Economic Dynamics Newsletter

Volume 14, Issue 1 (November 2012)

The EconomicDynamics Newsletter is a free supplement to the Review of Economic Dynamics (RED). It is published twice a year in April and November.

In this issue

Michèle Tertilt on Gender in Macroeconomics

Michèle Tertilt is a Professor of Economics at the University of Mannheim. Tertilt’s research has been concerned with the family and especially the interaction between the family and the macroeconomy. Tertilt’s RePEc/IDEAS profile.

1. Introduction

A large empirical and experimental literature exists that documents important gender differences in preferences and behavior (e.g. Croson and Gneezy 2009, Niederle and Vesterlund 2007). Relative to men, women are more risk averse, have a higher labor market elasticity, engage in less competitive behavior, and often face different legal constraints. Men and women also tend to specialize in different economic activities. For example, men are overrepresented in the army, in mining, and as CEOs, while women are more likely to raise children, have part-time jobs, and work in low-wage occupations. These gender differences are typically ignored in macroeconomic models where the “representative household” is often modeled after a representative man. (A notable exception is Galor and Weil (1996) who were the first to theoretically investigate the implications of a gender wage gap for economic growth.) In my research, I explore to what extent gender differences and interactions between genders have economic consequences. In particular, my work tries to understand whether the interaction between men and women is important for economic development. My research ranges from analyzing polygyny, to the evolution of women’s rights, to sexual behavior in the face of HIV. One outcome of spousal interaction are obviously children, thus, part of my research is dedicated to the positive and normative analysis of fertility.

2. Polygyny and Development

One way in which men and women interact is by marrying each other. Societies differ in their marriage regimes. For example, sub-Saharan Africa has a high incidence of polygyny – men marrying multiple women – a practice that is illegal in most other parts of the world today. Sub-Saharan Africa is also the poorest region of the world.

In “Polygyny, Fertility, and Savings” I argue that polygyny could be a contributing factor to underdevelopment in parts of Africa. In the paper I build a theoretical model of polygyny, where men buy brides, and make fertility and savings decisions. Women obey their fathers and are sold to their future husbands. The theory shows that polygyny leads to high bride-prices to ‘ration’ women, which makes buying wives and selling daughters a good investment, thus crowding out investment in physical assets. The model shows that enforcing monogamy lowers fertility, shrinks the spousal age gap, and reverses the direction of marriage payments. I quantify this effect using data from sub-Saharan African countries. In the calibrated model, I find that banning polygyny decreases fertility by 40 percent and increases savings by 70 percent. The resulting increase in physical capital and drop in labor supply increases GDP per capita by 170 percent.

Given these large benefits, it may seem puzzling why polygyny has not been banned in many countries. To understand the incentives to pass a reform, one may ask who the winners and losers from a marriage reform would be. In “Marriage Laws and Growth in sub-Saharan Africa,” Todd Schoellman and I show that the initial generation of men are clear losers from banning polygyny. In particular, those men who had planned to use the revenues from selling daughters as a retirement fund, would suddenly be deprived of the expected payments. The reason is that a ban on polygyny would lower the demand for brides (and hence daughters) and thereby decrease the price (or even make it negative). But even currently young men would suffer from a reform. They lose the ability to use women as assets and accordingly save more. The increase in savings leads to a large drop in the interest rate, which depresses their lifetime income. Future generations of men, on the other hand, would benefit because the larger capital stock means higher wages, but this effect is not present for currently young men. Therefore, as long as the political power is firmly in the hands of men, a reform would not pass majority voting. If women also voted, a tie would result.

Since enforcing monogamy appears to be difficult both in theory and in reality, in “Polygyny, Women’s Rights, and Development” I investigate an alternative policy: transferring the right of choosing a husband from fathers to daughters. I find that giving daughters more choices has similar economic effects as a ban on polygyny. Both policies decrease the return on wives for men and thereby raise the incentive to invest in alternative assets. This increases the capital stock and hence GDP per capita. Quantitatively, however, enforcing monogamy has much larger effects.

