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EconAcademics.org

Blog aggregator for economics research

2018-10-21

• The 2018 Nobel Prize in Economics
  by Matthew Kahn in Environmental and Urban Economics, 2018-10-21 02:17:00 UTC

  I am delighted that Bill Nordhaus and Paul Romer will share the 2018 Nobel Prize in Economics.� A technical summary of why they have won is posted here. � I am eager to see if Professor Nordhaus engages with Prof. Robert Pindyck's arguments about the "danger" of taking Integrated Assessment Models seriously as predictive models of how the world's economy will be affected by climate change. In my ongoing research, I argue that Paul Romer's work provides a framework for re-evaluating the Nordhaus core model.� I explore this the me in this 2018 paper with Zhao.� � Bill Nordhaus made a major contr [...]

2018-10-20

• A New Keynesian Model with Wealth in the Utility Function
  by Christian Zimmermann in NEP-DGE blog, 2018-10-20 20:40:08 UTC

  By Pascal Michaillat and Emmanuel Saez http://d.repec.org/n?u=RePEc:nbr:nberwo:24971&r=dge This paper extends the New Keynesian model by introducing wealth, in the form of government bonds, into the utility function. The extension modifies the Euler equation: in steady state the real interest rate is negatively related to consumption instead of being constant, equal to the time discount rate. Thus, when the marginal utility of wealth is large enough, the dynamical system representing the equilibrium is a source not only in normal times but also at the zero lower bound. This property eliminates [...]

• Aggregate Effects of Minimum Wage Regulation at the Zero Lower Bound
  by Christian Zimmermann in NEP-DGE blog, 2018-10-20 20:17:16 UTC

  By Andrew Glover http://d.repec.org/n?u=RePEc:red:sed018:1285&r=dge The Fair Minimum Wage Act of 2007 increased the U.S. nominal minimum wage by 41 percent immediately prior to nominal interest rates hitting the Zero Lower Bound in 2008. I study the interaction of these two events in an extension of the sticky-price New Keynesian model. The minimum wage dampens the contractionary effects of the ZLB by preventing rapid wage deflation, halting the deflationary spiral caused by low aggregate demand. For sufficiently persistent ZLB shocks, the minimum wage generates infinite output gains relative [...]

• Progress paradoxes in China, India, and the US: A tale of growing but unhappy countries
  by Carol Graham, Sergio Pinto in Up Front, 2018-10-20 13:27:57 UTC

  By Carol Graham, Sergio Pinto What we know depends on what we measure. Traditional income-based metrics, such as GDP and poverty headcounts, tell a story of unprecedented economic development , as seen by improvements in longevity, health, and literacy . Yet, well-being metrics, which are based on large-scale surveys of individuals around the world and assess their daily moods, satisfaction with life, and meaning and purpose in life, among other things, provide a very different picture of what is happening to people within and across countries—stories that economic numbers often do not tell. D [...]

2018-10-19

• Tribalism, Terranism, and Technology: The Pitfalls and Promises of Globalization
  by Jason Barr in Building the skyline, 2018-10-19 12:14:07 UTC

  Jason M. Barr     October 19, 2018 A Brief History of Homo Sapiens If we look back over the long sweep of Earth history, Homo sapiens has succeeded not only because it can adapt to nearly any environment on the planet, but also because it can change the environment to suit its needs and wants at any given time. One can say that technological innovation is the defining characteristic of Homo sapiens’ success—the ability to consciously manipulate and alter the Earth’s materials to increase productivity and product variety. Arguably this started with the creation of stone tools and animal-skin cl [...]

• ¿La Revolución antes de la Revolución?
  by Francisco Beltrán Tapia in Nada Es Gratis, 2018-10-19 05:01:28 UTC

  La Revolución Industrial supuso un hito histórico tan fundamental que ejerce una fascinación especial en la historia económica a la que no soy ajeno. En mi anterior entrada expliqué cómo recientes investigaciones están modificando de forma importante lo que sabíamos sobre el propio período en el que ocurrió y por tanto poniendo en cuestión los factores que facilitaron la misma ( aquí ). Hoy también voy a hablar de este tema pero voy a remontarme al período previo a la misma. Tanto esta como la entrada previa resaltan además el dinamismo de la historia económica que se está realizando en Inglat [...]

2018-10-18

• What do we know about jobs and wages and growth?
  by Bruno Duarte in EUnomics, 2018-10-18 21:08:57 UTC

  Quite a bit, actually. We know this is a  labour-intensive recovery  when labour demand increases faster than investment.  We also know the elasticity is perilously close to unit in the US and  likely above unit in the EU . We know the elasticity of capital-labour elasticity is  not reacting  to the pace of wage growth in both EU and US.  And we also know that firms might still prefer hiring instead of investing in capital because  returns to capital in the EU are low  since at least 2000 and even  more so since 2007 .  This preference for labour instead of capital is dragging  productivit [...]

2018-10-17

• Do we need to call the unions already?
  by Bruno Duarte in EUnomics, 2018-10-17 22:14:03 UTC

  Not really, it’s just that more of us are working.  Martin Wolf  posted a puzzling chart: Three structural changes contribute to this chart: longer careers (h/t Argyrios),  higher capital intensity per worker , a  labour intensive recovery . Subdued investment after 2008 decreased the capital intensity of output. Firms opted to replace capital with labour yet non-discretionary spending kept people in the workforce while nudging lower the inactivity rate.  As labour supply increased, so did the number of firms as it happened between 2003 and 2007.  During those years, wage growth was also subd [...]

• Los equilibrios del dólar
  by Eduardo Levy-Yeyati in Foco Económico, 2018-10-17 21:00:15 UTC

  Hace más o menos veinte años, un querido profesor una vez me dijo que el tipo de cambio de equilibrio era el que surgía de la ausencia de intervención. Por algún motivo, esta fe en los equilibrios elementales es cuestionada en la práctica: ante la presión, todos intervienen. [1] Una razón por la que la intervención cambiaria es criticada en teoría y aceptada en la práctica es porque el objeto de la intervención –el dólar– es al menos 4 cosas. Hablamos del dólar como unidad de cuenta en la que denominamos precios y salarios. Este es el sentido de la dolarización real, íntimamente ligada al uso [...]

