Page 38 – The Review of Economic Studies

Sources and Transmission of Country Risk

30 July 2023

Tarek A. Hassan, Jesse Schreger, Markus Schwedeler, and Ahmed Tahoun

We use textual analysis of earnings conference calls held by listed firms around the world to measure the amount of risk managers and investors at each firm associate with each country at each point in time. Flexibly aggregating this firm-country-quarter-level data allows us to systematically identify spikes in perceived country risk (“crises”) and document their source and pattern of transmission to foreign firms.

Continuous-Time Games with Imperfect and Abrupt Information

30 July 2023

Benjamin Bernard

This paper studies two-player games in continuous time with imperfect public monitoring, in which information may arrive both gradually and continuously, governed by a Brownian motion, and abruptly and discontinuously, according to Poisson processes. For this general class of two-player games, we characterize the equilibrium payoff set via a convergent sequence of differential equations.

Reserve Accumulation, Macroeconomic Stabilization and Sovereign Risk

15 July 2023

Javier Bianchi and Cesar Sosa-Padilla

In the past three decades, governments in emerging markets have accumulated large amounts of international reserves, especially those with fixed exchange rates. This paper proposes a theory of reserve accumulation that can account for these facts. Using a model of endogenous sovereign default with nominal rigidities, we argue that the interaction between sovereign risk and aggregate demand amplification generates a macroeconomic-stabilization hedging role for international reserves.

Model Complexity, Expectations, and Asset Prices

4 July 2023

Pooya Molavi, Alireza Tahbaz-Salehi, and Andrea Vedolin

This paper analyzes how limits to the complexity of statistical models used by market participants can shape asset prices. We consider an economy in which the stochastic process that governs the evolution of economic variables may not have a simple representation, and yet, agents are only capable of entertaining statistical models with a certain level of complexity.

How Exporters Grow

3 July 2023

Doireann Fitzgerald, Stefanie Haller, and Yaniv Yedid-Levi

We use customs data for Irish firms to show that in successful episodes of export market entry, there are statistically and economically significant post-entry dynamics of quantities, but not of markups. To match these moments, we structurally estimate a model where firms can invest in future customer base through two channels: by selling more today, and by spending on marketing and advertising.

Trust in Risk Sharing: A Double-Edged Sword

3 July 2023

Harold L. Cole, Dirk Krueger, George J. Mailath, and Yena Park

We analyze efficient risk-sharing arrangements when the value from deviating is determined endogenously by another risk sharing arrangement. Coalitions form to insure against idiosyncratic income risk. Self-enforcing contracts for both the original coalition and any coalition formed (joined) after deviations rely on a belief in future cooperation which we term “trust”.

Dynamic Opinion Aggregation: Long-Run Stability and Disagreement

3 July 2023

Simone Cerreia-Vioglio, Roberto Corrao, and Giacomo Lanzani

This paper proposes a model of non-Bayesian social learning in networks that accounts for heuristics and biases in opinion aggregation. The updating rules are represented by nonlinear opinion aggregators from which we extract two extreme networks capturing strong and weak links.

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3 July 2023

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Sources and Transmission of Country Risk

Continuous-Time Games with Imperfect and Abrupt Information

Reserve Accumulation, Macroeconomic Stabilization and Sovereign Risk

Model Complexity, Expectations, and Asset Prices

How Exporters Grow

Trust in Risk Sharing: A Double-Edged Sword

Dynamic Opinion Aggregation: Long-Run Stability and Disagreement

Submission fee increase from 1 July 2023

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