A literature debates the explanations for the cyclical properties of emerging markets using either trend shocks (Aguiar and Gopinath, 2007) or financial frictions (Neumeyer and Perri, 2004; Garcia-Cicco et al., 2010). We state a formal proposition that makes explicit the parametric assumptions needed for consumption to behave (exactly) as in a random-walk, permanent income model. The result is general and applies to economies with endogenous investment and production. The proposition offers a fresh perspective on the debate regarding the sources of emerging market fluctuations, and reconciles diverging findings in the literature. Moreover, we quantitatively explore the business cycle properties of the RBC model when one moves away from the parametric assumptions suggested by the proposition.
How does a long-term relationship affect communication among economic entities? In this paper, we study dynamic information design in a simple “agreement game” with repeated interaction, where the state is imperfectly persistent. Disclosing information now influences future belief evolution, which results in a novel distortion relative to the static counterpart. We observe that the interaction of the players’ patience and the state’s persistence parameters is crucial in determining the optimal mechanism. Though an efficient mechanism is optimal with sufficiently small or large patience, with intermediate levels of patience, optimal mechanisms exhibit excessive agreement when states are sufficiently persistent, while they exhibit excessive disagreement with less persistence.
Spatial heterogeneity in crime suggests that location is a key choice variable in criminal behavior and police allocation. To capture this, we develop a topological model in which criminals and the police interact strategically across space. The key departure from the existing literature is that distance matters: the coverage radius of a police unit generates spatial spillovers, so a location can receive protection from nearby patrols. This is in sharp contrast with discrete spatial models, where each cell is isolated from its surroundings, biasing the equilibrium police allocation and overlooking a form of the ecological fallacy. We analytically characterize this bias and, more generally, demonstrate how spillovers affect the equilibrium police allocation. In particular, as spillovers increase: (i) more (fewer) units are allocated at local maxima (minima) of crime; (ii) the location where units are more concentrated shifts toward the steepest side of the crime distribution; and (iii) the entropy of the police spatial density decreases. Jointly, our results point to the essential role of spatial spillovers in the equilibrium determination of crime and police allocation.
