to 7.4 (12.6) basis points during normal (crisis) periods. JEL classification: E43, E44, E52, E58, G12 Key words: monetary policy, quantitative tightening, QT, quantitative easing, QE, rate hikes, preferred-habitat, reserves, reverse repo, 1 Introduction When the COVID-19 pandemic hit, the Federal Reserve (Fed) lowered interest rates to near zero and launched a suite of emergency lending programs, including an open-ended quantitative easing [...]

This paper examines the distribution of the gasoline tax burden in the presence of increased electric vehicle adoption. Automobile manufacturers and even some states have ambitious goals to phase out gas-powered cars. However, in spite of these plans, the primary source of automobile infrastructure funding in the United States continues to be gasoline taxes. Less demand for gasoline threatens this source of revenue for maintaining roads and further shifts the burden of the tax toward consumers who can't afford the still relatively expensive electric vehicles. The analysis here illustrates the fundamental regressivity of the gasoline tax, then simulates the distributional impact of replacing the current gas tax with a lump-sum/income tax with different assessment rules designed to replace revenue generated by the gasoline tax. For example, many states are considering switching from a gas tax to a tax based on miles driven to shore up infrastructure funding. Alternatively, the required revenue could be paid equally across income quartiles or assessed based on income. Not surprisingly, the degree of regressivity of replacing the gasoline tax depends on how the tax is assessed across the income distribution. JEL classification: H22, Q21, D11 Key words: gas tax, incidence, consumer demand system, income distribution, equity, I. Introduction In January 2021, General Motors announced that it plans to completely phase out cars using internal combustion (gasoline) engines (Eisenstein 2021) by 2035, and they aren't alone. Volkswagen, [...]

In this paper we develop a novel method to project location-specific life-cycle wages for all occupations listed in the Occupational Outlook Handbook from the U.S. Bureau of Labor Statistics. Our method consists of two steps. In the first step, we use individual-level data from the Current Population Survey to estimate the average number of years of potential labor market experience that is associated with each percentile of the education-level specific wage distribution. In the second step, we map this estimated average years of experience to the wage-level percentiles reported in the Occupational Employment and Wage Statistics data for each occupation and area. Finally, we develop a model capable of projecting the trajectory of wages across all possible years of experience for each occupation. JEL classification: J31 Key words: wage growth, wages, experience, education, earnings, Mincer earnings function https://doi.org/10.29338/wp2021-15a, 1 Introduction In this paper, we develop a novel method to project life-cycle wages for occupations listed in the Bureau of Labor Statistics Occupational Outlook Handbook (the Handbook). This method [...]

This article analyzes the use of intellectual property rights and the most common forms of tax measures to incentivize innovation, and it conducts a comparative analysis of the policies adopted by the European Union and the United States. The first part of this article will focus on intellectual property (IP) rights, building a framework for conducting a more thorough analysis of the interaction between these rights and tax policy. When tax policy instruments are used for purposes that differ from revenue-raising and wealth-redistribution, several issues arise, and it becomes necessary to understand whether the objectives are pursued without disrupting status quo equilibriums. The tax system should be looked at holistically, and several assessments should be conducted to determine whether there might be different ways to accomplish the same objectives more efficiently and without compromising the tax system's neutrality. All in all, the proposed policy should be clear with its objectives and strive to avoid undesirable effects. The most common ways to incentivize innovation through the tax system are research and development (R&D) tax credits and 'IP Box Regimes. ' This article will provide an analysis of these different innovation-oriented tax measures. This evaluation will lead to the determination that expenses-based tax incentives, in the form of R&D tax credits, are a better complement to IP rights in incentivizing innovation than IP Box Regimes, whose scope only somewhat overlaps with IP rights. The last part of this analysis will compare the innovation environments and legal frameworks of the European Union and the United States. In comparing these two different ways of achieving the same objective, it will consider the nature of these two tax policies, emphasizing potential causes and consequences of different choices. Consequently, this paper will highlight the conclusions of this analysis., TABLE OF CONTENTS I. INTRODUCTION 293 II. INTELLECTUAL PROPERTY RIGHTS 295 A. Definition of Intellectual Property Rights 295 1. Patents 295 2. Copyright 296 3. Trademarks 297 B. Intellectual Property [...]

I generalize the long-run risks (LRR) model of Bansal and Yaron (2004) by incorporating recursive smooth ambiguity aversion preferences from Klibanoff et al. (2005, 2009) and time-varying ambiguity. Relative to the Bansal-Yaron model, the generalized LRR model is as tractable but more flexible due to its separation of ambiguity aversion from both risk aversion and the intertemporal elasticity of substitution. This three-way separation allows the model to further account for the variance premium puzzle besides the puzzles of the equity premium, the risk-free rate, and the return predictability. Specifically, the model matches reasonably well key asset-pricing moments with risk aversion under 5. Model calibration shows that the ambiguity aversion channel accounts for 77 percent of the variance premium and 40 percent of the equity premium. JEL classification: G12, G13, D81, E44 Key words: smooth ambiguity aversion, long-run risks, equity premium puzzle, risk-free rate puzzle, variance premium puzzle, return predictability, Working Paper 2021-21 September 2021 1 Introduction The equity premium puzzle (Mehra and Prescott, 1985) and the risk-free rate puzzle (Weil, 1989) are two major puzzles in the asset pricing [...]