3. Women’s Rights and Development

As my work on polygynous societies shows, more rights for women may be good for development. But why do women have more rights in some countries than in others? Analyzing the evolution of women’s rights in today’s rich countries may help shed some light on this question. The nineteenth century witnessed dramatic improvements in the legal rights of married women in England, the U.S. and several other countries. Given that these improvements took place long before women gained the right to vote, these changes amounted to a voluntary renouncement of power by men. In “Women’s Liberation: What’s in it for Men?” Matthias Doepke and I investigate men’s incentives for sharing power with women. The paper sets up a political economy model of women’s rights. In the model women’s legal rights determine the bargaining power of husbands and wives. We show that men face a tradeoff between the rights they want for their own wives (namely none) and the rights of other women in the economy. Men prefer other men’s wives to have rights because they care about their own daughters and because an expansion of women’s rights increases educational investments in children. A general increase in education benefits men because it means higher quality spouses for their children. Assuming women care more about children than men, when women have more power, human capital investments in children go up. But then, why would men change their attitude on women’s rights over time? We show that the key factor is the importance of education in the economy. If technology is such that human capital plays no role, then patriarchy is optimal (for men). However, if returns to human capital are high, then the inefficiently low educational investments (and high fertility rates) caused by patriarchy dominate and men prefer to share power. Assuming that technological change increases the importance of human capital over the course of the 19th century, it is not surprising then that men changed their voting and voluntarily extended some power to women. Once women have more say, human capital investment goes up, which directly translates into a higher growth rate. Thus, our theory generates a two-way interaction between women’s rights and development.

Our argument has several empirical implications. The timing of legal changes should coincide with the onset of mass education. Moreover, it should also go hand in hand with the fertility decline. We document this timing in the data using historical evidence on the expansion of women’s rights in England and the United States.

A key assumption in “Women’s Liberation: What’s in it for Men?” is that mothers care more about children than fathers do and hence invest more in them. There is also a large empirical literature documenting that women spend more money on children than men do. Does it imply that mothers necessarily care more about children than fathers? And does it further imply that targeting transfers to women is good economic policy? In fact, much development policy (such as cash-transfer programs like PROGRESA or micro-credit programs that are targeted exclusively at women) is already based on this premise. In ongoing work with Matthias Doepke we try to address these questions (‘Does Female Empowerment Promote Economic Development?’). We develop a series of non-cooperative family bargaining models to understand what kind of frictions can give rise to the observed empirical relationships and then use the framework to study policy implications.

One interesting finding from our work is that it is possible to construct mechanisms where women spend more on children without assuming that mothers intrinsically care more about children than fathers. For example, when women have lower wages than men, it may be optimal for them to specialize in child care, while men focus on market work. If spending is complementary to the time allocation, then when given a transfer women will spend more on children, while men may spend more on fixing the car, for example. A second possible mechanism is related to product market discrimination. If women are precluded from some markets (e.g. they are not allowed to drive cars in some countries), then they may spend more on children simply because of the lack of other spending opportunities.

We then assess the policy implications of these models. We find that targeting transfers to women can have unintended consequences and may fail to make children better off. In particular, if women spend more on human capital and men more on physical capital, then the growth rate may actually go down when money is taken from men and given to women. In the case of product market discrimination, female empowerment (i.e. eliminating product market discrimination) will lower child spending, since women will use the resources for themselves. Thus, a main conclusion arising from our work is that more measurement and theory is needed to arrive at a robust analysis of gender-based development policies.

4. Normative and Positive Analysis of Fertility

Much of my work on women has implications for fertility. For example, the evolution of women’s rights went hand in hand with a fertility decline. I also argued that banning polygyny would lead to a large drop in fertility. Does it mean that fertility is sometimes inefficiently high? If so, what are the frictions? And does it mean that a policy like banning polygyny would be welfare improving? It is not obvious which welfare concept should be used to answer these questions. In “Efficiency with Endogenous Population Growth,” Mike Golosov, Larry Jones and I generalize the notion of Pareto efficiency to make it applicable to environments with endogenous populations. We propose two different efficiency concepts: P-efficiency and A-efficiency. The two concepts differ in how they treat potential agents that are not born. We show that these concepts are closely related to the notion of Pareto efficiency when fertility is exogenous.

We prove a version of the first welfare theorem for Barro-Becker (1988) type fertility choice models and discuss how this result can be generalized. That is, using our concepts, we show that one can think about inefficiencies in fertility decision-making in much the same way as about other market failures. To show what can go wrong, we study examples of equilibrium settings in which fertility decisions are not efficient, and we classify them into settings where inefficiencies arise inside the family and settings where they arise across families. For example, a global externality, such as pollution, may lead to inefficiently many people being born. The reason is that parents, when making private fertility decisions, do not take into account that they are also producing future polluters. We show that in this context, a standard Pigouvian tax would not be sufficient to address the inefficiency. Rather, both consumption and fertility need to be taxed to assure both the efficient level of pollution and the efficient number of polluters.

