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- Monetary Policy, Trend Inflation and Unemployment Volatility
by Christian Zimmermann in NEP-DGE blog, 2017-01-19 21:08:58 UTC
BY Sergio Lago Alves
The literature has long agreed that the canonical DMP model with search and matching frictions in the labor market can deliver large volatilities in labor market quantities, consistent with US data during the Great Moderation period (1985-2005), only if there is at least some wage stickiness. I show that the canonical model can deliver nontrivial volatility in unemployment without wage stickiness. By keeping average US inflation at a small but positive rate, monetary policy may be accountable for the standard deviations of [...]
- How to keep the American Dream intact?
by paragwaknis in Musings of the Sorts, 2017-01-18 21:01:08 UTC
The Equality of Opportunity Project is an impressive research venture using big data to explore new pathways to upward mobility in the American society. One of the pictures that came out of this project and that has made quite a few rounds of tweets is the following one:
It shows the percentage of children earning more than parents over the years according to when a child was born. So if you were born in 1940 there was higher likelihood for you to earn more than your parents than if you are child born in 80’s. It is a very interesting data in itself and the paper itself makes an interesting r [...]
- Elections and development #NeverLetAGoodDeedGoUnpunished
by Nicholas Gruen in Club Troppo, 2017-01-18 04:39:24 UTC
Do anti-poverty programs sway voters? Experimental evidence from Uganda
By: Blattman, Christopher ; Emeriau, Mathilde ; Fiala, Nathan
A Ugandan government program allowed groups of young people to submit proposals to start skilled enterprises. Among 535 eligible proposals, the government randomly selected 265 to receive grants of nearly $400 per person. Blattman et al. (2014) showed that, after four years, the program raised employment by 17% and earnings 38%. This paper shows that, rather than rewarding the government in elections, beneficiaries increased opposition party membership, campaign [...]
- International Business Cycle and Financial Intermediation
by Christian Zimmermann in NEP-DGE blog, 2017-01-17 16:06:21 UTC
By Tamas Csabafi, Max Gillman and Ruthira Naraidoo
The world-wide financial crisis of 2007 to 2009 caused bankruptcy and bank failures in the US and many other parts such as Europe. Recent empirical evidence suggests that this simultaneous drop in output was strongest in countries with greater financial ties to the US economy with important cross border deposit and lending. This paper develops a two-country framework to allow for banking structures within an international real business cycle model. The banking structure across countries is m [...]
- Celtic Phoenix or Leprechaun Economics?
by Aidan Regan in The Irish Economy, 2017-01-16 17:16:25 UTC
Readers might be interested in this UCD Geary working paper , which was featured in the Sunday Business Post yesterday. The title of the paper is “ Celtic Phoenix or Leprechaun Economics: the Political Economy of an FDI-led Growth Model in Europe”.
Our core argument is that Ireland’s post-crisis economic recovery was driven by foreign direct investment (FDI) from Silicon Valley, and whilst this growth model was made possible by Ireland’s low corporate tax rates, it was also a result of inward migration, with these firms using Ireland to directly access the European labour market.
We also demon [...]
- Rising Quality of Life Inequality in "Communist" China
by Matthew Kahn in Environmental and Urban Economics, 2017-01-16 16:51:00 UTC
CNN has just p ublished a good piece where I am quoted about pollution exposure inequality in China. � My research on this topic can be found here and here and here . � �Consider a large number of people who differ with respect to their income levels. �This income can be spent on various consumption and investment goods. �Consumption goods include cell phones, ice cream, sneakers etc. �Investment goods includes stocks, bonds,doctors visits, dentist visits, paying USC's tuition. �These investment goods payoff a future rate of return either by generating future income or by raising your human ca [...]
- GDP-linked Bonds: A Primer
by Steve Cecchetti and Kim Schoenholtz in Money, Banking and Financial Markets, 2017-01-16 13:45:07 UTC
“We call for further analysis of the technicalities, opportunities, and challenges of state-contingent debt instruments, including GDP-linked bonds.” G20 Finance Ministers & Central Bank Governors, 23-24 July 2016, Chengdu, China Gross government debt in advanced economies has surpassed 105% of GDP, up from less than 75% a decade ago. Some countries with especially large debts—including Greece (177%), Italy (133%) and Portugal (129%)—are viewed not only as a risk to the countries themselves, but to others as well. As a result, policymakers and economists have been looking for ways to make it e [...]
- Metrics Monday: Dealing with Imperfect Instruments I
by Marc F. Bellemare in Marc F. Bellemare, 2017-01-16 11:00:47 UTC
Happy New Year! After running out of easy, off-the-top-of-my-head topics for this series, I have decided to go with a friend’s suggestion of blogging econometrics papers whose results are useful for applied work.
Given that I am working on a paper in which I am dealing with an instrumental variable that is only plausibly exogenous–that is, the exclusion restriction is likely to hold, but there is a small chance that it does not–I thought I should begin the year with two posts on how to deal with imperfect instruments.
This does not mean that these posts will discuss what to do with plain-old [...]
