In a recent paper [Luo, Smith, and Zou (2009)] we showed that the spirit of capitalism could in theory resolve the two fundamental anomalies of modern consumption theory, excess sensitivity and excess smoothness. However, that basic model could not plausibly explain the empirical magnitude of excess smoothness. In this paper we develop two extensions of the model — one with transitory and perma...

This study uses household-level panel data from a nationally representative survey to estimate the effect of agricultural productivity shocks—as proxied by exogenous annual rainfall deviations—on education expenditures and children’s work status in rural India. We find that transitory increase significantly reduces increases likelihood child labor across multiple activities. Additionally, house...

Recently there has been renewed interest in assessing economic models in the context of specific, empirically identified economic shocks. Typically, these shocks are identified one-at-a-time, ignoring potential correlations across shocks, or are identified in the context of a structural vector autoregression (SVAR) using zero restrictions only loosely tied to economic theory. In this paper, we ...

We study intraday, market-wide shocks to stock prices, market liquidity, and trading activity on international markets assess the relevance of recent theories “liquidity dry-ups” in explaining such shocks. Market-wide price are prevalent large, with rapid spillovers across markets. However, predominantly driven by information; they do not revert often associated macroeconomic news. Furthermore,...

This study investigates the reliability of using short-term averages of earnings as a proxy for permanent earnings in empirical research. An earnings dynamics model is estimated on a large sample of men covering the period from 1983 to 1997 following the cohort-based methodology of Baker and Solon (1999). The analysis uses a unique dataset that matches men in the 1984, 1990 and 1996 Surveys of ...

Is there a relationship between local arts and culture production and local prosperity that is permanent rather than transitory? The answer to this question determines whether arts and culture production generates economic growth or a temporary ‘multiplier’ effect that diminishes over time. We argue that despite the obvious public policy interest in the subject there has been no fully satisfact...

This paper addresses the implications of transitory changes in labor market conditions for low versus high educated workers on the decision to acquire education. To identify this effect, I use the improvement in labor market prospects of low educated workers motivated by the increases in construction employment and wages during the recent housing boom. The estimation strategy is based on the fa...