• Education policy and intergenerational transfers in equilibrium
  by Christian Zimmermann in NEP-DGE blog, 2018-10-17 20:09:16 UTC

  By Brant Abbott, Giovanni Gallipoli, Costas Meghir and Giovanni L. Violante http://d.repec.org/n?u=RePEc:ifs:ifsewp:18/16&r=dge This paper examines the equilibrium effects of alternative financial aid policies intended to promote college participation. We build an overlapping generations life cycle model with education, labor supply, and consumption/saving decisions. Cognitive and non-cognitive skills of children depend on the cognitive skills and education of parents, and affect education choice and labor market outcomes. Driven by both altruism and paternalism, parents make transfers to the [...]

• Redistributing the Gains From Trade Through Progressive Taxation
  by Christian Zimmermann in NEP-DGE blog, 2018-10-17 19:54:28 UTC

  By Spencer Lyon and Michael Waugh http://d.repec.org/n?u=RePEc:red:sed018:1210&r=dge Should a nation’s tax system become more progressive as it opens to trade? Does opening to trade change the benefits of a progressive tax system? We answer these question within a standard incomplete markets model with frictional labor markets and Ricardian trade. Consistent with empirical evidence, adverse shocks to comparative advantage lead to labor income loses for import-competition-exposed workers; with incomplete markets, these workers are imperfectly insured and experience welfare losses. A progressive [...]

• Convergence, Big Time
  by Alex Tabarrok in Marginal Revolution, 2018-10-17 11:29:50 UTC

  In his influential paper, Divergence, Big Time , Lant Pritchett estimated: …that from 1870 to 1990 the ratio of per capita incomes between the richest and the poorest countries increased by roughly a factor of five and that the difference in income between the richest country and all others has increased by an order of magnitude. Pritchett was correct but Patel, Sandeful and Subramanian show that just as Pritchett’s study was ending, convergence was beginning! While unconditional convergence was singularly absent in the past, there has been unconditional convergence, beginning (weakly) around [...]

2018-10-15

• Why the Recession could happen again
  by Bruno Duarte in EUnomics, 2018-10-15 20:23:54 UTC

  The underlying causes of the Recession continue to manifest today. Amongst the most interesting articles I read this weekend was an article  authored by  Bruha and Podpiera  for the Czech National Bank on the causes of Recession that started in 2008. The data-consistent model argues declining investment costs decrease the opportunity-cost to invest in other labour-intensive economies, underpinning the significant capital outflow from the US and (to a lesser extent) EU into Asia and lead a current account surplus. The paper suggests the main mechanism acting to increase consumption in the US an [...]

• A cheap intervention that helped partially formalize firms and increased profits – just don’t ask about taxes
  by David McKenzie in Development Impact, 2018-10-15 13:18:00 UTC

  Governments have at least four reasons to try and bring firms into the formal system: To broaden and increase the tax base To enable firms to access the formal economy and help spur firm growth through the potential benefits of being formal (such as access to financial services and government contracts) To increase the sense of rule of law by having the default be that everyone is obeying the law To have firms provide information about themselves to the state, which can help the government better understand the structure of the economy and to better target business programs. The most comm [...]

• Assessing Housing Risk
  by Steve Cecchetti and Kim Schoenholtz in Money, Banking and Financial Markets, 2018-10-15 11:28:50 UTC

  Housing debt typically is on the short list of key sources of risk in modern financial systems and economies. The reasons are simple: there is plenty of it; it often sits on the balance sheets of leveraged intermediaries, creating a large common exposure ; as collateralized debt, its value is sensitive to the fluctuations of housing prices (which are volatile and correlated with the business cycle), resulting in a large undiversifiable risk; and, changes in housing leverage (based on market value) influence the economy through their impact on both household spending and the financial system (s [...]

• Chris Sampson’s journal round-up for 15th October 2018
  by Chris Sampson in The Academic Health Economists' Blog, 2018-10-15 11:00:13 UTC

  Every Monday our authors provide a round-up of some of the most recently published peer reviewed articles from the field. We don’t cover everything, or even what’s most important – just a few papers that have interested the author. Visit our Resources page for links to more journals or follow the HealthEconBot . If you’d like to write one of our weekly journal round-ups, get in touch . Reliability and validity of the contingent valuation method for estimating willingness to pay: a case of in vitro fertilisation . Applied Health Economics and Health Policy [ PubMed ] Published 13th October 2018 [...]

• Salario mínimo: más datos para el debate
  by Florentino Felgueroso in Nada Es Gratis, 2018-10-15 05:57:31 UTC

  Florentino Felgueroso y Marcel Jansen El aumento del salario mínimo interprofesional hasta los 900 euros al mes ha sido uno de las medidas más comentadas del acuerdo entre el PSOE y Podemos para los presupuestos del 2019. Supone un incremento del 22.3% del SMI, la mayor subida desde el año 1977. De hecho, tal como se muestra en el Gráfico 1, tras este aumento el salario mínimo alcanzaría su máximo histórico en términos reales, alcanzado precisamente en ese año. El anuncio de la subida viene tras varias subidas anteriores y altera la senda de subidas del SMI acordada hace menos de un año. En [...]

2018-10-14

• Brexit, Marxists & the state
  by chris in Stumbling and Mumbling, 2018-10-14 11:33:22 UTC

  Was Marx wrong? This is the question posed by Brexit. I’m prompted to ask by this from the government’s advice to business on what to do about a no-deal Brexit: UK companies and limited liability partnerships that have their central administration or principal place of business in an EU member state may wish to consider whether they need to restructure to satisfy the requirements for incorporation in that EU member state. Faisal Islam says this is the “first time in history a UK Govt [has] effectively suggested shifting HQs out of UK.” We’ve gone from Johnson’s “ fuck business ” to “fuck off [...]

