America's Financial Crisis: The End of an Era

This paper reviews research on the origins of the financial crisis of 2008–2009, highlights the key events that triggered a financial panic in September 2008, and summarizes the extraordinary policy actions the United States (US) has taken to ameliorate the crisis. We discuss the proximate causes of the crisis, including the characteristics and growth of the subprime mortgage market, and the distorted incentives and flawed regulatory structure surrounding the secondary market for mortgage-backed securities. We also assess the role of more fundamental macroeconomic determinants of the bubble in US asset prices, most notably low global interest rates attributed to either loose monetary policy or excess global saving. We find that while low global interest rates may have contributed to the boom in housing markets and speculative excesses, the poorly understood innovations and microeconomic distortions of the financial system played a more fundamental role. Finally, the otherwise extraordinary policy response of the US government has been limited by the lack of an effective restructuring of the financial system, and a recovery marked by higher private saving, weak domestic investment, and a large public deficit appears to be unsustainable. Ultimately, the US economy will need to shift about 3% of GDP from domestic consumption to the export sector. This will pose some serious challenges to countries that have come to rely on exports to the US market.global financial crisis; financial panic; american policy actions

The role of transfer prices in profit-shifting by U.S. multinational firms: Evidence from the 2004 Homeland Investment Act

Using unique transaction-level microdata, this paper documents profit-shifting behavior by U.S.multinational firms via the strategic transfer pricing of intra-firm trade. A simple model reveals how differences in tax rates, both the corporate tax rates across countries and the dividend repatriation tax rate over time, affect the worldwide profit-maximizing transfer-prices set by firms for intra-firm exports and imports. I test the predictions of the model in the context of the 2004 Homeland Investment Act (HIA), a one-time tax repatriation holiday which generated a discreet change in the incentives for U.S. firms to shift profits to low-tax jurisdictions. Matching individual trade transactions by firm, product, country, mode-of-transport, and month across arms-length and related-party transactions { following Bernard, Jensen, and Schott (2006) - yields a measure of the transfer-price wedge at a point in time. A difference-in-difference strategy reveals that this wedge responds as predicted by the model: In the period following passage of the HIA, the export transfer price wedge increased in low-tax relative to high-tax countries, while the import transfer price wedge exhibited the opposite behavior. Consistent with the form of tax avoidance known as "round-tripping", the results imply $6 billion USD of under-reported U.S. exports, nearly$7 billion USD of over-reported U.S. imports, and roughly $2 billion USD in foregone U.S. corporate tax receipts

Trading with Asia’s Giants

The United States large and sustained trade deficit with Asia raises concerns in the United States about its competitiveness in the region. The purpose of this paper is to examine the patterns of U.S. trade relationships with China and India, and the factors that are influencing their evolution. In contrast to the current public policy debate, the discussion largely addresses how these two economies compare as markets for U.S. exporters. This paper begins by noting that U.S. exports to both countries do appear low relative to the performance of Japan and the EU-15. We examine potential explanations for the weak exports from three different perspectives. First, we analyze the composition of U.S. exports to these economies, and consider how this mix of products compares to those which it appears to be competitive in exporting to the rest of the world. Second, we examine the role of multinational corporations in facilitating the trade flows between the U.S and these two economies. Finally, we employ the use of gravity equations to examine the bilateral trade patterns while controlling for a variety of country specific characteristics, such as distance. In this context, we are also able to analyze the pattern of trade in services as well as the more traditional focus on goods trade.China, India, United States, trade, and exports

Essays on Multinational Production and the Propagation of Shocks.

