NBER Annual Conference on Macroeconomics: Abstracts for Day One

First paper at the NBER Annual Conference on Macroeconomics

Expectations and Investment, by Nicola Gennaioli, Yueran Ma, and Andrei Shleifer: Abstract Using micro data from Duke University quarterly survey of Chief Financial Officers, we show that corporate investment plans as well as actual investment are well explained by CFOs’ expectations of earnings growth. The information in expectations data is not subsumed by traditional variables, such as Tobin’s Q or discount rates. We also show that errors in CFO expectations of earnings growth are predictable from past earnings and other data, pointing to extrapolative structure of expectations and suggesting that expectations may not be rational . This evidence, like earlier findings in finance, points to the usefulness of data on actual expectations for understanding economic behavior.

Second paper:

Trends and Cycles in China's Macroeconomy, by Chun Chang, Kaji Chen, Daniel Waggoner, and Tao Zha: Abstract We make three contributions in this paper. First, we provide a core of macroeconomic time series usable for systematic research on China. Second, we document, through various empirical methods, the robust findings about striking patterns of trend and cycle. Third, we build a theoretical model that accounts for these facts. The model's mechanism and assumptions are corroborated by institutional details, disaggregated data, and banking time series, all of which are distinctive of Chinese characteristics. The departure of our theoretical model from standard ones offers a constructive framework for studying China's macroeconomy.

Third paper:

Demystifying the Chinese Housing Boom, byHanming Fang, Quanlin Gu, Wei Xiong, and Li-An Zhou: Abstract We construct housing price indices for 120 major cities in China in 2003 - 2013 based on sequential sales of new homes within the same housing developments. By using these indices and detailed information on mortgage borrowers across these cities, we find enormous housing price appreciation during the decade, which was accompanied by equally impressive growth in household income, except in a few first-tier cities. Housing market participation by households from the low-income fraction of the urban population remained steady. Nevertheless, bottom-income mortgage borrowers endured severe financial burdens by using price-to-income ratios over eight to buy homes, which reflected their expectations of persistently high income growth into the future. Such future income expectations could contract substantially in the event of a sudden stop in the Chinese economy and present an important source of risk to the housing market.

Fourth paper:

Networks and the Macroeconomy: An Empirical Exploration, by Daron Acemoglu, Ufuk Akcigit, and William Kerr: Abstract The propagation of macroeconomic shocks through input-output and geographic networks can be a powerful driver of macroeconomic fluctuations. We first exposit that in the presence of Cobb-Douglas production functions and consumer preferences, there is a specific pattern of economic transmission whereby demand-side shocks propagate upstream (to input supplying industries) and supply-side shocks propagate downstream (to customer industries) and that there is a tight relationship between the direct impact of a shock and the magnitudes of the downstream and the upstream indirect effects. We then investigate the short-run propagation of four different types of industry-level shocks: two demand-side ones (the exogenous component of the variation in industry imports from China and changes in federal spending) and two supply-side ones (TFP shocks and variation in knowledge/ideas coming from foreign patent- ing). In each case, we find substantial propagation of these shocks through the input-output network, with a pattern broadly consistent with theory. Quantitatively, the network-based propagation is larger than the direct effects of the shocks, sometimes by several fold. We also show quantitatively large effects from the geographic network, capturing the fact that the local propagation of a shock to an industry will fall more heavily on other industries that tend to collocate with it across local markets. Our results suggest that the transmission of various different types of shocks through economic networks and industry inter-linkages could have first-order implications for the macroeconomy.