• Corporate Tax Cuts and the Decline of the Labor Share
  by Christian Zimmermann in NEP-DGE blog, 2018-10-14 03:13:21 UTC

  By Baris Kaymak and Immo Schott http://d.repec.org/n?u=RePEc:red:sed018:943&r=dge We document a strong empirical connection between corporate taxation and the labor’s share of income in the manufacturing sector across OECD countries. The estimates indicate that the decline in corporate taxes is, on average, associated with 40% of the observed decline in labor’s share. We then present a model of industry dynamics where firms differ in their capital intensity as well as their productivity. A drop in the corporate tax rate reduces the labor share by shifting the distribution of production towards [...]

• Welfare Implications of Switching to Consumption Taxation
  by Christian Zimmermann in NEP-DGE blog, 2018-10-14 03:03:10 UTC

  By Juan Carlos Conesa; Bo Li; Qian Li http://d.repec.org/n?u=RePEc:nys:sunysb:18-09&r=dge We evaluate a reform of the US tax system switching to consumption taxation instead of income taxation. We do so in an environment that allows for progressivity of consumption taxes through differential tax rates between basic and non-basic consumption goods. The optimal tax system involves substantial subsidies to the consumption of basic goods. We find large efficiency gains in the long run, with a very small increase in inequality. However, once we consider the transitional dynamics associated to the [...]

2018-10-12

• Is China in a middle-income trap?
  by Bruno Duarte in EUnomics, 2018-10-12 18:42:20 UTC

  It likely is. It’s easy to forget China is still a (upper)  middle-income country . Considering a middle-income trap as the concurrent decline of productivity (as gains from technology adoption end) and increasing wages (as reallocation from low productivity sectors exhausts the excess labour supply) a negative value of an indicator measuring the growth of total factor productivity (TFP) and wages could indicate a middle-income trap. What defines the trap is the erosion of competitiveness such that the economy fails to grow by  investing in advanced infrastructure, stimulating innovation and i [...]

2018-10-11

• Carbon taxes: many losers, some winners
  by Alan Moran in Catallaxy Files, 2018-10-11 09:52:24 UTC

  In a Wall Street Journal opinion piece, Bjorn Lomborg drew attention to the inconsistency of the global warming costs and benefit estimates made by newly minted Nobel Prize recipient William Nordhaus, and the alarmist IPCC climate review issued out of Inchon.  Lomborg, is a believer in the global warming myth but tends to think the money spent alleviating it is better spent elsewhere (his socialist background does not allow him to include an option of leaving the money with its owners!) A New York Times article put the level of a carbon tax necessary to curtail emissions in line with an estima [...]

2018-10-10

• Macroeconomic Implications of Modeling the Internal Revenue Code in a Heterogeneous-Agent Framework
  by Christian Zimmermann in NEP-DGE blog, 2018-10-10 14:52:57 UTC

  By Rachel Moore and Brandon Pecoraro http://d.repec.org/n?u=RePEc:pra:mprapa:87240&r=dge Fiscal policy analysis in heterogeneous-agent models typically involves the use of smooth tax functions to approximate present tax law and proposed reforms. We argue that the tax detail omitted under this conventional approach has macroeconomic implications relevant for policy analysis. In this paper, we develop an alternative approach by embedding an internal tax calculator into a large-scale overlapping generations model that explicitly models key provisions in the Internal Revenue Code applied to labor [...]

• International Medium of Exchange: Privilege and Duty
  by Christian Zimmermann in NEP-DGE blog, 2018-10-10 14:52:26 UTC

  By Ryan Chahrour and Rosen Valchev http://d.repec.org/n?u=RePEc:red:sed018:317&r=dge The United States enjoys an “exorbitant privilege” that allows it to borrow at especially low interest rates. Meanwhile, the dollarization of world trade appears to shield the U.S. from international disturbances. We provide a new theory that links dollarization and exorbitant privilege through the need for an international medium of exchange. We consider a two-country world where international trade happens in decentralized matching markets, and must be collateralized by safe assets — a.k.a. currencies — issu [...]

• Family Job Search and Wealth: The Added Worker Effect Revisited
  by Christian Zimmermann in NEP-DGE blog, 2018-10-10 14:51:53 UTC

  By Silvio Rendon and J. Ignacio García-Pérez http://d.repec.org/n?u=RePEc:red:sed018:503&r=dge We develop and estimate a model of family job search and wealth accumulation. Individuals’ job finding and job separations depend on their partners’ job turnover and wages as well as common wealth. We fit this model to data from the Survey of Income and Program Participation (SIPP). This dataset reveals a very asymmetric labor market for household members, who share that their job finding is stimulated by their partners’ job separation, particularly during economic downturns. We uncover a job search [...]

• Forward Guidance
  by Christian Zimmermann in NEP-DGE blog, 2018-10-10 14:49:59 UTC

  By Marcus Hagedorn, Iourii Manovskii, Jinfeng Luo and Kurt Mitman http://d.repec.org/n?u=RePEc:red:sed018:929&r=dge We assess the power of forward guidance—promises about future interest rates—as a monetary tool in a liquidity trap using a quantitative incomplete-markets model. Our results suggest the effects of forward guidance are negligible. A commitment to keep future nominal interest rates low for a few quarters—although macro indicators suggest otherwise—has only trivial effects on current output and employment. We explain theoretically why in complete markets models forward guidance i [...]

2018-10-09

• 34. Notable Women researchers on Economics
  by Euro American Association EAAEDS in Euro-American Association: World Development, 2018-10-09 19:52:00 UTC

  Source: UN-Women:  http://www.unwomen.org/en/how-we-work/flagship-programmes/making-every-woman-and-girl-count This table present a list of 17 Notable Women Economists, with outstanding results in the rankings of the international Website of academic research Ideas.Repec. Thre first column of rank indicates the position accordingly to the number of downloads of articles corresponding to each author in this list and the second column indicates the position of each author in this list accordingly to the general score of Ideas.Repec.  The highest position is number 1.  These authors are included [...]

