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- The great housing boom of China
by Christian Zimmermann in NEP-DGE blog, 2014-09-15 15:08:08 UTC
By Kaiji Chen and Yi Wen
This paper provides a theory to explain the paradoxical features of the great housing boom in China â€”the persistently faster-than-GDP housing price growth, exceptionally high capital returns, and excessive vacancy rates. The expectation that high capital returns driven mainly by resource reallocation are not sustainable in the long run can induce the very productive entrepreneurs to speculate in housing during economic transition. This creates a self-fulfilling growing housing bubble, which can create severe [...]
- Who Will Get the Bill? Lessons from #EconHis on Scottish Independence #indyref
by missiaia in NEP-HIS blog, 2014-09-15 13:54:30 UTC
State dissolution, sovereign debt and default: Lessons from the UK and Ireland, 1920-1938
Nathan F OLEY-FISHER ÃÂ (firstname.lastname@example.org) ÃÂ Federal Reserve Board
Eoin MCLAUGHLIN ÃÂ ( email@example.com )ÃÂ University of St Andrews
We study IrelandÃÂ´s inheritance of debt following its secession from the United Kingdom at the beginning of the twentieth century. Exploiting structural differences in bonds guaranteed by the UK and Irish governments, we can identify perceived uncertainty about fiscal responsibility in the aftermath of the sovereign breaku [...]
- Liquidity Regulation
by Steve Cecchetti and Kim Schoenholtz in Money, Banking and Financial Markets, 2014-09-15 12:22:43 UTC
Ever since Bagehot, central banks acting as lenders of last resort have tried to distinguish banks that are illiquid, who should be eligible for a loan, from banks that are insolvent, who should not. The challenge persists. As one analyst put it recently: â€œLiquidity and solvency are the heavenly twins of banking, frequently indistinguishable. An illiquid bank can rapidly become insolvent, and an insolvent bank illiquid.â€ The lesson is that the appropriate level of a bankâ€™s capital and the liquidity of its assets are necessarily related. Forged in the crucible of the financia [...]
- Scotland now has more of a â€˜national economyâ€™ than ever before in its history
by Blog Admin in British Politics and Policy at LSE, 2014-09-15 07:00:30 UTC
Since the 1970s Scotland has become a significantly post-industrial economy with strong de-globalising elements, writes Jim Tomlinson . Political decisions made about public spending in Edinburgh, within some constraints imposed from London, matter a great deal.Â He argues, therefore, that there is now more of a â€˜national economyâ€™ than ever before in Scotlandâ€™s history.Â
Recent developments have made Scotland more of a â€˜national economyâ€™, imagined as an â€˜economic community of fateâ€™, than at any time in its modern history. This argument relies [...]
- "Same policies work everywhere"
by chris dillow in Stumbling and Mumbling, 2014-09-14 11:51:30 UTC
Back in the day, a concatenation of circumstances led to me being alone in a room with a well-known economist who was then advising governments around the world. I thought I'd start the conversation with the anodyne remark "it must be a fascinating challenge to give policy advice in so many different places."
"No", he replied. "The same policies work everywhere."
I was surprised by this. One of us is wrong here, I thought, and if it's me, at least nobody is getting hurt.
I was reminded of this by this Venn diagram, reproduced by Tim .
The diagram's force rests upon the belief that the same po [...]
- 'Taxes and Growth'
by Mark Thoma in Economist's View, 2014-09-13 09:22:28 UTC
Taxes and Growth, The Growth Economics blog : William Gale and Andy Samwick have a new Brookings paper out on the relationship of tax rates and economic growth in the U.S. ... Short answer, there is no relationship. They do not identify any change in the trend growth rate of real GDP per capita with changes in marginal income tax rates, capital gains tax rates, or any changes in federal tax rules. ...
One of the first pieces of evidence they show is from a paper by Stokey and Rebelo (1995). ... You can see that the introduction of very high tax rates during WWII, which effec [...]