Of course other frictions may point in the opposite direction. Concern over extremely low fertility rates is on the agenda of many policy-makers in Europe today. Some countries have introduced generous child benefits to stimulate fertility. Is there an economic rationale for such pro-natalist policies? In “Property Rights and Efficiency in OLG Models with Endogenous Fertility” Alice Schoonbroodt and I analyze this question. Specifically, we propose and analyze a particular market failure that may lead to inefficiently low fertility in equilibrium. The friction is caused by the lack of ownership of children: if parents have no claim to their children’s income, the private benefit from producing a child can be smaller than the social benefit.

We show this point formally in an overlapping-generations model with fertility choice and parental altruism. Ownership is modeled as a minimum constraint on transfers from parents to children. Using the efficiency concepts proposed in “Efficiency with Endogenous Population Growth,” we find that whenever the transfer floor is binding, fertility is lower than socially optimal. We also use our framework to revisit standard results on dynamic inefficiency. We find that when fertility is endogenous, the usual conditions for efficiency are not sufficient. An interest rate higher than population growth no longer guarantees efficiency because now not only over-saving has to be considered, but also ‘under-childbearing.’ Finally, we also find that, in contrast to settings with exogenous fertility, a pay-as-you-go social security system cannot be used to implement efficient allocations. To achieve an efficient outcome, government transfers need to be tied to fertility choice. For example, one could make pension payments depend on fertility choices.

On the positive aspects of fertility, it has often been argued that who has how many children may matter for growth, as shown e.g. in de la Croix and Doepke (2003). It is therefore of interest to analyze the empirical relationship between fertility and income historically. In “An Economic History of Fertility in the U.S.: 1826-1960” Larry Jones and I use data from the US census to document the history of the relationship between fertility choice and key economic indicators at the individual level for women born between 1826 and 1960. Using survey data allows us to construct a measure of cohort fertility, by using self-reported children ever born of a given birth cohort of women. We document several new facts. First, we find a strong negative relationship between income and fertility for all cohorts and estimate an overall income elasticity of about -0.38 for the period. We also find systematic deviations from a time invariant, isoelastic, relationship between income and fertility. The most interesting of these is an increase in the income elasticity of demand for children for the 1876-1880 to 1906-1910 birth cohorts. This implies an increased spread in fertility by income which was followed by a dramatic compression. Second, using our reported fertility measure, we find some interesting deviations from previous work using total fertility rates. The reduction in fertility known as the Demographic Transition (or the Fertility Transition) seems to be much sharper based on cohort fertility measures compared to usual measures like the Total Fertility Rate. Further, the baby boom was not quite as large as suggested by some previous work. These facts should be useful for researchers trying to model fertility.

5. Sexual Behavior and HIV

Another area in which the interaction of men and women is key, is the spread of sexually transmitted diseases such as HIV. About 2.7 million new HIV infections occur each year and roughly 2 million people die of AIDS annually. The most affected continent is Africa, and interestingly about 60% of HIV infected individuals in Africa are women — compared to only about 30% in North America and Western Europe. The reason is that most transmissions within Africa occur through heterosexual sex and, for physiological reasons women face a higher transmission risk. Given the severity of the situation, an obvious question to ask is what are effective prevention policies? Randomized field experiments can only give a partial answer because they necessarily ignore general equilibrium effects. Epidemiological studies, on the other hand, ignore that people may adjust their sexual behavior in response to the policies.

In “An Equilibrium Model of the African HIV/AIDS Epidemic,” Jeremy Greenwood, Philipp Kircher, Cezar Santos and I take a different approach. We build an equilibrium model of sexual behavior to analyze the African HIV/AIDS epidemic. Individuals engage in different types of sexual activity, which vary in their riskiness. When choosing a sexual activity, such as sex without a condom, a person rationally considers its risk. We use data from the epidemic in Malawi to calibrate the model. We study several topical policies, e.g., male circumcision, treatment of other sexually transmitted diseases, and promoting marriage. Several interesting findings emerge. Some of the policies have the potential to backfire: Moderate interventions may actually increase the prevalence of HIV/AIDS, due to shifts in human behavior and equilibrium effects. We also use the model to quantify how much epidemiological studies and field experiments may get it wrong. We simulate field experiments (i.e. treating only a small proportion of the population) and epidemiological studies (i.e. keeping behavior fixed) in our quantitative model. We find that neglecting both equilibrium effects and behavioral adjustments may lead to sizeable over-estimation of the effectiveness of policies.