2018-10-08

• Inflation and Price Measurement: A Primer
  by Steve Cecchetti and Kim Schoenholtz in Money, Banking and Financial Markets, 2018-10-08 12:27:12 UTC

  “When the official statistics on economic growth understate real economic growth, it reduces public faith in the political and economic system.” Martin Feldstein, Journal of Economic Perspectives , Spring 2017 . People use a variety of statistics to gauge how the economy is doing. And policymakers need data to guide their actions and evaluate their performance. How fast is the economy growing? Are prices rising quickly or slowly? The answers to these questions are based on measures like real gross domestic product (GDP) and the consumer price index (CPI). As it turns out, it is fairly straight [...]

• Sam Watson’s journal round-up for 8th October 2018
  by Sam Watson in The Academic Health Economists' Blog, 2018-10-08 11:00:30 UTC

  Every Monday our authors provide a round-up of some of the most recently published peer reviewed articles from the field. We don’t cover everything, or even what’s most important – just a few papers that have interested the author. Visit our Resources page for links to more journals or follow the HealthEconBot . If you’d like to write one of our weekly journal round-ups, get in touch . A cost‐effectiveness threshold based on the marginal returns of cardiovascular hospital spending . Health Economics [ PubMed ] Published 1st October 2018 There are two types of cost-effectiveness threshold of in [...]

2018-10-06

• Big data and self-driving vehicles
  by Bruno Duarte in EUnomics, 2018-10-06 10:07:51 UTC

  These two technologies represent the diminishing returns of investing in capital-augmenting technologies while labour-augmenting technologies remain competitively more productive – in different ways. Big data is a capital-augmenting technology that does not compete but is actually complementary to labour intensity. It may be defined as a pivot technology between capital-labour substitutability and complementarity: whereas the technology’s development relies on extended human input, its applications shall undoubtedly replace labour-intensive tasks such as economic forecasters or warehouse clerk [...]

2018-10-03

• How could this change?
  by Bruno Duarte in EUnomics, 2018-10-03 20:09:26 UTC

  Firms  increasingly rely  on labour-augmenting technologies to improve productivity. Assuming logs of labour force and capital, the value of labour- and capital-augmenting technologies indexed to 2000 plots (data are ECB, AMECO, own calculation on  op cit   Acemoglu ) The discrepancy is much due to lower returns on capital that, considering capital-labour substitution, lead firms to invest in augmenting labour. The  ECB  estimates unskilled labour and capital (sigma, the top row of the three elasticities of substitution) are substitutes whereas capital and skilled labour (eta, the second row) [...]

• Uber, Lyft and the Urgency of Saving Money on Ambulances
  by ? in The Incidental Economist, 2018-10-03 11:00:00 UTC

  The following originally appeared on The Upshot (copyright 2018, The New York Times Company). It also appeared on page B5 of the print edition on October 2, 2018. Research for this piece was supported by the Laura and John Arnold Foundation. An ambulance [...]

• Energy Intensity, Growth, and Technical Change
  by noreply@blogger.com (David Stern) in Stochastic Trend, 2018-10-03 00:11:00 UTC

  I have a new working paper out, coauthored with Akshay Shanker. Akshay recently completed his PhD at the Crawford School and is currently working on the Energy Change Institute's Grand Challenge Project among other things. This paper was one of the chapters in Akshay's thesis. Akshay originally came to see me a few years ago about doing some research assistance work. I said: "The best thing you could do is to write a paper with me – I want to explain why energy intensity has declined using endogenous growth theory." This paper is the result. Along the way, we got additional funding from the Co [...]

2018-10-02

• Long-term job?
  by Bruno Duarte in EUnomics, 2018-10-02 20:50:33 UTC

  My colleagues at DG Employment recently published the 2018’s edition of  Employment and Social Development in Europe . The report identifies present and upcoming trends in technology, market structure and factor mix to produce policy guidance for the medium and long-term. Shrinking working age population, automation, flexible employment and erasable skills, lower earnings in the long-term and the poverty cycle are amongst the main topics of this enticing read. The EU labour market today is convincingly responding to a job-based recovery.  Strong capital investment before 2000  depressed capita [...]

• Fire and Ice: Lessons from Historical Conflagrations for Cities Today
  by Jason Barr in Building the skyline, 2018-10-02 13:20:18 UTC

  Jason M. Barr      October 2, 2018 For millennia, after the birth of cities nearly 6,000 years ago , people world over lived in constant fear of the conflagration—the massive burning of immense swaths of the city due to accidental (or deliberate) spread of fire. Today, it is considered a tragedy if one or two buildings burn down, as the problem of conflagrations has all been but solved . But throughout history, an escaped ember or dropped gas lamp could cause untold suffering and damage. Cities well into the 19th century depended on exposed combustion to sustain their existence. As William Shi [...]

• Ideology for normal people
  by chris in Stumbling and Mumbling, 2018-10-02 13:05:42 UTC

  Jeff Sparrow accuses the left of being smug elitists who dismiss ordinary people as being dopes and fools. I don’t doubt that there is an element of superciliousness within the left. But there needn’t be. We can believe that people are misled by ideology into supporting the right without believing that they are stupid slack-jawed yokels. Let’s start with behavioural finance. This is the idea that investors – including professional ones - fail to optimize because they are prone to many cognitive biases. This doesn’t mean they are idiots: even doctors (pdf) make similar mistakes. It just means n [...]

• If happiness is going to become the new GDP, we need to get at measuring it
  by ? in Forum:Blog, 2018-10-02 09:13:59 UTC

  Happiness is now being used to assess all aspects of life and plan policy, but its measurement presents challenges and issues. [...]

2018-10-01

• The case for investing in roads and railroads - evidence from China
  by noreply@blogger.com (Gulzar Natarajan) in Urbanomics, 2018-10-01 20:51:00 UTC

  There has been some debate in recent times disputing the value of investing in rural roads and rural electrification. The discussion is summarised here . This goes contrary to the mainstream literature on the value of transportation infrastructure. It has been held that roads and railways "lowers trade costs, thereby allowing cities to specialise in the production activities for which they have comparative advantages". Further returns from such investments are large in poor countries but are smaller for more developed countries with larger transport networks.  The research work of Nathaniel Ba [...]