Policymakers and international organizations such as the Organization for Economic Cooperation and Development (OECD) defend new tax measures to increase tax compliance and decrease tax competition and tax evasion. The proposed new policies often change the nature or distribution of tax liabilities, for instance by changing the rate structure, introducing new taxable events, or redistributing taxing rights. In a divided political landscape, this article suggests another approach to simplify taxes and raise compliance. This article doesn't intend to touch upon what we owe the government, but only regards how we execute the existing set of tax rules. In particular, this article explores enhancing tax efficiency by introducing blockchain technology in the tax administration and collection process. The main elements that currently undermine the functioning of the system are (1) that tax payments are taxpayer-driven, (2) that payments occur after the taxable event, and (3) that the nature of one's tax liability is highly complex. Because of these three problems, governments miss out on huge amounts of tax revenue, taxes are paid much later than the taxable event, and taxpayers spend huge amounts of money and energy to be (non)compliant. Blockchain technology kills not two but three birds with one stone--and solves these problems altogether. This article will show that, under a blockchain-driven consumption tax, taxes are paid in an automated way that doesn't rely on taxpayer initiative and in real time, i.e., simultaneously with the taxable event. Smart contracts enable programmed taxes that calculate the tax liability, further reducing compliance costs. This article introduces cutting-edge developments in what is known as "layer 2 " technology to the literature to render the system energy-sustainable and retain privacy. The current tax system was designed in a pre-digital era when financial institutions were manually operated and essentially paper based. Amid consensus that the current tax system is outdated, this article investigates a radically new way of levying, paying, and auditing taxes--whereby taxes are levied at the invoice level. This proposal slashes taxation costs, increases compliance, and enables lower overall tax rates, creating stronger governments and better-functioning economies., TABLE OF CONTENTS I. INTRODUCTION 39 II. A BLOCKCHAIN APPLICATION IN CONSUMPTION TAX 44 A. Why Apply Blockchain to Consumption Tax? 44 B. The Issues of the Current U.S. Sales [...]

This paper calculates the change in optimal labor supply and total family welfare resulting from the Tax Cuts and Jobs Act of 2017 (TCJA). We estimate labor supply elasticities for married families in the Current Population Survey from 2015 to 2017, using a joint family utility model. These elasticities are then used to simulate changes in optimal labor supply and resulting change in welfare among families with different characteristics under the new TCJA tax code. We find that optimal hours are lower post-TCJA, relative to before. However, there are differences across family members and family types. Both men's and women's optimal hours decline with income starting in the second quintile, but the decline is more dramatic for men. Overall, all families' welfare increased post-TCJA, with the gains in welfare disproportionately benefiting the wealthy; families with any self-employment income; families with children; and families renting, versus owning, their home. JEL classification: I30, J22, D19 Key words: family welfare, joint labor supply, microsimulation, TCJA https://doi.org/10.29338/wp2021-18, 1 Introduction and Backgrounds On December 31, 2017, the Tax Cuts and Jobs Act (TCJA) became the most sweeping reform of the U.S. tax code since the Economic Growth and [...]

Using micro data from 17 countries in the Organisation for Economic Co-operation and Development, this paper documents a negative cross-country correlation between gender ratios in market hours and wages. We find that market hours by women and the size of the service sector that produces close substitutes to home production are important for the gender differences in market hours across countries. We quantify the role played by taxes and subsidies to family care on the two gender ratios in a multisector model with home production. Higher taxes and lower subsidies reduce the marketization of home production and therefore reduce market hours. The effect is larger for women because of their comparative advantage in producing home services and the corresponding market substitutes. The larger fall in female market hours drives up the female wage relative to the male wage, resulting in higher gender wage ratios. JEL classification: E24, E62, J22. Key words: marketization, gender hour ratios, gender wage ratios, subsidies on family care, taxes, home production https://doi.org/10.29338/wp2021-17, 1 Introduction Gender gaps in working hours per adult and in wages vary widely across OECD countries. As shown in Figure 1, the ratio of market hours per female to [...]

What locations generate more business ideas, and where are ideas more likely to turn into businesses? Using comprehensive administrative data on business applications, we analyze the spatial disparity in the creation of business ideas and the formation of new employer startups from these ideas. Startups per capita exhibit enormous variation across granular units of geography. We decompose this variation into variation in ideas per capita and in their rate of transition to startups, and we find that both components matter. Observable local demographic, economic, financial, and business conditions account for a significant fraction of the variation in startups per capita-and more so for the variation in ideas per capita than in transition rate. Income, education, age, and foreign-born share are generally strong positive correlates of both idea generation and transition. Overall, the relationship of local conditions with ideas differs from that with transition rate in magnitude and, sometimes, in sign: certain conditions (notably, the African American share of the population) are positively associated with ideas but negatively with transition rates. We also find a close correspondence between the actual rank of locations in terms of startups per capita and the predicted rank based only on observable local conditions-a result useful for characterizing locations with high startup activity. JEL classification: L26, R12, R23 Key words: entrepreneurship, firm entry, business formation, business dynamism, economic geography https://doi.org/10.29338/wp2023-09, 1 Introduction Business startups contribute disproportionately to job creation, innovation, and productivity. (1) Yet, the nascent stages of entrepreneurship are not well understood. Characterizing environments conducive to early-stage business activity [...]

The recent shift to remote work raised the amenity value of employment. As compensation adjusts to share the amenity-value gains with employers, wage-growth pressures moderate. We find empirical support for this mechanism in the wage-setting behavior of US employers, and we develop novel survey data to quantify its force. Our data imply a cumulative wage-growth moderation of 2.0 percentage points over two years. This moderation offsets more than half the real-wage catchup effect that Blanchard (2022) highlights in his analysis of near-term inflation pressures. The amenity-values gains associated with the recent rise of remote work also lower labor's share of national income by 1.1 percentage points. In addition, the 'unexpected compression' of wages since early 2020 (Autor and Dube, 2022) is partly explained by the same amenity-value effect, which operates differentially across the earnings distribution. JEL classification: J3, E31, D22, E24, E25 Key words: remote work, amenity value, wage growth, inflation dynamics, recession risk, business expectations, labor's share of national income, wage compression, The recent inflation surge caught many businesses and policy makers flat-footed. U.S. consumer prices rose 8.6 percent over the 12 months ending May 2022, a jump of several percentage points [...]