- Taxes and Growth
by dvollrath in The Growth Economics Blog, 2014-09-12 22:55:42 UTC
William Gale and Andy Samwick have a new Brookings paper out on the relationship of tax rates and economic growth in the U.S. [ Apologies to whichever blog/site led me to the paper, I can't remember .] Short answer, there is no relationship. They do not identify any change in the trend growth rate of real GDP per capita with changes in marginal income tax rates, capital gains tax rates, or any changes in federal tax rules.
One of the first pieces of evidence they show is from a paper by Stokey and Rebelo (1995). This plots taxes as a percent of GDP in the top panel, and the growth rate of GD [...]
- Unit Root tests and Seasonally Adjusted Data
by Dave Giles in Econometrics Beat: Dave Giles' Blog, 2014-09-12 20:03:00 UTC
We all know why it's common to "seasonally adjust" economic time series data that are recorded on a monthly, quarterly, etc . basis. Students are sometimes surprised to learn that in some countries certain such time series are reported only �in seasonally adjusted terms. You can't get the original (unadjusted data). This applies to some U.S. economic data, for example. Does this matter? Statistical agencies across the world typically use one of two statistical procedures to seasonally adjust their data. These are the TRAMO/SEATS method, or some version of the Census X method - e.g ., Census X- [...]
- The referendum, & risk attitudes
by chris dillow in Stumbling and Mumbling, 2014-09-12 12:27:19 UTC
To what extent is the Scottish referendum about the benefits of independence and to what extent is it about people's attitudes to risk?
To see my question, think of independence as an investment with a risky payoff - which is what it is. There are two reasons why one might reject such an investment. One, trivially, is simply that you expect a negative payoff. The other is that you expect a positive payoff but think the risks around it are too high.
It is perfectly possible for two people to agree upon payoffs and risks and yet one would accept the proposal and the other reject it because one i [...]
- News Driven Business Cycles: Insights and Challenges
by Christian Zimmermann in NEP-DGE blog, 2014-09-10 15:00:34 UTC
By Paul Beaudry and Franck Portier
There is a widespread belief that changes in expectations may be an important independent driver of economic fluctuations. The news view of business cycles offers a formalization of this perspective. In this paper we discuss mechanisms by which changes in agents’ information, due to the arrival of news, can cause business cycle fluctuations driven by expectational change, and we review the empirical evidence aimed at evaluating its relevance. In particular, we highlight how the literature on news and business [...]
- Uses of illiteracy
by chris dillow in Stumbling and Mumbling, 2014-09-10 13:58:00 UTC
The level of financial literacy in the UK, says Atul Shah, is "shockingly low". I wonder to what extent this can, for practical purposes, be corrected.
What I mean is that there's a big difference between knowing something and acting on it. We all know that if you consume more calories than you burn up, you'll get fatter. But this doesn't prevent obesity. In the same way, mere brain-knowledge about financial literacy might not prevent people making bad financial decisions. There are (at least) four reasons for this:
Â - Desperation. Even if you know that an APR of 4000% is a lousy deal, you [...]
- Elitist Britain: We need a better understanding of the routes through which those from more advantaged backgrounds access top careers
by Blog Admin in British Politics and Policy at LSE, 2014-09-10 07:00:00 UTC
A new report by the Social Mobility and Child Povery Commission finds that elitism is deeply embedded in Britain. Lindsey Macmillan ÃÂ looks at the reportÃÂ and discussesÃÂ her own research which explores the role of networks in perpetuating elitismÃÂ andÃÂ how weÃÂ can help in widening access to elite professions. Unfortunately,ÃÂ a common problem in this fieldÃÂ is aÃÂ lack of data quality and availability.ÃÂ
Some people feel Britain is ruled by a privileged few: the wealthy, the privately educated and the well-connected. A new report by the Social Mobility and Child Poverty commi [...]
- Preferences vs interests
by chris dillow in Stumbling and Mumbling, 2014-09-09 13:41:16 UTC
Matthew Parris's piece in the Times has become notorious . However, he is raising an important point about political psychology which demands more attention than it gets.
I am not arguing that we should be careless of the needs of struggling people and places such as Clacton. But I am arguingÂ - if I am honest - that we should be careless of their opinions.
This poses the old question: should politicians serve people's preferences or interests?
Parris is following a long bipartisan tradition which answers: the latter. This is what Edmund Burke meant when he said that MPs should [...]