• La Economía del Crimen y el VAR en el Fútbol
  by admin in Nada Es Gratis, 2018-10-01 05:10:09 UTC

  De David Cuberes La utilización del sistema de videoarbitraje (VAR) para revisar decisiones arbitrales controvertidas ha desatado muchos debates y discusiones de café. La controversia a menudo giran sobre si este sistema beneficia a los equipos grandes, si generan demasiadas interrupciones y, en definitiva, si hemos ganado algo con su implantación. Una clara mejora que se destaca es que, en principio, deberían cometerse menos errores arbitrales. Otra posible mejora, tal vez menos obvia, es que el VAR podría hacer que, en equilibrio, los jugadores comentieran menos infracciones. Esto es lo que [...]

2018-09-29

• Is the gig economy here to stay?
  by Bruno Duarte in EUnomics, 2018-09-29 18:12:36 UTC

  Reading about the  gig economy , I can’t help but think of regulatory and structural change. (Chart data are AMECO rebased to 2000, own calculation). Economic theory  predicts that, given an elasticity of  substitution of labour for capital below unit  (hence that capital and labour are complementary), a negative shock to investment (such as a financial collapse) implies more unemployment or lower wages as labour becomes less productive. Since 2009, labour has caught up with the secular trend of higher capital intensity to improve the ratio of labour to capital in the economy. In Japan, the tr [...]

2018-09-28

• Can the Unemployed Borrow? Implications for Public Insurance
  by Christian Zimmermann in NEP-DGE blog, 2018-09-28 09:37:30 UTC

  By J. Carter Braxton, Gordon Phillips and Kyle Herkenhoff http://d.repec.org/n?u=RePEc:red:sed018:564&r=dge Do the unemployed have access to credit markets? Yes. Do the unemployed borrow? Yes. We link administrative earnings records with credit reports and show that individuals maintain significant access to credit following job loss. Unconstrained job losers borrow, while constrained job losers default and delever. Both default and borrowing allow job losers to boost consumption, and they pay an interest rate premium to do so, i.e. the credit market acts as a limited private unemployment insu [...]

• The Costs and Benefits of Caring: Aggregate Burdens of an Aging Population
  by Christian Zimmermann in NEP-DGE blog, 2018-09-28 09:11:07 UTC

  By Finn Kydland and Nicholas Pretnar http://d.repec.org/n?u=RePEc:red:sed018:271&r=dge There has been recent attention to the increasing costs to individuals and families associated with caring for people who are afflicted with diseases such as dementia, including Alzheimer’s. In this paper we ask, what are the quantitative implications of these trends for important aggregates, including going forward in time. We develop an overlapping generations general equilibrium model that features government social insurance, idiosyncratic old-age health risk, and transfers of time on a market of informa [...]

• Recursive equilibria in dynamic economies withbounded rationality
  by Christian Zimmermann in NEP-DGE blog, 2018-09-28 08:15:09 UTC

  Runjie Geng http://d.repec.org/n?u=RePEc:red:sed018:137&r=dge I provide a new way to model bounded rationality and show the existence of recursive equilibria with bounded rational agents. The existence proof applies to dynamic stochastic general equilibrium models with infinitely lived heterogeneous agents and incomplete markets. In this type of models, recursive methods are widely used to compute equilibria, yet recursive equilibria do not exist generically with rational agents. I change the rational expectation assumption and model bounded rationality as follows. Different from a rational [...]

2018-09-27

• The Bank of International Settlement’s Claudio Borio, Who Warned About the Crisis, Says the World Economy Is About to Get Very Sick
  by ? in Naked Capitalism, 2018-09-27 10:19:43 UTC

  BIS chief economist Claudio Borio warns that central bankers have overdone the liquidity party, and investors are not being paid enough to take ris [...]

2018-09-26

• Poland: heading to middle-income stall?
  by Bruno Duarte in EUnomics, 2018-09-26 21:03:16 UTC

  The chart below plots a set of indicators that, while uncommon, may help understand Poland’s economic development path. Ratios are indexed to 2002, the year Poland concluded EU accession negotiations. Data are own computations from AMECO datasets. On the right axis, the chart plots the ratio of labour force in population, a proxy for the participation rate, its increase begun in 2012 partially explainable as population decreased during those years. Participation rate computed as labour force over 15 years of age was  steadily increasing , the discrepancy between the two indicators reflecting l [...]

• One of Global Finance's Biggest Doctors Warns: The World Economy Is About to Get Very Sick
  by ? in Common Dreams - Breaking News & Views for the Progressive Community, 2018-09-26 20:14:57 UTC

  Marshall AuerbackPolicymakers must also embrace fiscal initiatives that reorient policy away from demand-side trickle-down measures and toward a bottom-up approach that is based on employment and reducing inequality. (Photo: NoHoDamon/Flickr/cc) [...]

• A Crisis of Beliefs: a review
  by chris in Stumbling and Mumbling, 2018-09-26 10:18:48 UTC

  Whilst I was away, there was a debate on Twitter about why so many Oxford PPEists become newspaper opinion writers. The question was ill-posed: in fact only a teeny fraction of PPE graduates enter that profession - much less than 1%. The idea that PPEists become opinion-mongers is an example of the representativeness heuristic - our tendency to over-estimate a probability if something seems representative of a group. In this case, because bashing out half-cocked opinions quickly seems representative of PPEists, people over-estimate the probability of PPEists becoming opinion-writers. In doing [...]

2018-09-25

• Worker ownership: threat or promise?
  by chris in Stumbling and Mumbling, 2018-09-25 10:15:39 UTC

  Labour’s plan to force large companies to give workers a 10% stake in them seems popular: Yougov reports that most voters and even a plurality of Tory supporters think it a good idea. On the other hand, though, it’s given the CBI a fit of the vapours. Carolyn Fairbairn says : Their diktat on employee share ownership will only encourage investors to pack their bags and will harm those who can least afford it.  If investment falls, so does productivity and pay. She’s wrong, and the voters are right. Far from being anti-business, McDonnell’s plan might even be a way of shoring up capitalism. I [...]

