Economic Fluctuations and Growth.

PositionConferences

The NBER's Program on Economic Fluctuations and Growth met at the Federal Reserve Bank of San Francisco on February 2. Timothy Kehoe, University of Minnesota, and Michael Kremer, NBER and Harvard University, organized this program:

Laurent Calvet, Harvard University, Martin Gonzalez-Eiras, Universidad de San Andres, and Paolo Sodini, Stockholm School of Economics, "Financial Innovation, Market Participation, and Asset Prices"

Discussant: David Levine, University of California, Los Angeles

Mark Bils, NBER and University of Rochester, and Peter J. Kienow, Federal Reserve Bank of Minneapolis, "Some Evidence on the Importance of Sticky Prices"

Discussant: Jeffrey Campbell, NBER and University of Chicago

James A. Schmitz, Jr., Federal Reserve Bank of Minneapolis, "What Determines Labor Productivity? Lessons from the Dramatic Recovery of the U.S. and Canadian Iron-Ore Industries"

Discussant: Valerie Ramey, NBER and University of California, San Diego

Christopher A. Sims, NBER and Princeton University, "Implications of Rational Inattention"

Discussant: Christopher Carroll, NBER and Johns Hopkins University

Donald R. Davis and David E. Weinstein, NBER and Columbia University, "Bones, Bombs, and Break Points: The Geography of Economic Activity" (NBER Working Paper No. 8517)

Discussant: Jonathan Eaton, NBER and Boston University

Kei-Mu Yi, Federal Reserve Bank of New York, "Can Vertical Specialization Explain the Growth of World Trade?"

Discussant: Samuel Kortum, NBER and University of Minnesota

Calvet, Gonzalez-Eiras, and Sodini propose that the introduction of non-redundant assets can modify trader participation in financial markets, which can lead to a lower market premium and a higher interest rate. They demonstrate this in a tractable exchange economy with endogenous participation. Investors receive heterogeneous random incomes determined by a finite number of macroeconomic factors. They can borrow and lend freely, but must pay a fixed entry cost to invest in risky assets. Security prices and the participation structure are determined jointly in equilibrium. The model reconciles a number of features that have characterized financial markets in the past three decades: substantial financial innovation; a sharp increase in investor participation; improved risk management practices; an increase in interest rates; and a reduction in the risk premium.

Bils and Klenow examine the frequency of price changes for 350 categories of goods and services...

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