We conduct a novel empirical analysis of the role of leverage of financial institutions for the transmission of financial shocks to the macroeconomy. For that purpose, we develop an endogenous regime-switching structural vector autoregressive model with time-varying transition probabilities that depend on the state of the economy. We propose new identification techniques for regime switching models. Recently developed theoretical models emphasize the role of bank balance sheets for the buildup of financial instabilities and the amplification of financial shocks. We build a market-based measure of leverage of financial institutions employing institution-level data and find empirical evidence that real effects of financial shocks are amplified by the leverage of financial institutions in the financial constraint regime. We also find evidence for a role of heterogeneity of financial institutions including depository financial institutions, globally systemically important banks, and selected nonbank financial institutions. Our results suggest that the leverage ratio is a useful indicator from a policy perspective. JEL classification: C11, C32, C53, C55, E44, G21 Key words: regime switching, time-varying transition probabilities, financial shocks, leverage, bank and nonbank financial institutions, heterogeneity https://doi.org/10.29338/wp2022-05, 1 Introduction Since the Global Financial Crisis (GFC) progress has been made in understanding the interactions of financial constraints, financial market instabilities and the macroeconomy and incorporating those in standard [...]

This paper studies the asset pricing implications of industrial pollution. A long-short portfolio constructed from firms with high versus low toxic emission intensity within an industry generates an average annual return of 4.42%, which remains significant after controlling for risk factors. This pollution premium cannot be explained by existing systematic risks, investor preferences, market sentiment, political connections, or corporate governance. We propose and model a new systematic risk related to environmental policy uncertainty. We use the growth in environmental litigation penalties to measure regime change risk and find that it helps price the cross section of emission portfolios' returns. Article Note: Po-Hsuan Hsu is with the College of Technology Management, National Tsing Hua University. Kai Li is with Peking University HSBC Business School and PHBS Sargent Institute of Quantitative Economics and Finance. Chi-Yang Tsou is with the Alliance Manchester Business School, University of Manchester. We are indebted to Wei Xiong (the Editor), an anonymous Associate Editor, two anonymous referees for highly valuable comments and suggestions that helped significantly improve the paper. We are grateful for helpful comments from Hengjie Ai; Ivan Alfaro; Ronald Balvers; Frederico Belo; Patrick Bolton; David Chapman; Steven Davis; Stefano Giglio; Gautam Gowrisankaran; John Griffin; Thomas Hellmann; Weiwei Hu; Mingyi Hung; Chuan Yang Hwang; Chanik Jo; Kuan-Cheng Ko; Hao Liang; Roger Loh; Evgeny Lyandres; Christopher Malloy; Kalina Manova; Gustav Martinsson; Roni Michaely; Jun Pan; Ivan Png; Vesa Pursiainen; Tatsuro Senga; Clemens Sialm; Ngoc-Khanh Tran; Kevin Tseng; Rossen Valkanov; K.C. John Wei; Tingyu Yu; Bohui Zhang; Chendi Zhang; Hong Zhang; Lei Zhang; Lu Zhang; Yao Zhou; and seminar and conference participants at the NCTU International Finance Conference, the Taiwan Economics Research Conference, the TFA Asset Pricing Symposium, the 2nd World Symposium on Investment Research, and the ABFER conference. We thank Yaojun Ke and Lianghao Shen for their excellent research assistance. Kai Li gratefully acknowledges the General Research Fund of the Research Grants Council of Hong Kong (Project Number: 16506020) for financial support. Po-Hsuan Hsu gratefully acknowledges the E.SUN Academic Award. We are responsible for any remaining errors or omissions. We have read The Journal of Finance disclosure policy and have no conflicts of interest to disclose. CAPTION(S): Appendix S1: Internet Appendix. Replication Code. Byline: PO-HSUAN HSU, KAI LI, CHI-YANG TSOU

We provide the first tests to distinguish whether individual investors equally balance their overall portfolios (naïve portfolio diversification, NPD) or, in contrast, equally balance the values of same-day purchases of multiple assets (naïve buying diversification, NBD). We find NBD in purchases of multiple stocks, and in mixed purchases of individual stocks and funds. In contrast, there is little evidence of NPD. Evidence suggests that NBD arises due to stock picking behavior and neglect of diversification. These findings suggest that behavioral finance theory should incorporate transaction, as well as portfolio, framing. Article Note: John Gathergood is with the University of Nottingham. David Hirshleifer is with the Marshall School of Business. David Leake is with Barclays Wealth and Investment Management, Behavioural Finance Group. Hiroaki Sakaguchi is with the University of Warwick. Neil Stewart is with the University of Warwick, Warwick Business School. We thank Mengqi Qiu for excellent research assistance on this paper. We thank David Laibson; George Loewenstein; and Brigitte Madrian for very helpful comments and suggestions, together with seminar participants at the Network for Integrated Behavioural Science Annual Workshop 2018, University of Glasgow, University of Bristol, University of Loughborough, and Queen Mary University of London. This work was supported by Economic and Social Research Council (ESRC) grants ES/K002201/1, ES/N018192/1, ES/V004867/1, ES/P008976/1, and Leverhulme grant RP2012-V-022. Sakaguchi acknowledges PhD studentship funding from the ESRC with award reference 1499648. We are thankful to the editor, Wei Xiong, and two anonymous referees. Leake has no relevant or material financial interests that relate to the research described in this paper. At the time of production of the data, he was employed as Head of Customer Intelligence at Barclays Wealth. Gathergood, Hirshleifer, Sakaguchi, and Stewart have nothing to disclose. CAPTION(S): Appendix S1: Internet Appendix. Replication Code. Byline: JOHN GATHERGOOD, DAVID HIRSHLEIFER, DAVID LEAKE, HIROAKI SAKAGUCHI, NEIL STEWART