- Theories of Inflation and the European Predicament
by Stephen Williamson in Stephen Williamson: New Monetarist Economics, 2014-09-09 00:51:00 UTC
How do macroeconomists think about inflation? To get a grip on this, it's useful to dig into the history of economic thought. Long ago, in the mid-1970s, when I had no idea what formal economics was about (and, you might say, nothing much has changed), I had heard about "wage-price spirals." A web search will give you plenty of descriptions of what we might charitably call the "wage-price spiral theory" of inflation. Here's one that's as good as any: When an economy is operating at near full employment and people have money to spend, demand for goods and services increases. To meet the demand, [...]
- Could choppy markets see currency deal done before Scotland independence vote?
by Bruce Morley, Lecturer in Economics at University of Bath in The Conversation, 2014-09-08 16:14:17 UTC
Rough seas for the good ship UK. gopixa On the back of the rising prospects for a Scottish Yes vote to independence next week, the markets have taken a hit . The FTSE100 and FTSE250 posted drops that were markedly worse than performances in other stock markets. Sterling fell to its lowest level in 10 months , while UK gilts were affected too . One important question that needs to be asked is whether market uncertainty could reach a level where it affects how the Yes and No asides conduct their campaigns and any subsequent negotiations in the event of a Yes vote.
BBC/Digital Lo [...]
- Housework and Fiscal Expansions
by Christian Zimmermann in NEP-DGE blog, 2014-09-08 13:55:01 UTC
BY Stefano Gnocchi, Daniela Hauser and Evi Pappa
We build an otherwise-standard business cycle model with housework, calibrated consistently with data on time use, in order to discipline consumption-hours complementarity and relate its strength to the size of fiscal multipliers. We show that if substitutability between home and market goods is calibrated on the empirically relevant range, consumption-hours complementarity is large and the model generates fiscal multipliers that agree with the evidence. Hence, our analysis supports the relevan [...]
- The Yin and the Yang of Shadow Banking in China
by Steve Cecchetti and Kim Schoenholtz in Money, Banking and Financial Markets, 2014-09-08 12:38:23 UTC
By almost any measure, China saves more than virtually any country in the world. Over the past decade, gross national savings has amounted to about one-half of GDP. � And that phenomenal rate continues: only Qatar and Macau save more � (see chart). There are many good reasons to save. At the top of list in China has been the high marginal return on capital that naturally accompanies rapid economic growth. Gross Savings Ratio (Percent of GDP) in 2012
Source: World Bank. Savings are calculated as gross national income less total consumption, plus net t [...]
- Think Tanks for Sale?
by Matthew Kahn in Environmental and Urban Economics, 2014-09-07 15:34:00 UTC
The NY Times has published a long data informed piece "naming names" and claiming that Washington's leading Think Tanks are taking too much international money and that a consequence of this is a type of self-censorship such that these Think Tanks supply slanted research that says nice things about the sponsors. �The Think Tanks defend themselves saying that their researchers have independence. � Can you bite the hand that feeds you? Economists have studied media slant starting with Groseclose and Milyo. � �Part of the Gentzkow and Shapiro research agenda further studies this issue. � Internat [...]
- Will global population level off soon?
by nawmsayn in ZeeConomics, 2014-09-05 21:02:01 UTC
The Earth’s population has been growing steadily over the last century, and agricultural production could keep up with it. This means that there were no Malthusian constraints on population. The question in such a situation is for how long population can keep growing.
To answer this question, one has to make several assumptions. For instance, the UN’s calculations assuming a mid-level of fertility (meaning all countries converge to the replacement level of 2.1 births per woman) would imply that world population plateaus off around 11 billion by 2100. But how accurate is this prediction?
To in [...]
- Winner's Curse and The Nevada Payoff of Attracting the Tesla Factory
by Matthew Kahn in Environmental and Urban Economics, 2014-09-05 00:45:00 UTC
I have read t hat Tesla's new battery factory will open in the Greater Reno Nevada area. � As discussed by Tim Bartik more than 20 years ago, when a new factory opens up jobs (in this case 6000) are created. Most of the jobs go to people who move in to the area rather than to the local unemployed or to those out of the labor force. � �Now the work by Greenstone, Moretti and Hornbeck would counter that there is a local multiplier effect such that the new firm creates increased demand for intermediate input suppliers and this further stimulates the economy. In the case of Tesla is this correct? [...]
