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Market-Based Solutions to Vital Economic Issues


Kenan Institute 2023 Grand Challenge: Workforce Disrupted
Market-Based Solutions to Vital Economic Issues



Dr. Gerald Cohen brings nearly 30 years of high-profile private and public sector experience to the institute, where he is taking a leading role in forwarding Kenan Institute’s mission and translational research efforts.

We model the joint dynamics of intraday liquidity, volume, and volatility in the U.S. Treasury market, especially through the 2007--09 financial crisis and around important economic announcements. Using various specifications based on Bauwens & Giot (2000)'s Log-ACD(1,1) model, we find that liquidity, volume and volatility are highly persistent, with volatility having a lower short-term persistence than the other two. Market liquidity and volume are important to explaining volatility dynamics but not vice versa. In addition, market dynamics change during the financial crisis, with all variables exhibiting increased responsiveness to their most recent realizations.

What is the impact of higher technological volatility on asset prices and macroeconomic aggregates? I find the answer hinges on its sectoral origin. Volatility that originates from the consumption (investment) sector drops (raises) macroeconomic growth rates and stock prices.

We study multi-period sales-force incentive contracting where salespeople can engage in effort gaming, a phenomenon that has extensive empirical support. Focusing on a repeated moral hazard scenario with two independent periods and a risk-neutral agent with limited liability, we conduct a theoretical investigation to understand which effort profiles the firm can expect under the optimal contract. We show that various effort profiles that may give the appearance of being sub-optimal, such as postponing effort exertion (“hockey stick”) and not exerting effort after a bad or a good initial demand outcome (“giving up” and “resting on laurels,” respectively) may indeed be induced optimally by the firm.

Networks of serial entrepreneurs, investors, and their affiliated companies play a critical role in driving entrepreneurial behavior, investor focus, and innovation hot spots within specific industry sectors and are critical for shaping the character of robust regional economies.

A core idea in competitive strategy is that a firm’s ability to capture value depends on the creation of value: maximizing the gap between willingness to pay and cost. This value can depend on or be enhanced through complementarity, where the willingness to pay for an offering is increased in the presence of another offering. Substitutability is assumed to have the opposite effect.

When financially distressed firms have overwhelming debts, a prominent option for survival is to file for Chapter 11 bankruptcy protection. We empirically study the effect of Chrysler’s Chapter 11 bankruptcy filing on the quantity sold by its competitors in the U.S. auto industry.

We examine whether the contribution of firm-level accounting earnings to the informativeness of the aggregate is tilted towards earnings with specific financial reporting characteristics. Specifically, we investigate whether considering the smoothness of firm-level earnings increases the informativeness of aggregate earnings for future real GDP, and if so, whether macroeconomic forecasters use this information efficiently. Using recently-developed mixed data sampling methods, we find that the aggregate is tilted towards firms with smoother earnings and that this composition of aggregate earnings outperforms traditional weighting schemes.

We examine the implications of less powerful forward guidance for optimal policy using a sticky-price model with an effective lower bound (ELB) on nominal interest rates as well as a discounted Euler equation and Phillips curve. We find that, under a wide range of plausible degrees of discounting, it is optimal for the central bank to compensate for the reduced effect of a future rate cut by keeping the policy rate at the ELB for longer.

In this paper, we compare several approaches of producing multi-period-ahead forecasts within the GARCH and RV families – iterated, direct, and scaled short-horizon forecasts. We also consider the newer class of mixed data sampling (MIDAS) methods.

This chapter investigates the pricing of key contract provisions of Puerto Rican debt. In doing so, the chapter contributes to a body of research that asks the questions: do investors price contract provisions? Does the pricing of contract provisions vary with credit risk? To our knowledge, this is the first study to address these questions for the case of Puerto Rico or any municipal issuer. Puerto Rico’s unique status as a U.S. territory implies that its subsidiaries, such as municipalities, cannot file for bankruptcy under Chapter 9 of the U.S. Bankruptcy Code.

Aug 31, 2018

Retail Entry and Exit

This chapter summarizes recent insights on entries and exits in the retail sector. Focusing on brick-and-mortar operations, it discusses four phenomena in the global retail industry: (i) local entry, (ii) international/regional entry, (iii) local exit, and (iv) international exit. It also identifies new trends related to online retailers that are in need of more research.