We study the performance of collateralized loan obligations (CLOs) to understand the market imperfections giving rise to these vehicles and their corresponding economic costs. CLO equity tranches earn positive abnormal returns from the risk-adjusted price differential between leveraged loans and CLO debt tranches. Debt tranches offer higher returns than similarly rated corporate bonds, making them attractive to banks and insurers that face risk-based capital requirements. Temporal variation in equity performance highlights the resilience of CLOs to market volatility due to their closed-end structure, long-term funding, and embedded options to reinvest principal proceeds. Article Note: Larry Cordell is with the Federal Reserve Bank of Philadelphia. Michael R. Roberts is with the Wharton School, University of Pennsylvania and the National Bureau of Economic Research. Michael Schwert is with AQR Arbitrage, LLC. Schwert was with the Wharton School during the drafting of this paper. We thank Jeremy Brizzi; Alan Huang; Yilin Huang; Akhtar Shah; and the customer support team at Intex Solutions for their invaluable assistance in constructing the data set for this project; Stefan Nagel (the Editor); an anonymous Associate Editor; two anonymous referees; Xudong An; Bo Becker; Darrell Duffie; Daniel Green; Fotis Grigoris; Fred Hoffman; Chris James; Arthur Korteweg; Mark Mitchell; Taylor Nadauld; Jordan Nickerson; Greg Nini; Yoshio Nozawa; Matt Plosser; Todd Pulvino; Bill Schwert; Serhan Secmen; Rob Stambaugh; René Stulz; Fabrice Tourre; Stephane Verani; John Wright; seminar participants at the Corporate Finance Virtual Seminar series, Dartmouth College, Federal Reserve Bank of Chicago, Federal Reserve Bank of Philadelphia, Frankfurt School of Finance, London Business School, New York University, Ohio State University, Rutgers University, University of Florida, University of Rochester, Wharton; and conference participants at the SFS Cavalcade, WFA, and NBER Summer Institute for helpful comments. We gratefully acknowledge financial support from the Jacobs Levy Equity Management Center. The views expressed in this paper are those of the authors and do not necessarily reflect the position of the Federal Reserve Bank of Philadelphia or the Federal Reserve System. AQR Capital Management is a global investment management firm, which may or may not apply similar investment techniques or methods of analysis as described herein. The views expressed here are those of the authors and not necessarily those of AQR. The authors have read The Journal of Finance disclosure policy and have no conflicts of interest to disclose. CAPTION(S): Appendix S1: Internet Appendix. Replication Code. Byline: LARRY CORDELL, MICHAEL R. ROBERTS, MICHAEL SCHWERT

The Internal Revenue Service (Service or IRS) for many Americans is a proverbial "boogeyman," eliciting thoughts of fines, audits, and even jail time. The Service wields powers that would frighten any taxpayer, such as the abilities to garnish wages, seize assets, and levy financial penalties. This begs the question--what are the odds that my return will be audited? From a preliminary look, it seems that the Service targets "wealthy" with more scrutiny. However, there has been push-back against this notion. Recently, claims that the Service targets poor tax filers more than their wealthy counterparts have been addressed in congressional hearings. Additionally, recent data published by the Service suggests that their auditing procedures largely target lower-income filers rather than higher-income filers. This paper explores theories behind why this trend exists, what underlying causes may drive this practice, and takes a deeper dive into the published Service examination data. Section II of this paper discusses the theory of distribution and will heavily analyze the Service data provided. Section III concerns the earned-income-tax-credit and presents a theory for why this might cause higher audit rates in lower-income filer returns. Section IV surveys administrative costs of auditing, and the theory about why auditing lower-income filers may be easier for the IRS., TABLE OF CONTENTS I. INTRODUCTION 320 II. THE THEORY OF DISTRIBUTION AND CONCENTRATION 323 III. THE EARNED-INCOME-TAX-CREDIT THEORY 336 IV. THE EASE OF ADMINISTRATION THEORY 339 V. CONCLUSION 342 I. [...]

We build a model with a traditional banking system, endogenous entry of firms and fintech intermediaries, and firm heterogeneity in credit access and usage to study the credit-market, macroeconomic, and business cycle implications of the recent sizable growth in the number of fintech intermediaries in emerging economies. Our analysis delivers three findings. First, the impact of greater fintech entry on firm financial inclusion depends on whether greater entry is driven by lower entry costs for fintech intermediaries or lower barriers to fintech credit for unbanked firms. Second, greater fintech entry can have positive long-term macroeconomic effects. Third, greater fintech entry leads to a reduction in output volatility but results in greater relative volatility in bank credit and consumption. The effects of fintech entry on macro outcomes and volatility hinge critically on the interaction between domestic financial shocks and the reduction in fintech lending rates stemming from greater fintech entry. Unless greater fintech entry leads to lower fintech credit costs for firms, greater fintech entry will have no meaningful credit-market or business-cycle consequences. JEL classification: E24, E32, E44, F41, G21 Key words: financial access and participation, endogenous firm entry, banking sector, fintech entry, emerging economy business cycles, Working Paper 2022-2 January 2022 1 Introduction It is well known that firms in emerging economies (EMEs) face significant barriers to accessing formal credit, resulting in much lower shares of [...]

Households enjoy utility from activities that require a combination of time and goods. We classify activities into two types: luxuries and necessities. Luxuries (necessities) are activities for which time and expenditure shares rise (decline) with income. We develop and estimate a model with nonhomothetic preferences and find that time and goods are substitutable in producing activities. Activities are also substitutable among themselves. Hence, wage and price changes cause large reallocations of time and expenditures across activities. This effect is quantitatively important for welfare inequality. Since 2003, the rise in the price of leisure luxuries has reduced welfare inequality while the rise in wage dispersion has increased it. JEL classification: J22, E21, D11 Key words: time allocation, consumption expenditures, luxuries, necessities, activity production, inequality, Working Paper 2021-28 December 2021 1. Introduction Households spend most of their time on activities other than market work. Becker (1965) recognized early on that households divide time into many [...]