The increased exposure of the United States to economic shocks originating from abroad is a common concern of those critical of globalization. An understanding of the cross-country transmission of shocks is of central importance for policymakers seeking to limit excess volatility resulting from international linkages. Firms whose ownership spans multiple countries are one under-appreciated mechanism. These multinationals represent an enormous share of the global economy, but a general scarcity of firm-level data has limited our understanding of how they affect both origin and destination countries. One contribution of this dissertation is to expand the data availability on these firms, using innovative data-linking techniques. The first chapter provides some of the first ever causal evidence on the role of trade and multinational production in the transmission of economic shocks and the cross-country synchronization of business cycles. This chapter leverages the 2011 Japanese earthquake/tsunami as a natural experiment. It finds that those U.S. firms with large exposure to intermediate inputs from Japan -- typically the affiliates of Japanese multinationals -- experience significant output declines after this shock, roughly one-for-one with declines in imported inputs. Structural estimation of the production function reveals substantial complementarities between imported and domestic inputs. These results suggest that global supply chains are more rigid than previously thought. The second chapter incorporates this low production elasticity of imported inputs into an otherwise standard dynamic stochastic general equilibrium model. The low degree of input substitutability, when applied to the share of trade governed by multinational firms, can generate effects in the aggregate. Value-added co-movement increases by 11 percentage points in the baseline model relative to a model where such features are absent. The model confirms that real linkages -- in addition to financial and policy spillovers -- play an important role in business cycle synchronization. The third chapter describes additional characteristics of multinational firms relative to domestic and exporting firms in the U.S. economy. These firms are larger, more productive, more capital intensive, and pay higher wages than other firms. The relative patterns of trade and output offer valuable guidance for the motives for ownership that spans national boundaries.PhDEconomicsUniversity of Michigan, Horace H. Rackham School of Graduate Studieshttp://deepblue.lib.umich.edu/bitstream/2027.42/111331/1/aflaaen_1.pd

Input Linkages and the Transmission of Shocks: Firm-Level Evidence from the 2011 Tōhoku Earthquake

Using novel firm-level microdata and leveraging a natural experiment, this paper provides causal evidence for the role of trade and multinational firms in the crosscountry transmission of shocks. Foreign multinational affiliates in the U.S. exhibit substantial intermediate input linkages with their source country. The scope for these linkages to generate cross-country spillovers in the domestic market depends on the elasticity of substitution with respect to other inputs. Using the 2011 T¯ohoku earthquake as an exogenous shock, we estimate this elasticity for those firms most reliant on Japanese imported inputs: the U.S. affiliates of Japanese multinationals. These firms suffer large drops in U.S. output in the months following the shock, roughly proportional to the drop in imports and consistent with a Leontief relationship between imported and domestic inputs. Structural estimates of the production function for these firms yield disaggregated production elasticities that are similarly low. Our estimates suggest that global supply chains are sufficiently rigid to play an important role in the cross-country transmission of shocks.Support for this research at the Michigan RDC from NSF (ITR-0427889) is also gratefully acknowledged. Any opinions and conclusions expressed herein are those of the authors and do not necessarily represent the views of the U.S. Census Bureau. All results have been reviewed to ensure no confidential information is disclosed

Record linkage using Stata: Preprocessing, linking, and reviewing utilities

In this article, we describe Stata utilities that facilitate probabilistic record linkage—the technique typically used for merging two datasets with no common record identifier. While the preprocessing tools are developed specifically for linking two company databases, the other tools can be used for many different types of linkage. Specifically, the stnd_compname and stnd_address commands parse and standardize company names and addresses to improve the match quality when linking. The reclink2 command is a generalized version of Blasnik's reclink (2010, Statistical Software Components S456876, Department of Economics, Boston College) that allows for many-to-one matching. Finally, clrevmatch is an interactive tool that allows the user to review matched results in an efficient and seamless manner. Rather than exporting results to another file format (for example, Excel), inputting clerical reviews, and importing back into Stata, one can use the clrevmatch tool to conduct all of these steps within Stata. This helps improve the speed and flexibility of matching, which often involves multiple runs

Replication Data for: "Input Linkages and the Transmission of Shocks: Firm-Level Evidence from the 2011 Tohoku Earthquake"

Replication Data for: "Input Linkages and the Transmission of Shocks: Firm-Level Evidence from the 2011 Tohoku Earthquake

Trading with Asia's Giants

The United States' large and sustained trade deficit with Asia raises concerns in the United States about its competitiveness in the region. The purpose of this paper is to examine the patterns of U.S. trade relationships with China and India, and the factors that are influencing their evolution. In contrast to the current public policy debate, the discussion largely addresses how these two economies compare as markets for U.S. exporters. This paper begins by noting that U.S. exports to both countries do appear low relative to the performance of Japan and the EU-15. We examine potential explanations for the weak exports from three different perspectives. First, we analyze the composition of U.S. exports to these economies, and consider how this mix of products compares to those which it appears to be competitive in exporting to the rest of the world. Second, we examine the role of multinational corporations in facilitating the trade flows between the U.S and these two economies. Finally, we employ the use of "gravity equations" to examine the bilateral trade patterns while controlling for a variety of countryspecific characteristics, such as distance. In this context, we are also able to analyze the pattern of trade in services as well as the more traditional focus on goods trade.China, India, United States, trade, and exports