6. Outlook

Many open questions remain in this research agenda. In addition to legal rights (or lack thereof), note that there are also many traditions and customs that effectively impose constraints on women, such as footbinding and female circumcision. Investigating the origins of such customs and their connection to development is an important avenue for further research. Also, one may look beyond growth and development and analyze the interaction of men and women in the short term. For example, in ongoing work with Gerard van den Berg, we investigate the incidence of domestic violence over the business cycle. Preliminary findings suggest that recessions significantly increase domestic violence. A related, and largely unexplored, question is to what extent family interaction dampens or amplifies the business cycles.

7. References

Becker, G. S., and R. J. Barro, 1988. “A Reformulation of the Economic Theory of Fertility,” The Quarterly Journal of Economics, vol. 103(1), pages 1-25.
Croson, R., and U. Gneezy, 2009. “Gender Differences in Preferences,” Journal of Economic Literature, vol. 47(2), pages 448-74.
de la Croix, D., and M. Doepke, 2003. “Inequality and Growth: Why Differential Fertility Matters,” American Economic Review, vol. 93(4), pages 1091-1113.
Doepke, M., and M. Tertilt, 2009. “Women’s Liberation: What’s in It for Men?,” The Quarterly Journal of Economics, vol. 124(4), pages 1541-1591.
Doepke, M., and M. Tertilt, 2011. “Does Female Empowerment Promote Economic Development?,” Discussion Paper 5637, Institute for the Study of Labor (IZA).
Doepke, M., M. Tertilt, and A. Voena, 2012. “The Economics and Politics of Women’s Rights,” Annual Review of Economics, vol. 4(6), pages 339-372.
Galor, O., and D. Weil, 1996. “The Gender Gap, Fertility, and Growth,” American Economic Review, vol. 86(3), pages 374-87.
Greenwood, J., P. Kircher, C. Santos, and M. Tertilt, 2012. “An Equilibrium Model of the African HIV/AIDS Epidemic,” unpublished manuscript, University of Mannheim.
Golosov, M., L. Jones, and M. Tertilt, 2007. “Efficiency with Endogenous Population Growth,” Econometrica, vol. 75(4), pages 1039-1071.
Jones, L., A. Schoonbroodt, and M. Tertilt, 2010. “Fertility Theories: Can they explain the Negative Fertility-Income Relationship?,” in “Demography and the Economy, edited by J. Shoven, University of Chicago Press.
Jones, L., and M. Tertilt, 2008. “An Economic History of Fertility in the U.S.: 1826-1960,” in: “Frontiers of Family Economics,” edited by P. Rupert, Emerald Press.
Niederle, M., and L. Vesterlund, 2007. “Do Women Shy Away from Competition? Do Men Compete Too Much?,” The Quarterly Journal of Economics, vol. 122(3), pages 1067-1101.
Schoellman, T., and M. Tertilt, 2006. “Marriage Laws and Growth in Sub-Saharan Africa,” American Economic Review, vol. 96(2), pages 295-298.
Schoonbroodt, A., and M. Tertilt, 2012. “Property Rights and Efficiency in OLG Models with Endogenous Fertility,” unpublished manuscript, University of Mannheim.
Tertilt, M., 2005. “Polygyny, Fertility, and Savings,” Journal of Political Economy, vol. 113(6), pages 1341-1370.
Tertilt, M., 2006. “Polygyny, Women’s Rights, and Development,” Journal of the European Economic Association, vol. 4(2-3), pages 523-530.
Tertilt, M., and G. van den Berg, 2012. “Domestic Violence over the Business Cycle.” ongoing work.

Q&A: Robert Lucas on Modern Macroeconomics

Robert Lucas is Professor of Economics at the University of Chicago. Recipient of the 1995 Nobel Prize, his research focuses on macroeconomics. Lucas’s RePEc/IDEAS entry.
EconomicDynamics: Has the Lucas Critique become less relevant?
Robert Lucas: My paper, “Econometric Policy Evaluation: A Critique” was written in the early 70s. Its main content was a criticism of specific econometric models—models that I had grown up with and had used in my own work. These models implied an operational way of extrapolating into the future to see what the “long run” would look like. I was working with Leonard Rapping on Phillips Curves at that time, using these same modeling techniques. Then Ned Phelps and Milton Friedman used theoretical ideas to work out what long run Phillips curves had to look like. The two approaches both seemed solid to us, but they gave different answers. I figured out how to apply John Muth’s idea of rational expectations, which Muth also spelled out in explicit models, to resolve this puzzle.Of course every economist, then as now, knows that expectations matter but in those days it wasn’t clear how to embody this knowledge in operational models. Now everyone knows Muth’s work and the complementary work of Gene Fama’s on efficient markets and the models I criticized then have long since been replaced by others that build on their work. I am pleased that my work contributed to this.

