Job Applications and Labor Market Flows 2 June 2024 Serdar Birinci, Kurt See, and Shu Lin WeeJob applications have risen over time, yet job-finding rates remain unchanged. Meanwhile, separations have declined. We argue that increased applications raise the probability of a good match rather than the probability of job-finding. Using a search model with multiple applications and costly information, we show that when applications increase, firms invest in identifying good matches, reducing separations.
Falling Interest Rates and Credit Reallocation: Lessons from General Equilibrium 2 June 2024 Vladimir Asriyan, Luc Laeven, Alberto Martin, Alejandro Van der Ghote, and Victoria VanascoWe show that in a canonical model with heterogeneous entrepreneurs, financial frictions, and an imperfectly elastic supply of capital, a fall in the interest rate has an ambiguous effect on aggregate economic activity. In partial equilibrium, a lower interest rate raises aggregate investment both by relaxing financial constraints and by prompting relatively less productive entrepreneurs to invest. In general equilibrium, however, this higher demand for capital raises its price and crowds out investment by more productive entrepreneurs.
What Good are Treatment Effects without Treatment? Mental Health and the Reluctance to Use Talk Therapy 27 May 2024 Christopher J. Cronin, Matthew P. Forsstrom, and Nicholas W. PapageorgeEvidence across disciplines suggests that talk therapy is more curative than antidepressants for mild-to-moderate depression and anxiety. Yet, few patients use it. We develop a dynamic choice model to analyze patient demand for the treatment of depression and anxiety. The model incorporates myriad potential impediments to therapy use along with links between mental health improvements and earnings. The estimated model reveals that mental health improvements are valuable, directly through utility and indirectly through earnings.
Should We Prevent Off-Label Drug Prescriptions? Empirical Evidence from France 27 May 2024 Tuba TuncelAfter a drug obtains marketing authorization, the usage depends on the regulation of off-label prescriptions for unapproved indications. We investigate the impact of off-label prescription regulation on physicians’ behavior, patients’ health, treatment costs, and pharmaceutical firms’ pricing with a structural demand and supply model. Exploiting rich panel data on physicians’ activities and office visits in France over nine years, we use a model of prescription choice and health outcomes with unobserved patient-level heterogeneity. We identify the demand for on-label and off-label drugs and the effect of prescription choice on health outcomes.
Inflation Levels and (In)Attention 27 May 2024 Anat Bracha and Jenny TangInflation expectations are key determinants of economic activity and are central to the current policy debate about whether inflation expectations will remain anchored in the face of recent pandemic-related increases in inflation. This paper explores evidence of inattention by constructing two novel and direct measures of consumers’ inattention, and documents greater attention when inflation is high.
Reputational Bargaining with External Resolution Opportunities 27 May 2024 Mehmet Ekmekci and Hanzhe ZhangTwo parties negotiate in the presence of external resolution opportunities (e.g., court, arbitration, or war). The outcome of external resolution depends on the privately held justifiability/strength of their claims. A justified party issues an ultimatum for resolution whenever possible, but an unjustified party strategically bluffs with an ultimatum to establish a reputation for being justified. We show that the availability of external resolution opportunities can benefit or hurt an unjustified party in equilibrium.
Survey data and subjective beliefs in business cycle models 20 May 2024 Anmol Bhandari, Jaroslav Borovička, and Paul HoThis paper develops a theory of subjective beliefs that departs from rational expectations, and shows that biases in household beliefs have quantitatively large effects on macroeconomic aggregates. The departures are formalized using model-consistent notions of pessimism and optimism which are supported by extensive time-series and cross-sectional evidence from household surveys. The role subjective beliefs play in aggregate fluctuations is quantified in a business cycle model with goods and labor market frictions. Consistent with the survey evidence, an increase in pessimism generates upward biases in unemployment and inflation forecasts and lowers economic activity.
Expectations and Learning from Prices 20 May 2024 Francesca Bastianello and Paul FontanierWe study mislearning from equilibrium prices, and contrast this with mislearning from exogenous fundamentals. We micro-found mislearning from prices with a psychologically founded theory of “Partial Equilibrium Thinking” (PET), where traders learn fundamental information from prices, but fail to realize others do so too. PET leads to over-reaction, and upward sloping demand curves, thus contributing to more inelastic markets. The degree of individual-level over-reaction, and the extent of inelasticity varies with the composition of traders, and with the informativeness of new information.
