Jonathan J Adams

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About Me

I am an Assistant Professor in the Economics Department at the University of Florida. My research interests include Growth, Macroeconomics, and Inequality.

Working Papers

Urbanization, Long-Run Growth, and the Demographic Transition

Advanced economies undergo three transitions during their development: 1. They transition from a rural to an urban economy. 2. They transition from low income growth to high income growth. 3. Their demographics transition from initially high fertility and mortality rates to low modern levels. The timings of these transitions are correlated in the historical development of most advanced economies. I unify complementary theories of the transitions into a nonlinear model of endogenous long run economic and demographic change. The model reproduces the timing and magnitude of the transitions. Because the model captures the interactions between all three transitions, it is able to explain three additional empirical patterns: a declining urban-rural wage gap, a declining rural-urban family size ratio, and most surprisingly, that early urbanization slows development. This third prediction distinguishes the model from other theories of long-run growth, so I test and confirm it in cross-country data.

The Rise and Fall of Armies

For a thousand years, income growth was associated with a rising military employment share. But this share peaked in the early 20th century, after which military employment shares fell with income growth. I argue that rising military shares were driven by structural change out of agriculture, and the recent declines are driven by substitution from soldiers towards military goods. I document evidence for this substitution effect: as countries' incomes rise, the ratio of their military expenditure share to their military employment share rises too. I introduce a game theoretic model of growth and warfare that reproduces the time series patterns of military expenditure and employment. The model also correctly predicts the cross-sectional pattern, that military employment and expenditure shares are decreasing in income during wars. Finally, I show that faster economic growth can reduce military expenditure in the long run.

Resolving International Macro Puzzles with Imperfect Risk Sharing and Global Solution Methods
(Joint with Philip Barrett)

Do gross international asset positions matter for macroeconomic outcomes? In this paper, we argue that they do. In particular, we demonstrate that asset market incompleteness which features a meaningful portfolio choice can resolve the Backus-Smith puzzle: that relative consumptions and real exchange rates are negatively correlated. Because income and nominal exchange rates are positively correlated, countries choose a portfolio that features home bias in bond holdings, which is common in the data. We compare our findings to the predictions of alternative asset market structures frequently used in the literature - such as complete markets or restricting assets to a single bond - and show that they cannot solve the Backus-Smith puzzle without further frictions. We also show that local perturbation methods that use endogenous discount factors to stabilize the model are inaccurate, even when they correctly characterize the average portfolio holdings. Instead, we use a novel global solution method to accurately solve the portfolio problem when asset markets are incomplete, using an approach that generalizes Maliar and Maliar (2015) to solve a wide class of models.

Research In Progress

Rational Expectations with Endogenous Information
(New! Working paper coming soon... Please email for current draft)

This paper presents a general solution method for rational expectations models with dispersed information when the information process is endogenous. First, I show how to solve models with exogenous information by applying a single matrix equation. Next, I present an algorithm, \textit{Signal Operator Iteration}, which solves the model when information is endogenous. I characterize conditions under which the solution is unique and the algorithm converges. Finally, I apply the solution method to a model of local information. Firms observe prices and quantities in their own market, but not the aggregate state of the economy. They must make inferences about aggregate shocks through the impacts on endogenous prices. Observed prices do not fully reveal fundamental shocks, so money is non-neutral. All noisy signals are driven by fundamental shocks, observable to the econometrician, so data can discipline the information structure. The model is calibrated using US industry level data.

Labor Shares and Income Inequality
(Joint with Loukas Karabarbounis and Brent Neiman)

The share of aggregate income paid as compensation to labor is frequently used as a proxy for income inequality. If capital holdings are very concentrated among high income individuals, increasing their share of GDP, all else equal, widens the gap with poorer workers. Indeed, two striking features over the last three decades of many advanced and developing economies are the declining labor shares in income and the rise in income inequality. The relationship between factor shares and inequality, however, is not so simple in a richer world with realistic features such as endogenous home decisions and capital-skill complementarity. In such a world, total inequality will change with (i) the labor share, (ii) the amount of within-labor and within-capital income inequality, and (iii) the degree to which the highest wage earners are also those earning the highest capital incomes. Macroeconomic trends and shocks that impact any one of these three moments are likely to impact simultaneously all of them. We develop a framework where all these terms are jointly determined and estimate the model to clarify the roles of changing technology, policies, and factor proportions on labor shares and total income inequality around the globe.

Decreasing Returns to R&D and Declining Growth Rates

Why is growth slowing? Two facts are documented: 1. Richer countries spend a greater share of their income on research and development, and 2. Countries with high spending on research and development grow slower. These facts are evident in both the US time series and in the cross-section of countries. The paper proposes a model that explains these two facts, driven by declining returns to research and development. As technology advances, it costs a greater share of output to increase at the same rate; innovators compensate by spending more in R&D, but cannot compensate fully. In the long run, the R&D share of output asymptotes to 3.0-3.9%, and the per capita GDP growth rate declines to 1.0-1.5%.

CV and References


  • Loukas Karabarbounis
    Univ. of Chicago Booth School of Business
  • Robert Lucas
    University of Chicago
  • Brent Neiman
    Univ. of Chicago Booth School of Business
  • Harald Uhlig
    University of Chicago