Keywords: generated regressor; standard error bias; bootstrapping; predicted values; financial reporting quality; earnings forecasts; investment; litigation risk ABSTRACT We analyze the standard error bias associated with the use of generated regressors-independent variables generated from first-step regressions-in accounting research settings. Under general conditions, generated regressors do not affect the consistency of coefficient estimates. However, commonly used generated regressors can cause standard errors to be understated. Problematic generated regressors include predicted values, coefficient estimates, and measures derived from these estimates. Widely used generated regressors in accounting include measures of earnings persistence, normal accruals, litigation risk, and conditional conservatism. Using simple regression models and simulation, we demonstrate how generated regressors can produce understated standard errors in accounting research settings. We also demonstrate how the magnitude of the standard error bias is inversely related to the precision of the generated regressor. Finally, we discuss bootstrapping as a correction for the bias and demonstrate the pairs cluster bootstrap as a tool to improve inferences in common accounting settings involving generated regressors. Article Note: _____________ Accepted by Luzi Hail. We thank an anonymous reviewer for constructive and insightful comments that significantly improved the paper. We appreciate helpful comments and suggestions from Dmitri Byzalov (discussant), Tom Omer, Bo Ren, Steven Utke, David Weber, Jingyu Xu, Ying Zhou, and workshop participants at the University of Nebraska-Lincoln and the University of Connecticut. We thank the Tippie College of Business, University of Iowa, the College of Business, University of Nebraska, and the School of Business, University of Connecticut, for financial support. An online appendix to this paper can be downloaded at https://www.chicagobooth.edu/jar-online-supplements Byline: WEI CHEN, PAUL HRIBAR, SAM MELESSA

Keywords: disclosure; ESG; climate change; benchmarking; peer effects; real effects; political pressure ABSTRACT I examine the effects of the U.S. Greenhouse Gas (GHG) Reporting Program, which requires thousands of industrial facilities to measure and report their GHG emissions. I show that facilities reduce their GHG emissions by 7.9% following the disclosure of emissions data. The evidence indicates that benchmarking-whereby facilities use the disclosures of their peers to assess their own relative GHG performance-spurs emission reductions. Firms' concerns about future legislation appear to motivate this behavior and measurement alone (without disclosure) seems not to reduce emissions. My study highlights how mandatory GHG disclosure can create real effects for peers. Article Note: Accepted by Rodrigo Verdi. This paper is based on my dissertation. I thank my committee members-Hans Christensen (co-chair), Christian Leuz (co-chair), Mark Maffett, and Abbie Smith-for their invaluable guidance. I am also grateful to Ray Ball, Phil Berger, John Barrios, Jeremy Bertomeu, Neil Bhattacharya, Matthew Bloomfield, Michael Braun, Matthias Breuer, Joey Choi (discussant), Jung Ho Choi, Carolyn Deller, Hemang Desai, Joaâ¼$\tilde{\rm a}$o Granja, Michael Greenstone, Matthew Gustafson (discussant), Jody Grewal (discussant), Doug Hanna, Russ Hamilton, Yanrong Jia, Ginger Jin (discussant), Jean-Marie Meier, Dan Millimet, Liz Moyer, DJ Nanda, Jing Pan, Rachna Prakash (discussant), Robbie Sanders, Doug Skinner, Mark Templeton, Wayne Taylor, Marcel Tuijn, Hayoung Yoon, an anonymous associate editor, two anonymous reviewers, and seminar participants at CUNY Baruch College, Deakin University, LSE, Southern Methodist University, UCLA, University of Chicago, AAA FARS Conference, FMCG Conference, NBER Measuring and Reporting Corporate Carbon Footprints Conference, RSFE, and University of Delaware Weinberg Center/ECGI Corporate Governance Symposium for helpful comments and suggestions. I thank U.S. EPA's Emissions Inventory and Analysis Group for providing much data necessary for this study and Nivedita Gupta for valuable research assistance. An online appendix to this paper can be downloaded at https://www.chicagobooth.edu/jar-online-supplements. Byline: SORABH TOMAR

Keywords: financial reporting; employee turnover; labor mobility; job search; earnings announcements; employee learning; Glassdoor ABSTRACT We investigate the effects of financial reporting on current employee job search, that is, whether firms' public financial reports cause their employees to reevaluate their jobs and consider leaving. We develop theory for why current employees use earnings announcements (EAs) to inform job search decisions, and empirically investigate job search based on employees' activity on a popular job market website. We find that job search by current employees increases significantly during EA weeks, especially when employees are more mobile and when their information frictions are greater. We also find that employees use EAs to update their expectations about their employers' economic prospects, consistent with learning, and some evidence that positive announcements elicit less search. Our paper contributes to the burgeoning labor and accounting literature by providing among the first evidence closely linking financial reports to employee learning and job search. Article Note: Accepted by Christian Leuz. We appreciate Andrew Chamberlain, Jung-Ho Choi, Rong Ding, Mitchell Hoffman, Jared Jennings (discussant), Shawn Kim, Hanzhe Zhang, and anonymous reviewers for helpful suggestions. We also thank workshop participants at Columbia Business School, Carnegie Mellon, CUHK, LSE, Missouri, NYU, Southern Methodist, Stanford, Utah, Yale, the Early Insights in Accounting Webinar, and the 2021 FARS Midyear Meeting. We are grateful to Glassdoor.com for providing data. We thank Dengsheng Chen and Cong Xiao for research assistance. We gratefully acknowledge the financial support from our respective institutions, CPA Ontario and the CPA Ontario Centre for Accounting Innovation Research, the Jacobs Levy Equity Management Center for Quantitative Financial Research at the Wharton School, University of Pennsylvania. All errors are our own. An online appendix to this paper can be downloaded at https://www.chicagobooth.edu/jar-online-supplements. Byline: ED deHAAN, NAN LI, FRANK S. ZHOU

