Bureau.

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NBER Researchers Head to Washington

NBER Research Associate R. Glenn Hubbard, a professor of economics and finance at Columbia University and its Graduate School of Business, was nominated by President Bush to chair the Council of Economic Advisers. Hubbard received his Ph. D. in Economics from Harvard University in 1983, taught at Northwestern University until 1988, and then joined the Columbia economics faculty. He also served as deputy assistant secretary of the U.S.Treasury Department in 1990-1.

Lawrence Lindsey, President Bush's chief adviser on economic issues during the campaign, was also an NBER researcher after receiving his doctorate in economics from Harvard. He now heads the National Economic Council.

President Bush has announced his intention to nominate NBER Research Associate John B. Taylor, currently the Mary and Robert Raymond Professor of Economics at Stanford University, as Under Secretary of Treasury for International Affairs. Taylor was a member of the Council of Economic Advisers in 1989-91.

The President also has announced his intention to nominate NBER Research Associate Mark B. McClellan, a professor of economics at Stanford University, as a member of the Council of Economic Advisers and an adviser to the National Economic Council for health care policy.

Other NBER researchers are expected to be appointed to economic posts in the Bush Administration in the coming months.

TIAA-CREF Awards Go to NBER Researchers

The TIAA-CREF Institute's fifth annual Paul A. Samuelson Award for Outstanding Scholarly Writing on Lifelong Financial Security has been given to NBER Faculty Research Associate Nicholas Barberis of the University of Chicago's Graduate School of Business for a study cautioning investors that the long-term performance of the stock market and the expected returns from equities are more uncertain than is generally believed. His paper, "Investing for the Long Run When Returns Are Predictable," was published in the Journal of Finance in February 2000.

The Samuelson Award is determined by an independent panel of judges and is administered by the TIAA-CREF Institute, the research and educational arm of TIAA-CREF. The Institute's fields of interest include pensions and retirement; corporate governance; investment products and strategy; higher education financing and trends; health, life, and long-term care insurance; and financial literacy. The award was named after Nobel Prize winner Paul Samuelson in honor of his achievements in the field of economics, as well as for his service as a CREF trustee from 1974-85. It carries a $20,000 prize.

The judges also awarded Certificates of Excellence to the authors of two books: NBER Research Associates Price V. Fishback and Shawn E. Kantor, University of Arizona, for A Prelude to the Welfare State: The Origins of Workers' Compensation, published by the University of Chicago Press; and NBER Research Associate John B. Shoven, Stanford University, and coauthor Sylvester J. Schieber, Watson Wyatt Worldwide, for The Real Deal: The History and Future of Social Security, published by the Yale University Press. Each of these authors received a $1,000 prize.

The awards were presented by John H. Biggs, TIAA-CREF chairman, president, and CEO, at a January 5, 2001, reception held at the Allied Social Science Association's annual meeting in New Orleans.

Economic Fluctuations and Growth

The NBER's Program on Economic Fluctuations and Growth, which is directed by Robert E. Hall of Stanford University, met on February 3 at the Federal Reserve Bank of San Francisco. Ricardo Caballero, NBER and MIT, and John Cochrane, NBER and University of Chicago, organized the meeting and chose these papers for discussion:

Aart Kraay, Norman Loayza, and Luis Serven, World Bank, and Jaume Ventura, NBER and MIT, "Country Portfolios" (NBER Working Paper No. 7795)

Discussant: Fernando E. Alvarez, NBER and University of Chicago

Douglas W. Diamond and Raghuram G. Rajan, NBER and University of Chicago, "Liquidity Shortages and Banking Crises" Discussant: Nobuhiro Kiyotaki, NBER and London School of Economics

Jeremy Greenwood and Mehmet Yorukoglu, University of Rochester, and Anath Seshadri, University of Wisconsin, "Engines of Liberation"

Discussant: Robert J. Gordon, NBER and Northwestern University

Tobias J. Moskowitz and Annette Vissmg-Jorgensen, University of Chicago, "The Private Equity Puzzle"

Discussant: Deborah J. Lucas, NBER and Northwestern University

Harold L. Cole and Lee E. Ohanian, University of California, Los Angeles, "New Deal Policies and the Persistence of the Great

Depression: A General Equilibrium Analysis"