2018-09-24

• Do higher wages lead to more imports?
  by Bruno Duarte in EUnomics, 2018-09-24 22:12:17 UTC

  A recurring phenomenon that puzzles Portuguese economists and pundits alike is the  increase of imports of foreign goods and services  when a profligate Government is instated. Whereas the puzzle could be easily explained away by Portugal’s relative advantage in  mid-tech and low-tech goods  (from machinery to artisanal products, where  foreign value added is lowest ) accompanied by  generous spending  modernising the country’s infrastructure, the most recent inversion from a current account surplus to a deficit further puzzles as Government spending lags economic growth. Literature on these [...]

• Pitfalls of a Reserves-only Narrow Bank
  by Steve Cecchetti and Kim Schoenholtz in Money, Banking and Financial Markets, 2018-09-24 12:03:16 UTC

  “TNB’s sole business will be to accept deposits only from the most financially secure institutions, and to place those deposits into TNB’s Master Account at the FRBNY, thus permitting depositors to earn higher rates of interest than are currently available to nonfinancial companies and consumers for such a safe, liquid form of deposit .” TNB USA Inc. vs Federal Reserve Bank of New York, Case 1:18-cv-07978 , August 31, 2018. “TNB’s business model poses no threat to the financial system or to depositors that we can see.” The Editorial Board, The Wall Street Journal, September 12, 2018. Since ret [...]

2018-09-19

• 2012 deflation explained
  by Bruno Duarte in EUnomics, 2018-09-19 21:04:50 UTC

  Robert Hall’s  seminal work  on firms’ marginal cost and price strategies shook the foundations of market competition. Hall found firms fix prices above marginal costs when output increases.  Firms seek to  maximise profits , forecasting profit as a consequence of its pricing decision. Demand is assumed with constant elasticity such that a lower price shall increase revenues regardless of volume.  This profit forecast mechanism helps understand what happened to consumer prices in the recession, plotted below (US in blue, EU in red) The behaviour of price indexes between 2012 and 2015 (an expan [...]

• ‘Running for the exit’: How cross-border bank lending fell
  by bankunderground in Bank Underground, 2018-09-19 08:00:52 UTC

  Neeltje van Horen Cross-border bank lending fell dramatically in the aftermath of Lehman Brothers’ failure as funding constraints forced banks to reduce their foreign exposures . While this decline was partly driven by lower demand for international bank credit, it was substantially aggravated by a retrenchment of international banks from cross-border lending. But banks did not cut their cross-border lending in a uniform manner. Instead, they reallocated their foreign portfolios towards countries that were geographically close, in which they had more experience, in which they had close connec [...]

2018-09-18

• EU-13 should spend more
  by Bruno Duarte in EUnomics, 2018-09-18 20:25:53 UTC

  Still on the  nominal spending limit rule  advanced by French and German economic advisers. Were small open economies exposed to foreign markets subject to an exogenous shock, the adjustment to nominal spending required by either rule (and particularly by the rule drafted by German advisers) would most likely be achieved by reducing discretionary spending and revenue. The European Commission acknowledges the link ( plotted below ) while  research  concludes public spending is primarily discretionary. If Member-States are encouraged to reduce discretionary spending to meet institutional obliga [...]

2018-09-17

• Perceptions of the neutral interest rate
  by Bruno Duarte in EUnomics, 2018-09-17 17:42:36 UTC

  Amongst the rules and indicators available to Central Banks for informing the Central Bank interest rate is the Taylor Rule. Conceived as a  descriptor rather than a prescriber , the Taylor Rule considers the inflation rate and applies a coefficient to both the deviation from steady-rate growth of GDP and the inflation target to compute a prescribed rate. The Fed  actually uses other versions of interest rate -setting rules along with the Taylor Rule.  Some of these rules  assume the long-term neutral Fed funds rate at 2% (the interest rate seen as consistent with 2% inflation in full employme [...]

• Research: Simple Prompts Can Get Women to Negotiate More Like Men, and Vice Versa
  by Leigh Thompson in HBR Blog Network, 2018-09-17 12:05:30 UTC

  Mitch Blunt/Getty Images Do we lie to get what we want out of negotiations? That depends, according to forthcoming research I conducted with   Jason Pierce  of the University of North Carolina, Greensborough. We found that the likelihood of engaging in unethical behavior during negotiation is related strongly to gender: men are more likely to act deceptively than women are. The difference in bargaining behavior is linked to negotiators’ sense of competitiveness and empathy. In negotiations, men tend to embrace a competitive mode that motivates unethical behavior to get ahead, whereas women o [...]

• Illuminating GDP
  by Steve Cecchetti and Kim Schoenholtz in Money, Banking and Financial Markets, 2018-09-17 11:25:28 UTC

  "GDP figures are 'man-made' and therefore unreliable," reported remarks of Li Keqiang (then Communist Party secretary of the northeastern Chinese province of Liaoning), March 12, 2007. Satellites are great. It is hard to imagine living without them. GPS navigation is just the tip of the iceberg. Taking advantage of the immense amounts of information collected over decades, scientists have been using satellite imagery to study a broad array of questions, ranging from agricultural land use to the impact of climate change to the geographic constraints on cities (see here for a recent survey). One [...]

2018-09-15

• Occasional Weekend Links
  by Jesse Anttila-Hughes in Fight Entropy, 2018-09-15 17:43:00 UTC

  1) Neanderthals at sea 2)  As if the Industrial Revolution had never happened. 3)  “We’re going to be like the Saudi Arabia of freshwater.” 4) A history of RCTs in the social sciences 5) Piketty on Russia 6) "Miscodings of rare events are likely to be asymmetric" 7)   Early humans may have resembled stressed, sweaty chimpanzees 8)  Disproportionate Sterilization of Latinos Under California’s Eugenic Sterilization Program, 1920–1945 9)  Nearly half of aboriginal Australians carry HLTV-1 10) Markets in abstract everything:  "I very much hope you will apply for a grant at Emergent Ventures.  Most [...]

2018-09-13

• French and German Experts’ could hamper EU-13 catch-up 
  by Bruno Duarte in EUnomics, 2018-09-13 18:33:08 UTC

  In recent opinions, French and German economic advisers suggest replacing the current deficit and debt limits enshrined in the TFEU by a limit to nominal public expenditure.  The limit would solve long-standing structural disequilibria in the Union:  preventing high public debt in some Member-States thus precluding the need for debt mutualisation. By indexing the spending limit to potential growth, the EU would ensure the Euro’s stability. The limit would be consider with the currently instated long-term limit to public debt and medium-term limit to the structural deficit. The expenditure lim [...]