But the term “Lucas critique” has survived, long after that original context has disappeared. It has a life of its own and means different things to different people. Sometimes it is used like a cross you are supposed to use to hold off vampires: Just waving it it an opponent defeats him. Too much of this, no matter what side you are on, becomes just name calling.

ED: How would you define a DSGE model?
RL: Virtually all macroeconomic models today are dynamic, stochastic and general equilibrium (where here “general equilibrium” means you have the same number of equations and unknowns). But this definition isn’t very useful since it applies to the original models of Tinbergen, Klein and Goldberger, and all the others just as well as more recent work.If we narrow the definition of DSGE by using “general equilibrium” to refer to competitive or Nash equilibria where the strategy sets of each agent are made explicit in an internally consistent way then we have Kydland-Prescott and other RBC descendants and not much else. My 1972 JET paper and other “toy models” would qualify too, but now DSGE seems to me to include only seriously calibrated models. But Freeman and Kydland’s 2000 AER paper would qualify and maybe recent work by Lorenzoni and Guerreri.

New Keynesian models—any model with price stickiness built in—would fail, but I’m not sure whether this should be viewed as a defect or a virtue. If we accept any version of the Quantity Theory of Money then it seems clear that it does not hold at high frequencies (which is what I think price stickiness means). If we don’t accept the Quantity Theory of Money at low frequencies then I guess we should just close up shop. There are some hard unresolved problems to be faced.

ED: You have once written that all business cycles are alike. Is the last one different?
RL: The line “business cycles all alike” is taken from my paper “Understanding Business Cycles” where I used it to sum up the empirical findings of Wesley Mitchell (the founder of the NBER). Mitchell collected time series on wide variety of economic measurements on anything that moved—freight car loadings, pig iron production, you name it—and used them to construct a kind of typical average trough to trough cycle. Mitchell cared little about economic theory, but his hope was that he could find patterns in the data that would be useful in practice. What struck me in this research was the fact that co-movements in different actual cycles all seemed to conform pretty well to Mitchell’s typical cycle.I drew from this the idea that all cycles are probably driven the same kind of shocks. Since I was convinced by Friedman and Schwartz that the 1929-33 down turn was induced by monetary factors (declined is money and velocity both) I concluded that a good starting point for theory would be the working hypothesis that all depressions are mainly monetary in origin.

Ed Prescott was skeptical about this strategy from the beginning and I remember he gave me an old framed photo of Mitchell (with a cracked glass!) saying that I should have it because I was an admirer of Mitchell and he was not. Ed wanted to start with Kuznets highly structured series rather than the hodgepodge of series Mitchell used. He also thought we needed to have some kind of benchmark theoretical model to give us a start and he liked the natural match ups between theoretical objects and Kuznets’ accounts. His great 1982 paper with Kydland ended by summarizing comovements just as Mitchell had done but unlike Mitchell they produced an internally consistent theoretical account of causes and effects at the same time.

As I have written elsewhere, I now believe that the evidence on post-war recessions (up to but not including the one we are now in) overwhelmingly supports the dominant importance of real shocks. But I remain convinced of the importance of financial shocks in the 1930s and the years after 2008. Of course, this means I have to renounce the view that business cycles are all alike!

ED: If the economy is currently in an unusual state, do micro-foundations still have a role to play?
RL: “Micro-foundations”? We know we can write down internally consistent equilibrium models where people have risk aversion parameters of 200 or where a 20% decrease in the monetary base results in a 20% decline in all prices and has no other effects. The “foundations” of these models don’t guarantee empirical success or policy usefulness.What is important—and this is straight out of Kydland and Prescott—is that if a model is formulated so that its parameters are economically-interpretable they will have implications for many different data sets. An aggregate theory of consumption and income movements over time should be consistent with cross-section and panel evidence (Friedman and Modigliani). An estimate of risk aversion should fit the wide variety of situations involving uncertainty that we can observe (Mehra and Prescott). Estimates of labor supply should be consistent aggregate employment movements over time as well as cross-section, panel, and lifecycle evidence (Rogerson). This kind of cross-validation (or invalidation!) is only possible with models that have clear underlying economics: micro-foundations, if you like.

This is bread-and-butter stuff in the hard sciences. You try to estimate a given parameter in as many ways as you can, consistent with the same theory. If you can reduce a 3 orders of magnitude discrepancy to 1 order of magnitude you are making progress. Real science is hard work and you take what you can get.

