9730341 Hall This project studies the economic forces that lead to variations in the intensity of economic activity over time and across space and, more specifically, recessions. The research provides the first integrated and systematic study of the two most conspicuous features of a recession - large increases in the number of workers seeking new jobs and the release of inventories into the product market. Recessions are times when there are sharp increases in the number of plants and other productive units shut down. Two basic forces lead to these shutdowns. One is an increase in the discount rate applied by firms in making decisions about the continuation of marginal productive units. A higher discount rate causes firms to choose immediate liquidation over a future stream of profits. Measures of internal discount rates are highly successful predictors of job destruction and inventory liquidation. The second force is profit. When the profitability of future operation of a plant falls, either because its product price falls or because costs increase, shutdown is more likely. Again, industry-level profit measures are successful predictors of job destruction. This work is extended theoretically and empirically. It becomes the basis for studying important outstanding questions in the analysis of business cycles such as: what are the shocks that trigger recessions? What are the mechanisms that amplify and propagate them? The project also continues work from the previous NSF grant on geographic variations in activity. The investigator's work on differences in output per work across countries has demonstrated the importance of social institutions and infrastructure. Favorable laws and government performance lead to vastly higher levels of output. These factors operate through the accumulation of human capital, physical capital, and productivity. ??

Agency
National Science Foundation (NSF)
Institute
Division of Social and Economic Sciences (SES)
Application #
9730341
Program Officer
Daniel H. Newlon
Project Start
Project End
Budget Start
1998-04-15
Budget End
2002-09-30
Support Year
Fiscal Year
1997
Total Cost
$200,202
Indirect Cost
Name
National Bureau of Economic Research Inc
Department
Type
DUNS #
City
Cambridge
State
MA
Country
United States
Zip Code
02138