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Research on Economic Fluctuations and Globalization

Final Report Summary - FLUCTUATIONS (Research on Economic Fluctuations and Globalization)

My grant proposal consisted of a number of projects in the areas of macro and international economics. A summary of the contributions follows:
1) Hot and Cold Seasons in the Housing Market We document strong seasonal fluctuations in house prices and transactions. Every year during the second and third quarters (the "hot season") housing markets experience systematic above-trend increases in both prices and transactions. During the fourth and first quarters (the "cold season"), house prices and transactions fall below trend. We propose a search-and-matching framework that sheds new light on the mechanisms governing housing market fluctuations. The model has a "thick-market": in hot seasons (with many houses for sale), people can find their ideal houses and are willing to pay higher prices. Aware of this, sellers charge higher prices.
2) Diversification through Trade Existing wisdom links increased openness to trade to greater macroeconomic volatility, as trade induces countries to specialize, increasing exposure to sector-specific shocks. Evidence suggests, however, that country-wide shocks are at least as important as sectoral shocks in shaping volatility patterns. We argue that if country-wide shocks are dominant, international trade can reduce volatility because trade becomes a source of diversification of country-specific demand and supply shocks. We develop and quantify a model to assess the importance of the two mechanisms (sectoral specialization and country-wide diversification.)
3) Technological Diversification offers an explanation for why poor countries are more volatile than rich countries based on the diversification of the technological base. As countries develop, they can count on more inputs and technologies to react to shocks, mitigating their impact on economic activity and thus reducing volatility.

4) Estimating the Extensive Margin of Trade develops a new estimator applicable when the dependent variable is double-bounded, as is the case of the number of sectors or firms in the extensive margin of trade or more generally, for fractional data or double bounded data.
5) Pushing on a string: US monetary policy is less powerful in recessions We find that the effects of monetary policy on real and nominal variables are more powerful in expansions than in recessions. The magnitude of the difference is particularly large in durables expenditure and business investment.
6) Discriminating Between Models for Nonnegative Data with Many Zeros we develop a new econometric test to differentiate between models of nonnegative data.

7)On the Existence of the Maximum Likelihood Estimates for Poisson Regression and
8) Further Simulation Evidence on the Performance of the Poisson-PML Estimator are auxiliary to 6) and provide conceptual and illustrative support for the use of Poisson-regression models. 9) Trading Partners and Trading Flows: Implementing the Helpman-Melitz-Rubinstein Model Empirically also complements project 6) by studying in depth the estimation approach used in the influential HMR paper.