2018-09-12

• Skyscrapers and Cities: A Q&A Interview with Edward Glaeser (Part II)
  by Jason Barr in Building the skyline, 2018-09-12 12:11:41 UTC

  by Jason M. Barr     September 12, 2018 [Author’s Note: This is Part II of a two-part Q&A Interview with Professor Edward Glaeser. Part I can be read here .]   Edward Glaeser is the Fred and Eleanor Glimp Professor of Economics in the Department of Economics at Harvard University. He one of the world’s leading experts on the economics of cities. He is the author of  Triumph of the City: How Our Greatest Invention Makes Us Richer, Smarter, Greener, Healthier, and Happier . On Tall Buildings and Urban Livability JB: There is a running debate about whether tall buildings are beneficial for cities [...]

• Method of the month: Distributional cost effectiveness analysis
  by miqedup in The Academic Health Economists' Blog, 2018-09-12 06:00:57 UTC

  Once a month we discuss a particular research method that may be of interest to people working in health economics. We’ll consider widely used key methodologies, as well as more novel approaches. Our reviews are not designed to be comprehensive but provide an introduction to the method, its underlying principles, some applied examples, and where to find out more. If you’d like to write a post for this series, get in touch . This month’s method is distributional cost effectiveness analysis . Principles Variation in population health outcomes, particularly when socially patterned by characterist [...]

2018-09-11

• Trump’s tirade du jour
  by Bruno Duarte in EUnomics, 2018-09-11 19:43:38 UTC

  President Trump  compared growth in GDP and unemployment  to much displeasure and negative criticism of macroeconomists and pundits. Specifically, the President described the current economic moment positively as the unemployment rate percentage was nominally lower than the percentage rate of GDP growth. How could unemployment and GDP be linked? For instance,  Rudd and Whelan  argue the labour wages portion of GDP is not a good measure of either output gap or inflation, contradicting  Woodford’s  estimation of the new Philips curve – that assumes ULC and unemployment are related. Conversely,  [...]

• How the Triple Tax Exemption on Puerto Rico’s Bonds Financed Its Territorial Status—and Helped Spark Its Debt Crisis
  by Evaluz Cotto-Quijano in Pro-Market, 2018-09-11 16:45:18 UTC

  How did Puerto Rico manage to incur a monumental debt of $72 billion without raising red flags among the sophisticated investors who continuously bought its bonds? Here associate professor of business E valuz Cotto – Quijano points to the role of a tax exemption designed by the US Congress over 100 years ago to finance Puerto Rico ’s territorial government by inflating its bond debt instead of appropriating federal funds .     On June 30, 2016, a day before the government of Puerto Rico missed a bond payment, the US Congress and President Obama passed the Puerto Rico Oversight, Management, a [...]

• Collection Development: Reference Resources Roundup (A Curated Collection of Recently Published or Updated Data-Rich Reports Available on the Web)
  by ? in LJ INFOdocket, 2018-09-11 14:22:48 UTC

  NOTE: THIS ROUNUP IS NO LONGER UPDATED. PLEASE VISIT THE CURRENT UPDATE FOR EVEN MORE REPORTS AND RESOURCES (September 11, 2018) — This selection of curated, full text documents. and other reference material is updated daily with new entries. Please [...]

2018-09-10

• Harvard Prof: Merit-Based Admissions "Reproduce Inequality"
  by Tyler Durden in Zero Hedge, 2018-09-10 23:05:22 UTC

  Submitted by Toni Airaksinen of Campus Reform A Harvard University professor claims in a new academic study that merit-based admission processes at elite universities “reproduce inequality.” Harvard education professor Natasha Warikoo draws on interviews with 98 white, native-born students at Harvard, Brown University, and the University of Oxford in “ What Meritocracy Means to its Winners: Admissions, Race, and Inequality ,” published in the journal Social Sciences . During interviews Warikoo conducted between 2009 and 2011, these students were asked to sound-off on whether they felt the [...]

• What Should the Fed Own?
  by Steve Cecchetti and Kim Schoenholtz in Money, Banking and Financial Markets, 2018-09-10 13:05:33 UTC

  “[T]he Fed might accommodate a sudden spike in [demand for safe assets] by selling some of its T-bill holdings and using the proceeds to buy longer-term Treasuries.” Greenwood, Hanson and Stein, The Journal of Finance , August 2015.  “[T]he Committee would be prepared to use its full range of tools, including altering the size and composition of the balance sheet, if future economic conditions were to warrant a more accommodative monetary policy than can be achieved solely by reducing the federal funds rate.” Federal Open Market Committee, “ Addendum to the Policy Normalization Principles and [...]

• Sam Watson’s journal round-up for 10th September 2018
  by Sam Watson in The Academic Health Economists' Blog, 2018-09-10 11:00:59 UTC

  Every Monday our authors provide a round-up of some of the most recently published peer reviewed articles from the field. We don’t cover everything, or even what’s most important – just a few papers that have interested the author. Visit our Resources page for links to more journals or follow the HealthEconBot . If you’d like to write one of our weekly journal round-ups, get in touch . Probabilistic sensitivity analysis in cost-effectiveness models: determining model convergence in cohort models . PharmacoEconomics [ PubMed ] Published 27th July 2018 Probabilistic sensitivity analysis (PSA) is [...]

2018-09-06

• Drivers of the investment cycle
  by Bruno Duarte in EUnomics, 2018-09-06 22:04:53 UTC

  In the follow-up to  yesterday’s post  on wages and investment, it is interesting to assess what stimulates and impedes firm investment. Research finds  leverage  is determinant to firms’ investment decisions when subject to cyclical constraints such as those imposed to European firms between 2011-2016. In other words,  market interest rates exogenous to the firm  affect firms’ investment decisions conditional on firm indebtness.  Less explored is the role of policy makers in signalling macroeconomic conditions where firms operate. Whereas  uncertainty , in  prices or demand , are typically fo [...]

