We distinguish between identification and establishing causality. Identification means forming a unique mapping from features of data to quantities that are of interest to economists. Establishing causality by finding sources of exogenous variation is often considered synonymous with...

Cities exist because of the productivity gains arising from clustering production and workers, a process called agglomeration. How important is agglomeration for aggregate growth? This paper constructs a dynamic stochastic general equilibrium model of cities and uses it to estimate the effect of...

We quantify how much nonfundamental movements in stock prices affect firm decisions. We estimate a dynamic investment model in which firms can finance with equity or cash (net of debt). Misvaluation affects equity values, and firms optimally issue and repurchase overvalued and undervalued...

Many recent empirical investment studies have found that the investment of financially constrained firms responds strongly to cash flow. Paralleling these findings is the disappointing performance of the q theory of investment: even though marginal q should summarize the effects of all factors...

This chapter discusses how applied researchers in corporate finance can address endogeneity concerns. We begin by reviewing the sources of endogeneity—omitted variables, simultaneity, and measurement error—and their implications for inference. We then discuss in detail a number of...