- Apples and oranges: comparing our education system with other countries doesn't always work
by Kevin Donnelly, Senior Research Fellow - School of Education at Australian Catholic University in The Conversation, 2014-09-04 01:46:02 UTC
Looking to other countries for success in education is like comparing apples to oranges. Shutterstock Itâ€™s known as the PISA /TIMSS travelling caravan. Each time international tests results are released with league tables showing winners and losers a gaggle of researchers, academics and assorted fellow travellers descend on the highest-performing country or education system to analyse and report on â€œworldâ€™s best practiceâ€.
US education scholar Henry Braun has noted :
Delegations from lagging jurisdictions have been routinely dispatched to such destinations as Finlan [...]
- Total Factor Productivity as a Measure of Welfare
by dvollrath in The Growth Economics Blog, 2014-09-03 21:02:47 UTC
In response to my post regarding innovation and GDP , Areendam Chanda left a comment that hit at a key question:
Interesting Ã¢â¬â but if innovation frees up resources, what are we doing with the extra resources? To follow MokyrÃ¢â¬â¢s own argument- driverless cars will reduce commuting times. What happens with that freed up time? I am presuming one could argue that it raises welfare by raising leisure time (unless we plan to spend that extra time working in which case it would show up in increased GDP). Furthermore, how would we actually figure out the effectiveness of R&D policy if we [...]
- Has Paper Money Outlived Its Purpose?
by Stephen G. Cecchetti in Huffington Post Money, 2014-09-02 15:37:48 UTC
This post was co-authored by Kermit Schoenholtz , Professor of Management Practice in the Department of Economics of New York University's Leonard N. Stern School of Business
Serious people have been suggesting that we think hard about eliminating paper currency. Paper money facilitates criminality and creates the zero lower bound (ZLB) for nominal interest rates. So, why not just get rid of it and replace it with electronic money?
There is an enormous amount of currency out there. For dollars and euros, the value in circulation is in the range of $4000 per inhabitant. In the Japan, the numb [...]
- 271 â€“ 10 years of blogging
by David Pannell in Pannell Discussions, 2014-09-02 15:00:24 UTC
I just noticed (a few months late) that itÃ¢â¬â¢s been 10 years since I started writing Pannell Discussions. Time for some reflections on the benefits and costs of doing so.
In 2004 I decided I wanted to increase my outreach to non-economists and to people outside academia. I wanted to put out material that would be interesting and engaging, and would increase peopleÃ¢â¬â¢s understanding of economic issues in agriculture and natural resource management.
I decided to write brief articles on a range of topics, and put them on my web site. Initially I didnÃ¢â¬â¢t think of this as being a bl [...]
- Debt Dilution and Sovereign Default Risk
by Christian Zimmermann in NEP-DGE blog, 2014-09-02 14:56:09 UTC
Juan Carlos Hatchondo, Leonardo Martinez and Cesar Sosa-Padilla
In this study, we measure the effects of debt dilution on sovereign default risk and consider debt covenants that could mitigate these effects. First, we calibrate a baseline model of defaultable debt (in which debt can be diluted) with endogenous debt duration, using data from Spain. Secondly, we present a model in which sovereign bonds contain a covenant that eliminates debt dilution. We quantify the effects of dilution by comparing the simulations of the model with and witho [...]
- Who does macropru for nonbanks?
by Steve Cecchetti and Kim Schoenholtz in Money, Banking and Financial Markets, 2014-09-02 12:15:23 UTC
A central lesson of the 2007-09 financial crisis is that we should be much more worried about financial intermediation performed outside the banking system. Even if banks are resilient, with capital buffers sufficient to withstand all but the largest shocks, other parts of the financial system can make it fragile. Indeed, making the banks safe may simply shift risk-taking elsewhere. So, to reduce the frequency and severity of financial crises, we must contain systemic risk that comes both from banks and from outside the traditional banking system. To do so, we need regulation of market activit [...]