We develop a tractable model of systemic bank runs. The market-based banking system features a two-layer structure: banks with heterogeneous fundamentals face potential runs by their creditors while they trade short-term funding in the asset (interbank) market in response to creditor withdrawals. The possibility of a run on a particular bank depends on its assets' interim liquidation value, and this value depends endogenously in turn on the status of other banks in the asset market. The within-bank coordination problem among creditors and the cross-bank price externality feed into each other. A small shock can be amplified into a systemic crisis. Article Note: Liu is with the HKU Business School, University of Hong Kong. I am indebted to Philip Bond (the Editor), the Associate Editor, and two anonymous referees for highly valuable comments and suggestions that helped significantly improve the paper, and Tianxi Wang for careful review and detailed feedback on each revision. For helpful comments on an earlier version of the paper, I thank Kartik Anand; Liang Dai; Ding Dong; Itay Goldstein; Zhiguo He; Christian Hellwig; Yan Ji; Ron Kaniel; Alexandr Kopytov; John Kuong; Agnese Leonello; Qi Liu; Abhiroop Mukherjee; John Nash; Deniz Okat; Chao Tang; Xavier Vives; Andrew Winton; Wei Xiong; Liyan Yang; Ming Yang; Zhongchao Yang; and seminar participants at HKU, CUHK, Peking University, Zhejiang University, City University of Hong Kong, HKUST, International Conference on Economic Theory and Applications 2018, PHBS Workshop in Macroeconomics and Finance 2018, HK-SZ Great Bay Area Summer Finance Conference 2018, PKU Guanghua International Symposium on Finance 2019, CICF 2019, FTG Summer School 2019, Summer Institute of Finance (SIF) 2019, and European Finance Association (EFA) Annual Meeting 2019. The paper was previously circulated under the title 'A Dynamic Model of Systemic Bank Runs.' I have read The Journal of Finance disclosure policy and have no conflicts of interest to disclose. CAPTION(S): Replication Code. Byline: XUEWEN LIU

Measures of private equity (PE) performance based on cash flows do not account for a discount-rate risk premium that is a component of the capital asset pricing model (CAPM) alpha. We create secondary market PE indices and find that PE discount rates vary considerably. Net asset values are too smooth because they fail to reflect variation in discount rates. Although the CAPM alpha for our index is zero, the generalized public market equivalent based on cash flows is large and positive. We obtain similar results for a set of synthetic funds that invest in small cap stocks. Ignoring variation in PE discount rates can lead to a misallocation of capital. Article Note: Brian H. Boyer, Taylor D. Nadauld, and Keith P. Vorkink are at the Marriott School of Business, Brigham Young University. Michael S. Weisbach is at the Fisher School of Business, Ohio State University, and NBER. We are grateful to the partners at an anonymous intermediary for providing us with data. We especially thank the Editor, Stefan Nagel, for many useful comments and suggestions. We also thank Ulf Axelson, Carter Davis, Pierre Collin-Dufresne, Brigham Frandsen, Jason Gull, Niklas Hüther, Jonathan Jensen, Steve Kaplan, Arthur Korteweg, Josh Lerner, Ludovic Phalippou, Joseph Romano, Amit Seru, Tyler Shumway, Per Strömberg, Ayako Yasuda, Jeffrey Wooldridge, two anonymous referees, and seminar and conference participants at the Annual Private Markets Research Conference, Brigham Young University, the University of Chicago Housing and Corporate Lending Conference, Ensign Peak Advisors, the Finance Research Association, London Business School, Miami, the NBER Corporate Finance Meetings, Ohio State, Singapore Management University, Texas Tech, and the Wasatch Finance Conference for useful comments and suggestions. We also thank Greg Adams and Hyeik Kim for excellent research assistance. We acknowledge the Q-Group for awarding this paper the 2022 Jack Treynor Prize. The authors do not have any potential conflicts of interest, as identified in The Journal of Finance Disclosure Policy. Collective disclosure: The data for this paper were provided by a large intermediary in the Private Equity secondary market, which had the right to review the manuscript prior to submission. CAPTION(S): Replication Code. Byline: BRIAN H. BOYER, TAYLOR D. NADAULD, KEITH P. VORKINK, MICHAEL S. WEISBACH

We study how a fiscal expansion via infrastructure investment influences the dynamic impacts of monetary stimulus on credit allocation. We develop a two-stage approach and apply it to the Chinese economy with a confidential loan-level data set that covers all sectors. We find that infrastructure investment significantly weakened monetary policy's transmission to credit allocated to private firms, while reinforcing the monetary effects on loans to state-owned firms. This fiscal-monetary interaction channel is key to understanding the preferential credit access enjoyed by state-owned firms during the stimulus period. Consequently, monetary stimulus crowded out private investment and decreased capital allocation efficiency. Article Note: Kaiji Chen is at Emory University and the Federal Reserve Bank of Atlanta. Haoyu Gao is at Renmin University of China. Patrick Higgins is at the Federal Reserve Bank of Atlanta. Daniel F. Waggoner is at Emory University. Tao Zha is at the Federal Reserve Bank of Atlanta, Emory University, and NBER. We are indebted to Editor Wei Xiong and two anonymous referees for their comments for improving the paper. Our thanks for helpful discussions and comments also go to Markus Brunnermeier, Lawrence Christiano, Will Cong, Marty Eichenbaum, Zhiguo He, Yi Huang, Eric Leeper, Zheng Liu, Loretta Mester, Sergio Rebelo, Mark Spiegel, Robert Townsend, Shang-Jin Wei, and Xiaoyun Yu, as well as seminar participants at the Federal Reserve Bank of Cleveland, 2019 International Conference on 'Exchange Rates, Monetary Policy, and Frictions' sponsored by Northwestern University, 2019 AFR Summer Institute in Economics and Finance, Third IMF-FRBA China Workshop, China International Conference in Macroeconomics, International Monetary Fund, Hong Kong Monetary Authority, Second HKUST-Jinan University Conference in Macroeconomics, 2019 ECB-Tsinghua University Conference on China, Chinese University of Hong Kong, University of Virginia, and Princeton University for helpful discussions and comments. Haoyu Gao acknowledges research support from the National Natural Science Foundation of China (NSFC 71850008 and 72273146). An earlier version of this paper is entitled 'Impacts of Monetary Stimulus on Credit Allocation and Macroeconomy: Evidence from China.' The views expressed herein are those of the authors and do not necessarily reflect the views of the Federal Reserve Bank of Atlanta, the Federal Reserve System, or the National Bureau of Economic Research. We have read The Journal of Finance disclosure policy and have no conflicts of interest to disclose. CAPTION(S): Appendix S1: Internet Appendix. Replication Code. Byline: KAIJI CHEN, HAOYU GAO, PATRICK HIGGINS, DANIEL F. WAGGONER, TAO ZHA