• Short-termism: what's the problem?
  by chris in Stumbling and Mumbling, 2018-09-06 12:51:11 UTC

  There’s a widespread consensus that corporate short-termism is a problem. Many have welcomed Donald Trump’s call to end quarterly reporting in the hope that it might lengthen planning horizons; yesterday’s report from the IPPR cited short-termism as one reason for the UK’s lack of investment and innovation; and Richard Murphy has decried the “transient enterprise.” I disagree with all this. I side instead with Sam Dumitriu and Larry Summers : short-termism is not a problem. Four facts make me say so:  - If stock market investors were short-termist, they’d under-price growth stocks and over-pri [...]

2018-09-05

• Manufacturing wages are historically high
  by Bruno Duarte in EUnomics, 2018-09-05 12:29:53 UTC

  New research  concludes Union membership increases wage premia of workers, particularly those less skilled The less skilled the workers were, the greater the wage premium associated with their union membership. Whilst tempting, it may also be considered this premia represents a rent extracted by Unionised workers. As labour productivity declined from the beginning of this century, profits increased despite the widening gap between earnings and productivity. A plausible explanation is the  increase in firm financialisation . Regardless of the cause, the increase in capital intensity has not coi [...]

• Skyscrapers and Cities: A Q&A Interview with Edward Glaeser (Part I)
  by Jason Barr in Building the skyline, 2018-09-05 12:06:05 UTC

  by Jason M. Barr     September 5, 2018 [Author’s Note: This is Part I of a two-part Q&A interview with Professor Edward Glaeser.]   Edward Glaeser is the Fred and Eleanor Glimp Professor of Economics in the Department of Economics at Harvard University. He one of the world’s leading experts on the economics of cities. He is the author of  Triumph of the City: How Our Greatest Invention Makes Us Richer, Smarter, Greener, Healthier, and Happier . On Skyscraper Research in Economics JB: While there are a handful of research papers in economics on investigating the causes and consequences of skys [...]

2018-09-04

• Context matters, but are the economists listening?
  by noreply@blogger.com (Gulzar Natarajan) in Urbanomics, 2018-09-04 21:22:00 UTC

  In a famous 2007 paper, Robert Jensen, heralded the case for the use of mobile phones in advancing development outcomes. He used microlevel survey data on the adoption of mobile phones by fishermen in Kerala over 1997-2001 to show that , the adoption of mobile phones by fishermen and wholesalers was associated with a dramatic reduction in price dispersion, the complete elimination of waste, and near-perfect adherence to the Law of One Price. Both consumer and producer welfare increased. Mobile phones could bridge all kinds of information asymmetry and so on, the story got constructed. Since th [...]

• Quotation of the Day…
  by Don Boudreaux in Cafe Hayek, 2018-09-04 11:19:00 UTC

  (Don Boudreaux) Tweet … is from page 153 of Stephen Meardon’s 2005 paper “ How TRIPs Got Legs: Copyright, Trade Policy, and the Role of Government in Nineteenth-Century American Economic Thought ,” as this paper is reprinted The Role of Government in the History of Economic Thought (Steven G. Medema and Peter Boettke, eds., 2005) (citation omitted): To [William Cullen] Bryant, the unfairness of protection and the likelihood that it would “bring ruin” to a populace were reasons enough to renounce the policy. But one could say more. It was unfair and ruinous because it was contrary to the le [...]

2018-09-03

• Democracy depends on financial markets too
  by Bruno Duarte in EUnomics, 2018-09-03 18:02:28 UTC

  Amongst the most sensitive innovations brought to economics by Marx was the definition of value as that captured by prices of exchanged goods and services. As  Mariana Mazzucato  details and previously explained  in this blog , defining value by a good or product fungibility has an immense impact on how we perceive value and its distribution. The reallocation of capital by financial intermediaries (banks or asset managers) relies on Adam Smith’s invisible hand ( Marx’s writing trails Smith’s ). The profound influence of Marx’s concept of value by fungibility (and only this concept) is better s [...]

• Financial Crisis: The Endgame
  by Steve Cecchetti and Kim Schoenholtz in Money, Banking and Financial Markets, 2018-09-03 12:25:40 UTC

   “The only way we could have saved Lehman would have been by breaking the law.” Ben S. Bernanke, Testimony to the Financial Crisis Inquiry Commission, September 2, 2010 (cited by Reuters ). “Lehman actually did have ample collateral for a loan that would have averted its sudden bankruptcy.” Laurence Ball, The Fed and Lehman Brothers , 2018, page xii. Ten years ago this month, the run on Lehman Brothers kicked off the third and final phase of the Great Financial Crisis (GFC) of 2007-2009. In two earlier posts ( here and here ), we describe the prior phases of the crisis. The first began on Augu [...]

• James Altunkaya’s journal round-up for 3rd September 2018
  by jamesaltunkaya in The Academic Health Economists' Blog, 2018-09-03 11:00:24 UTC

  Every Monday our authors provide a round-up of some of the most recently published peer reviewed articles from the field. We don’t cover everything, or even what’s most important – just a few papers that have interested the author. Visit our Resources page for links to more journals or follow the HealthEconBot . If you’d like to write one of our weekly journal round-ups, get in touch . Sensitivity analysis for not-at-random missing data in trial-based cost-effectiveness analysis: a tutorial . PharmacoEconomics [ PubMed ] [ RePEc ] Published 20th April 2018 Last month, we highlighted a Bayesian [...]

2018-08-28

• More on capping direct payments
  by Alan Matthews in CAP Reform.eu, 2018-08-28 11:07:02 UTC

  I want to revert to the topic of the capping of direct payments under the CAP, which I last discussed here and here . It is not the most important issue in the Commission’s legislative proposals for the CAP after 2020. But the issue of the fairness of direct payments was raised as an issue in the CAP Communication, and the proposed capping has been defended as a significant step in the better targeting of these payments. There is thus some interest in asking how effective it is likely to be. The current situation The current situation reflecting the distribution of payments in claim year 2015 [...]

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