The authors present a simple, two-period model of human capital accumulation on the job and through college attainment. They use a calibrated version of the model to explain the observed flattening of the life-cycle earnings profiles of two cohorts of workers.
The biggest effect of a higher local unemployment rate on older workers is to raise their propensity to stay in their current job. Older workers have fewer voluntary transitions to new jobs when the unemployment rate rises, but they especially have fewer voluntary transitions out of the labor force. Thus, the direct effect of job loss in inducing earlier retirement during recessions is outweighed by retirement delays among those with jobs.
Two agents construct models of an endogenous price process. One agent thinks the data are stationary, the other thinks the data are nonstationary. A policymaker combines forecasts from the two models using a recursive Bayesian model averaging procedure. The actual (but unknown) price process depends on the policymaker’s forecasts.
For a standard competitive trade model, the authors show that the incidence of terrorism in different nations can affect the pattern of trade. Nations with a greater incidence of terrorism will export goods that are more immune to terrorism-related disruptions, while importing more terrorism-impacted goods.