Keywords: economic development; globalisation; taxation of international business Abstract Pillar 2 of the OECD's global tax reform proposal will have significant direct and indirect impacts for low-income developing countries (LICs). Most interesting and problematic is the question as to how the global anti-base erosion (GloBE) rules for a proposed global minimum effective tax will affect tax competition behaviour in LICs, and how LICs should respond when a critical mass of higher-income economies adopt the new structure. Most LICs are source-only countries, and they are very much in competition to attract foreign direct investment. Do LICs want to continue to compete using the tax system to the extent possible, to step back from that competition, or to take some intermediate course? Pillar 2 does not itself change a country's desired position on the competition spectrum - it merely affects how, and to what extent, that position can still be obtained. This paper posits that LICs should adopt qualified domestic minimum top-up taxes, and that this will not itself have a negative impact on their competitiveness. The primary focus of the paper, however, is on the design of the substance-based income exclusion (carve-out), examining the following three questions. Should the GloBE have been designed without a carve-out? Would there have been a better way of designing it? How will LICs be affected? The paper concludes that, as little real advantage is likely to accrue to LICs from intangible assets, minimising tax competition for those assets will have relatively little impact on them; and that, from an economic efficiency standpoint, shifting the tax burden away from a normal return and toward economic rents - albeit imperfectly - is a reasonable solution. Article Note: Submitted: September 2022 CAPTION(S): SUPPORTING INFORMATION Byline: Victoria J. Perry

Keywords: relative valuation; peer firms; fundamental analysis; machine learning; GBM; gradient boosting machine ABSTRACT We use machine learning for relative valuation and peer firm selection. In out-of-sample tests, our machine learning models substantially outperform traditional models in valuation accuracy. This outperformance persists over time and holds across different types of firms. The valuations produced by machine learning models behave like fundamental values. Overvalued stocks decrease in price and undervalued stocks increase in price in the following month. Determinants of valuation multiples identified by machine learning models are consistent with theoretical predictions derived from a discounted cash flow approach. Profitability ratios, growth measures, and efficiency ratios are the most important value drivers throughout our sample period. We derive a novel method to express valuation multiples predicted by our machine learning models as weighted averages of peer firm multiples. These weights are a measure of peer-firm comparability and can be used for selecting peer-groups. Article Note: Accepted by Haresh Sapra. We are grateful for the insightful comments from the editor and two anonymous referees. We thank participants at the Department of Accounting and Finance seminar series at the University of Auckland (2019 and 2020), the Quantitative Methods in Finance conference (Sydney, 2019), the 32nd Australasian Finance and Banking Conference (Sydney, 2019), the 24th and 25th Annual New Zealand Finance Colloquium (NZFC, Auckland, 2020, and Tauranga, 2021), and an event organized by the Institute of Finance Professionals New Zealand Inc. (INFINZ, 2020) for their valuable comments. An earlier version of this paper was awarded the INFINZ Best Paper in Investments award at the 24th New Zealand Finance Colloquium. We thank Pedro Barroso, Henk Berkman, Steven Cahan, Griffin Geng, Maryam Hasannasab, David Hay, Paul Healy, Stephen Kean, Michael Keefe, Robert Knechel, Nick Nguyen, Peter Philips, Paul Rouse, Derek Snow, Charl de Villiers, Jilnaught Wong, and Norman Wong for insights and suggestions. Any remaining errors are our own. An online appendix to this paper can be downloaded at https://www.chicagobooth.edu/jar-online-supplements. Byline: PAUL GEERTSEMA, HELEN LU

Keywords: reputational incentives; corporate governance; certification; expert assessments; foreign investment ABSTRACT This paper studies the economic consequences of certification of corporate governance practices. For identification, we exploit a recent cross-country initiative by a coalition of key institutions in Southeast Asia; the periodic publication of a 'Top List' of companies in the region selected based on an independent assessment of corporate governance practices. Our results suggest that being included in the list induces an increase in foreign investment and changes in corporate governance practices. The announcement of the Top List elicits a positive stock market response among constituents and is followed by higher accounting performance. Overall, the evidence suggests that the certification of governance practices is a meaningful tool to boost foreign investment. Article Note: Accepted by Rodrigo Verdi. We thank the Editor, the Associate Editor and an anonymous Reviewer for their excellent guidance and comments. We further thank Thomas Bourveau, Matthias Breuer, Brian Cadman, Mary Ellen Carter, Shane Dikolli, Miguel Duro, Fabrizio Ferri, Brandon Gipper, Ian Gow, Ming Yi Hung, Allen Huang, Igor Kadach, Xinlei Li, Christian Leuz, Melissa Martin, Heidi Packard, Xiaoxia Peng, Rob Raney, Bryce Schonberger, Jayanthi Sunder, Dan Taylor, Thomas Ruchti (our FARS discussant), and seminar participants at CGECRS, FARS 2022 Midyear Meeting, and the Hong Kong University of Science and Technology. We are indebted to Mohd Sani Moh Ismail (Asian Development Bank), Kelvin Lester K. Lee (SEC of Philippines), and Jess Estanislao (Institute of Corporate Directors of Philippines) for their continuous support throughout this research project. We are also especially grateful to the members of the domestic ranking bodies of the ASEAN countries: Alfredo Pascual, Angela Simatupang, Aurakarn Jungthirapanich, Cathyrine Pradia Perez, Devanesan Evanson, Hien Thu Nguyen, John KM Lim, Kulvech Janvatanavit, Linnert Hoo, and participants at the ACMF Chairs meeting and at the ACMF 2022 Conference. We are also thankful to Miracle Anne D. Rodriguez, Mara Louise A. Ruiz, Rachel Esther J. Gumtang-Remalante, Shiena Angela D. Aquino, Karen A. Rocha, Iza Marie Espiritu (SEC of Philippines). We also thank Joakim Alderborn, Alessandro Maimone, and Dimitra Dimitroula for excellent research assistance. Gaizka Ormazabal acknowledges financial contributions from the Spanish Ministry of Economy, Industry and Competitiveness, Grant ECO2015-63711-P, and from the 'Cátedra de Dirección de Instituciones Financieras y Gobierno Corporativo del Grupo Santander.' Pietro Bonetti acknowledges financial contributions from the Spanish Ministry of Economy, Industry and Competitiveness, Grant ECO2017-84016-P. An online appendix to this paper can be downloaded at https://www.chicagobooth.edu/jar-online-supplements. Byline: PIETRO BONETTI, GAIZKA ORMAZABAL