“Unusual state”? Is that what we call it when our favorite models don’t deliver what we had hoped? I would call that our usual state.


Burns, A. F., and W. C. Mitchell, 1946. “Measuring Business Cycles,” National Bureau of Economic Research, Inc.
Fama, E. F., 1970. “Efficient Capital Markets: A Review of Theory and Empirical Work,” Journal of Finance, vol. 25(2), pages 383-417.
Freeman, S., and F. E. Kydland, 2000. “Monetary Aggregates and Output,” American Economic Review, vol. 90(5), pages 1125-1135.
Friedman, M., 1957. “A Theory of the Consumption Function,” National Bureau of Economic Research.
Friedman, M., and A. J. Schwartz, 1963. “A Monetary History of the United States, 1867-1960,” National Bureau of Economic Research.
Guerrieri, V., and G. Lorenzoni, 2011. “Credit Crises, Precautionary Savings, and the Liquidity Trap,” Working Paper 17583, National Bureau of Economic Research.
Kydland, F. E., and E. C. Prescott, 1982. “Time to Build and Aggregate Fluctuations,” Econometrica, vol. 50(6), pages 1345-70.
Lucas, R. E. Jr., 1972. “Expectations and the neutrality of money,” Journal of Economic Theory, vol. 4(2), pages 103-124.
Lucas, R. E. Jr., 1976. “Econometric policy evaluation: A critique,” Carnegie-Rochester Conference Series on Public Policy, vol. 1(1), pages 19-46.
Lucas, R. E. Jr., 1977. “Understanding business cycles,” Carnegie-Rochester Conference Series on Public Policy, vol. 5(1), pages 7-29.
Lucas, R. E. Jr., and L. A. Rapping, 1969. “Price Expectations and the Phillips Curve,” American Economic Review, vol. 59(3), pages 342-50.
Mehra, R., and E. C. Prescott, 1985. “The equity premium: A puzzle,” Journal of Monetary Economics, vol. 15(2), pages 145-161.
Modigliani, F., and R. Brumberg, 1954. “Utility Analysis and the Consumption Function: An Interpretation of Cross Section Data,” in K.K. Kurihara, ed., Post Keynesian Economics.
Muth, J. F., 1961. “Rational Expectations and the Theory of Price Movements”, Econometrica, vol. 29, pages 315-335.
Phelps, E. S., 1969. “The New Microeconomics in Inflation and Employment Theory,” American Economic Review, vol. 59(2), pages 147-60.
Dear SED Friends:

From Cyprus to Seoul, our SED meetings become even more international, as it always has been the work presented and discussed. Keeping up with our tradition, we had a great meeting in Limassol last June, with excellent sessions and inspiring plenary talks by Andrew Atkeson, Monika Piazzesi and Christopher Udry; we even had European soccer at dinner and a beach party at the end. My thanks to the program committee Chairs, Francisco Buera and Nicola Fuchs-Schündeln, for the excellent quality of the program, and to the local organizers: Sofronis Clreides, Andros Kourtellos, Alexander Michaelides, Andreas Milidonis George Nishiotis, Christopher Pissarides and Marios Zachariadis. I would also like to thank Marina Azzimonti for setting up a follow-up web discussion board and, of course, the 525 registered participants.

Seoul 2013, June 27-29 will be our first meeting in Asia, and I want to thank Yonsei University for hosting us. I am sure the quality of the meeting, the program and the organization, as well as the location, will make it a memorable trip for all participants. Virgiliu Midrigan and Josep Pijoan-Mas have already set up a strong program committee and an excellent line up of invited plenary speakers: Hal Cole, Gianluca Violante and Mark Watson. The local organizers — Yongsung Chang, Jang-Ok Cho, Sun-Bin Kim, Hyun Song Shin, Kwanho Shin and Tack Yun — have already done a lot of work (for example, in order to be able to provide partial travel grants for students with accepted papers) and are now planning the great event and getting all the logistics in place. Thanks also to the Bank of Korea for its support and for organizing a pre-conference event (by invitation only) on “Rebalancing the Macroeconomy for Robust Growth: Challenges and Resolutions,” with distinguished SED all-timers: Narayana Kocherlakota, Bob Lucas, Ed Prescott, Tom Sargent and Nancy Stokey.

From Seoul to Toronto: on June 26 -28, 2014, we will have our 25th SED meeting. Not that far from Minneapolis, but a long way from our first 1990 meeting, where Tom Sargent acted as program Chair. It is also great to count on Matthew Mitchell and Diego Restuccia as local organizers.