Discussant: Alan C. Stockman, NBER and University of Rochester

Ellen R. McGrattan and Edward C. Prescott, Federal Reserve Bank of Minneapolis, "Taxes, Regulations, and Asset Prices"

Discussant: Robert E. Hall

Kraay, Loayza, Serven, and Ventura ask how countries hold their financial wealth. They construct a database of 68 countries' claims on foreign and domestic capital and international borrowing and lending from 1966 to 1997. The authors find that a small amount of capital will flow from rich countries to poor countries. Further, countries' foreign asset positions are remarkably persistent and generally take the form of foreign loans rather than foreign equity. In the presence of reasonable diminishing returns and production risk, the authors show that the probability that international crises will occur twice a century is enough to generate a set of country portfolios that are roughly consistent with the data.

Diamond and Rajan examine the effects of shortages of liquid assets on a banking system. They characterize the kinds of problems that can arise and the types of interventions that might be appropriate. They also point out the dangers of the wrong kind of intervention, such as infusing capital when the need is for liquidity, as well as the practical difficulty of telling what is needed in some situations.

Greenwood, Yorukoglu, and Seshadri examine the impact of the consumer durable goods revolution that began at the dawn of the last century. They argue that this revolution liberated women from the home. After developing a model of household production in which households must decide whether to adopt the new technologies and whether a married woman should work, they conclude that this model explains the rise in married female labor-force participation that occurred in the last century.

Moskowitz and Vissing-Jorgensen document that investment in private equity is extremely concentrated. Yet despite the very poor diversification of entrepreneurs' portfolios, the authors find that the returns to private equity are similar to the returns on public equity. Given the large premium required by investors in public equity, why do households willingly invest substantial amounts in a single privately-held firm with a worse risk-return tradeoff? The authors conclude that private nonpecuniary benefits of control must be large or entrepreneurs must greatly overestimate their probability of success.

There are two striking aspects of the recovery from the Great Depression in the United States: the recovery was very weak and real wages in several sectors rose significantly above trend. Cole and Ohanian evaluate whether New Deal cartelization policies designed to limit competition among firms and increase labor bargaining power can explain the persistence of the Depression. They develop a model of the intra-industry bargaining process between labor and firms that occurred with these policies. They conclude that New Deal cartelization policies are an important factor in accounting for the post-1933 Depression. Further, the key depressing element of New Deal policies was not collusion per se, but rather the link between paying high wages and collusion.

U.S. stock prices have risen much faster than GNP during the postwar period. Between 1960 and 2000, the value of equity relative to GNP more than doubled. McGrattan and Prescott use a standard growth model to show that economic theory predicts this rise in equity prices. Changes in taxes, primarily in taxes on dividends, account for the large change in equity prices. Theory also can account for the fact that stock returns have been much higher than bond returns over the postwar period.

Industrial Organization

The NBER's Project on Industrial Organization, directed by Nancy L. Rose of Stanford University, met at the Bureau's California office on February 10. Rose and her co-orgnaizer, Susan Athey of NBER and MIT, chose the following papers for discussion:

Judith A. Chevalier and Anil K Kashyap, NBER and University of Chicago, and Peter Rossi, University of Chicago, "Why Don't Prices Rise During Periods of Peak Demand? Evidence from Scanner Data" (NBER Working Paper No. 7981)

Discussant: Robert Porter, NBER and Northwestern University

Philip Leslie, University of California, Los Angeles, and Ginger Jin, University of Maryland, "The Effects of Disclosure Regulation: Evidence from Restaurants"

Discussant: Daniel Kessler, NBER and Stanford University

Brian Viard, Stanford University, "Do Switching Costs Make Markets More or Less Competitive? The Case of 800-Number Portability"

Discussant: Chris Knittel, Boston University

Alan T. Sorensen, University of California, San Diego, "Price Dispersion and Heterogeneous Consumer Search for Retail Prescription Drugs"

Discussant: Florian Zettelmeyer, University of California, Berkeley

Margaret Slade, University of British Columbia, "Assessing Market Power in U.K. Brewing"

Discussant: Steven T. Berry, NBER and Yale University

Chevalier and her coauthors examine the retail and wholesale prices of a large supermarket chain in Chicago over seven and a half years. They show that prices tend to fall during the seasonal demand peak for a product and that changes in retail margins explain most of those price changes. In other word, markups are counter cyclical. The pattern observed in...