Keywords: capital requirements; CCyB; exposure CoVaR; financial stability; marginal expected shortfall; stress test Abstract This paper proposes a novel methodology to calibrate the magnitude of the countercyclical capital buffer (CCyB) using market-based stress tests. The macroprudential authority in our paper aims to contain the possibility of a breach of a minimum capital ratio in the event of a severe system-wide shock within a certain permissible failure probability. We apply the methodology by stress-testing major banks in six advanced economies on a quarterly basis over a period of 27 years. The estimates suggest that the cap on the CCyB should not be less than around 1.7% of total assets. Its potential normal-times level is estimated at approximately 0.8% of total assets. Biographical information: Maarten R.C. van Oordt is an Associate Professor in the School of Business and Economics at the Vrije Universiteit Amsterdam (E-mail: m.van.oordt@vu.nl). Article Note: The author is thankful for helpful comments and suggestions from two anonymous referees, Robert DeYoung (Editor), Katarzyna Budnik, Thibaut Duprey, Charles Gaa, Kim P. Huynh, Adi Mordel, Alexandre Ruest, Joseph Schroth, Yaz Terajima, participants in the 52nd Annual Meeting of the Canadian Economics Association (2018), the Bank of Canada Workshop on 'Banking Regulation and Deposit Insurance' (2018) and the Macroprudential Stress-testing Conference of the European Central Bank (2020), and seminars participants at the Bank of Canada (2018) and Ottawa University (2019). The author is grateful to Adam Epp for excellent research assistance. This paper was written while the author was employed by the Bank of Canada. Views expressed do not necessarily reflect those of the Bank of Canada. CAPTION(S): Table I: Macrofinancial Conditions and the Capital Buffers (One-Way Cluster-Robust) Table II: Macrofinancial Conditions and the Capital Buffers (Two-Way Cluster-Robust) Byline: MAARTEN R.C. VAN OORDT

Keywords: lower bound; monetary policy; negative interest rates; term structure; uncertainty Abstract Nominal interest rates are constrained by an effective lower bound, but the level of the lower bound is uncertain. This paper uses a simple shadow rate term structure model to study how lower bound uncertainty affects long-term interest rates. A decline in lower bound uncertainty, in the sense of a mean-preserving contraction, is associated with a drop in expected short rates. The effect on the variance of short rates, and hence the term premium, is ambiguous. A calibration to Canadian data suggests that a decline in lower bound uncertainty is associated with a modest drop in interest rates. Biographical information: Christian Grisse is Deputy Head of Monetary Policy Analysis, Swiss National Bank (E-mail: christian.grisse@snb.ch). Article Note: I would like to thank Joseph Gagnon, Petra Gerlach, anonymous referees of this journal and of the SNB working paper series, and seminar participants at the Peterson Institute for International Economics and the BIS-SNB research workshop for helpful comments and suggestions. The views expressed in this paper are those of the author and do not necessarily reflect the position of the Swiss National Bank. Byline: CHRISTIAN GRISSE

A tighter monetary policy is generally associated with higher real interest rates on deposits and loans, weaker performance of equities and real estate, and slower growth in employment and wages. How does a household's exposure to monetary policy vary with its age? The size and composition of both household income and asset portfolios exhibit large variation over the lifecycle in Japanese data. We formulate an overlapping generations model that reproduces these observations and use it to analyze how household responses to monetary policy shocks vary over the lifecycle. Both the signs and the magnitudes of the responses of a household's net worth, disposable income and consumption depend on its age. JEL classification: E52, E62, G51, D15 Key words: monetary policy, lifecycle, portfolio choice, nominal government debt, Working Paper 2021-20a August 2021 (Revised September 2021) 1 Introduction Monetary policy is generally thought to operate through financial markets. A higher policy interest rate increases the real interest rate [...]

Using a novel database of domestic financial reforms in 90 countries from 1973 to 2014, we document that global financial liberalization followed an S-curve path: reforms were slow and gradual in early periods, accelerated during the 1990s, and slowed down after 2000. We estimate a learning model that explains these dynamics. Policymakers updated their beliefs about the growth effects of financial reforms by learning from their own and other countries' experiences. Positive growth surprises in advanced economies helped accelerate belief updating worldwide, leading to the global wave of financial liberalization in the 1990s. The 2008 financial crisis, however, caused significant belief reversals. JEL classification: O11, O50, C11, C54 Key words: financial reforms, informational diffusion, cross-country learning, belief updating, S-curve evolution, political costs, economic growth, financial crisis, Working Paper 2021-19 July 2021 1 Introduction One of the most important developments over the past four decades is the growing willingness of governments to open up the financial sector [...]