As you know, this is my first term as President and I am very honored and pleased to commit to such an exciting challenge. I must confess, however, that most of the work making these upcoming meetings possible, has already been done by: Richard Rogerson, my predecessor, Ellen McGrattan, the treasurer, and Christian Zimmermann, the secretary, as well as by the people I have already mentioned. Similarly, the credit for keeping the high standards of the Review of Economic Dynamics goes to Gianluca Violante and his editorial board. They all deserve my deepest gratitude, not just for making my life easy but, mainly, for making SED strong.

I am looking forward to seeing you in Seoul,

Ramon Marimon, President
Society for Economic Dynamics

Society for Economic Dynamics: Call for Papers, 2013 Meeting

The next annual meeting of the Society of Economic Dynamics will take place in Seoul, South Korea, from 27-29 June 2013. We are glad to announce keynote speeches by

Hal Cole, Gianluca Violante, and Mark Watson.

You can now submit your paper for the conference using ConferenceMaker until February 15th, 2013. We are looking forward to many exciting submissions for the academic program!

All information on the conference can be accessed from the SED 2013 meeting page.

We hope to see you next year in Korea. Best wishes,

Virgiliu Midrigan, Josep Pijoan-Mas
2013 SED Program Chairs

The Review of Economic Dynamics (RED) is the official journal of the Society for Economic Dynamics. The journal publishes meritorious original contributions to dynamic economics. The scope of the journal is intended to be broad and to reflect the view of the Society for Economic Dynamics that the field of economics is unified by the scientific approach to economics. We publish contributions in any area of economics provided they meet the highest standards of scientific research. In particular, RED publishes original articles on applications of dynamic economic theory to a wide variety of problems in economics. Related measurement and empirical papers are also welcomed.

Editorial Board Composition

Since last year, there have been a number of changes to the Editorial Board composition. Hector Chade joined us as Associate Editor. Jesus Fernandez-Villaverde is now an Editor of the Journal. Special thanks, on behalf of the Society, to Ellen McGrattan who has resigned from her position as Editor. Ellen served the Review, as Associate Editor first, and then as Editor, since 1999. I am deeply grateful to Ellen for her commitment, her professionalism, and for the time she devoted to RED throughout these years.

As of June 2012, the Editors of RED are: David Backus (Stern, NYU), Marco Bassetto (Chicago Fed), Matthias Doepke (Northwestern University), Jesus Fernandez-Villaverde (University of Pennsylvania), Urban Jermann (Wharton, University of Pennsylvania), and Martin Schneider (Stanford).

The Associate Editors are: Ariel Burnstein (UCLA), Hector Chade (ASU), Jan Eeckhout (UCL), Jonathan Heathcote (Minneapolis Fed), Nir Jaimovich (Duke), Tim Kehoe (University of Minnesota), Ricardo Lagos (NYU), Maurizio Mazzocco (UCLA), Virgiliu Midrigan (NYU), Matthew Mitchell (Rotman, University of Toronto), Fabrizio Perri (University of Minnesota), Giorgio Primiceri (Northwestern University), Vincenzo Quadrini (Marshall, USC), Diego Restuccia (University of Toronto), Richard Rogerson (Princeton), Stephanie Schmitt-Grohé (Columbia University), Steve Williamson (Washington University, St. Louis), and Christian Zimmermann (St. Louis Fed).

Turnaround Statistics

RED strives to deliver fast and efficient turnaround of manuscripts, without compromising the quality of the refereeing process. Besides desk rejections, virtually all submitted manuscripts receive two referee reports. In 2011, RED received 268 submissions. As of June 2012, all of these submissions had already received at least a first decision. The mean processing time from submission to first decision was 7.6 weeks or 53 days. The table below describes the distribution of first decisions by type: desk reject, reject after review, and revise and resubmit (which includes both minor and major revisions requested).

Distribution of First Decision Times on 2011 Submissions
Number of decisions Number of desk rejects Number of rejects after review Number of R&R
Total 268 105 111 52
Within 3 months 61% 100% 40% 27%
3 to 4 months 21% 0% 34% 33%
4 to 5 months 11% 0% 14% 27%
More than 5 months 7% 0% 12% 13%
Average days since submission 53 6 102 112

Note that 82 percent of all submissions were dealt with within 4 months, and only 7% of all submissions (or roughly 19 papers) took longer than 5 months. Often, these are difficult decisions, where the Referees are split and the Editor deems it necessary calling upon a third Referee. Conditional on receiving a R&R, the average time since manuscript submission was 112 days.

Among all the manuscripts with a final disposition in 2011, the acceptance rate was 9%, corresponding to 24 articles. This acceptance rate, comparable to that of other top economics journals, reflects the fact that only submissions of the highest quality are selected for publication in the Review. The continuous rise of the Impact factor for the Review (see the next section) is proof of this commitment to constantly improving our standards of publication.

Impact Factors

The table below shows two citation indexes for RED and for a comparison group of journals. The first one, reported since 2008, is the 2-Year ISI Impact Factor (one of the most widely used indicator of a journal’s quality). This index is calculated as the number of times articles published in year t-1 and t-2 in a given journal were cited by all journals during year t. The second is the IDEAS/RePEc Recursive Discounted Impact Factor which 1) weighs each citation by the Impact Factor of the citing Journal — this Impact Factor being itself computed recursively in the same fashion, and 2) considers all articles ever published in a given journal, but divides each citation by its age in years. The Discounted Recursive Impact Factors are normalized so that the average citation has a weight of 1. In other words, this index gives more weight to citations in good journals, and to recent citations.

Recursive Discounted
Impact Factor
2-Year ISI Impact Factor
2012 2011 2010 2009 2008
Review of Economic Dynamics 1.587 1.358 1.259 0.975 0.954
AEJ: Macroeconomics 2.004 3.800
Journal of Economic Growth 2.645 2.458 2.468 3.083 2.542
Journal of Monetary Economics 1.901 1.892 1.654 1.755 1.429
International Economic Review 0.474 1.559 1.516 1.030 1.150
Journal of Economic Theory 0.850 1.235 1.112 1.092 1.224
Journal of Money Credit and Banking 0.693 1.093 1.150 1.194 1.422
Journal of Economic Dynamics and Control 0.513 0.855 1.117 1.097 0.885
Macroeconomic Dynamics 0.444 0.452 0.763 0.517 0.516

As witnessed by the table above, the Impact Factor of RED continues its steady growth. This trend also applies to the 5-year IF which stood at 1.658 in 2011 (it was 1.550 in 2010). Moreover, the Recursive Discounted IF shows that articles published in RED are very well cited by articles published in the top economics journals.

Upcoming Special Issues

RED relies predominantly on regular submissions of manuscripts. Throughout our history, we have also published special issues representing the frontier of academic research on topics which are of particular interest to members of the Society. Articles in special issues are usually selected from a broad call for papers, as well as through direct solicitations. They all go through a full refereeing process. Diego Restuccia and Richard Rogerson are currently editing a special issue on “Misallocation and Productivity” which is scheduled to appear in the January 2013 issue of RED. Mark Gertler and Steve Williamson will be editing a special issue of RED on “Money, Credit, and Financial Frictions” which is scheduled for publication in January 2015. The call for papers will be out very soon.

Move to Article-Based Publishing

Starting from 2013, RED will move to a new publishing system called article-based publishing (ABP). Right now, when papers are accepted for publication in RED, they can be listed as forthcoming but not as published. It can take a long time before they are physically published in the printed journal, depending on the length of the pipeline. ABP drastically shortens the phase between acceptance and publication. ABP means that it is possible to publish articles with volume, and page numbers as soon as they are accepted — before an entire issue of the journal is finished. The article will appear on-line in the volume in progress and then in print once the volume is finalized. On average, it will take only 7 weeks from acceptance to publication. Moreover, at that point the article will be immediately citeable as published.

I look forward to receiving your submissions.

Gianluca Violante, Managing Editor
Review of Economic Dynamics

Why is there Money? Walrasian General Equilibrium Foundations of Monetary Theory
by Ross Starr

The question why there is money seems an eternal academic research topic. In the context of the Arrow-Debreu general equilibrium framework, understanding why money would arise is very difficult. While the readers of this newsletter are familiar with the money search or the overlapping generation literature, other approaches try to understand money from assumptions that are not that different. Ross Starr presents one such approach in the a small and concise book: trading post models.

The book first introduces the Arrow-Debreu general equilibrium model, then the basic trading post model. It then goes through several iterations to understand what is needed for a monetary equilibrium to emerge in this context, in particular where there is a unique money as medium of exchange. What is the impact of government? Is the absence of double coincidence of wants necessary? Is the equilibrium efficient? These are all familiar questions, and the trading post approach allows to glean some new insights. For example, scale economies in transaction cost can account for uniqueness in equilibrium of the common medium of exchange. In 140 pages, this book is a useful overview of this literature.

Why is there Money? is published by Edward Elgar.