- Should we rely on economic forecasts? The wisdom of the crowds and the consensus forecast
by Guest author in OECD Insights, 2017-01-16 09:32:24 UTC
Brian Dowd, FocusEconomics
Laurence J. Peter, a Canadian educator and author, is often referenced as saying, “an economist is an expert who will know tomorrow why the things he predicted yesterday didn’t happen today.”
Economics and especially economic forecasting are often given a bad rap. Many people think of forecasting as akin to licking a finger and testing the wind. However, there is a science to it.
Forecasting is essentially attempting to predict the future and predicting the future behavior of anything, much less something as complex and enormous as an entire economy, is not an easy t [...]
- What's a Macro Model Good For?
by Stephen Williamson in Stephen Williamson: New Monetarist Economics, 2017-01-15 22:38:00 UTC
What's a macro model? It's a question, and an answer. If it's a good model, the question is well-defined, and the model gives a good answer. Olivier Blanchard has been pondering how we ask questions of models, and the answers we're getting, and he thinks it's useful to divide our models into two classes, each for answering different questions. First, there are "theory models," ...aimed at clarifying theoretical issues within a general equilibrium setting. Models in this class should build on a core analytical frame and have a tight theoretical structure. They should be used to think, for examp [...]
- The French economy needs âhelicopter moneyâ to boost labor force growth and avoid deflation
by Ivan Kitov in Economics as Classical Mechanics, 2017-01-13 20:46:00 UTC
In 2013, we published a paper “ Does Banque de France control inflation and unemployment?” We demonstrated that the French economy would likely sink into a longer period of deflation or very low inflation rate after 2013. This is an excerpt from the paper discussing how Banque de France could boost labour force growth and inflation by flooding the French economy with money. Instead of this simple measure, there were several depressing years of contingency measures introduced by the ECB. This update uses data for the past three years and proves that austerity is a counterproductive approach. We [...]
- On Why It is Important to Distinguish Between Consumption and Expenditures When Testing the Permanent Income Hypothesis
by Josh in The Everyday Economist, 2017-01-13 19:23:10 UTC
A central idea in modern macroeconomics is the permanent income hypothesis. The basic idea is as follows. Suppose that you could dichotomize your income into a permanent component and a temporary component. The permanent income hypothesis suggests that you would base your consumption decisions on the permanent component.
Why would people behave this way?
Well, individuals want to smooth the marginal utility of their consumption over time. To understand this, consider the following example. Suppose that you varied your consumption proportionately with your current income and that your income fl [...]
- IPAâs weekly links
by Jeff Mosenkis (IPA) in Chris Blattman, 2017-01-13 14:44:06 UTC
Guest post by Jeff Mosenkis of Innovations for Poverty Action .
As described in a long piece from New York Magazine , millions of people have been told by a Harvard psychology website they are secretly racist, despite no consensus on the underlying research. You may recall the debate where Hillary Clinton referenced “implicit bias” responding to a question about police shootings. She was referring to a prominent line of research in psychology based on the Implicit Association Test (IAT). The computerized test measures millisecond differences in reaction times and has been promoted by promine [...]
- As we predicted in 2010,a longer deflation period has started in Australia
by Ivan Kitov in Economics as Classical Mechanics, 2017-01-13 14:26:00 UTC
Six years ago we wrote a paper on price inflation and unemployment in Australia. Here, we compare our predictions against measurements. Concluding this paper we made a projection into 2050: “As a final remark on the evolution inflation (DGDP) and unemployment in Australia we present two predictions as based on the labour force projection provided by the Productivity Commission (2005) and the coefficients in (7) and (8) estimated for the period after 1994: a 1 =3.299, a 2 =-0.0259; b 1 =-2.08, b 2 =0.0979. We assume that there will be no change in the definitions of all involved macroeconomic v [...]
- In the long run, the rate of unemployment in Canada will be growing. A four year update.
by Ivan Kitov in Economics as Classical Mechanics, 2017-01-11 21:46:00 UTC
Here, I continue presenting cases of accurate predictions based on the link between real GDP and unemployment, which is a modified Okun’s law in an integral form. This is a four-year update for Canada. The model prediction is getting better and better! Canada provides an excellent set of macroeconomic data, which can be described by a few deterministic links with a high level of reliability and confidence. We have retrieved real GDP (GK per capita) data from the Total Economic Database and the rate of unemployment from the OECD . In 2012, we published a paper in the Journal of Theoretical and [...]
- The Okun's integral law for Australia revisited
by Ivan Kitov in Economics as Classical Mechanics, 2017-01-11 19:12:00 UTC
Three and a half years ago, I reported that Australia gives the best example of accurate quantitative prediction of unemployment in developed countries and therefore I felt satisfaction. Historically, we published a paper on Okun's in developed countries in the Journal of Theoretical and Practical Research in Economic Fields in 2012. We presented the first version of the modified Okun’s law for developed countries including Australia. The model was estimated before 2010 and we used only data available in 2011. Briefly, the model is estimated by the LSQ technique applied to the integral versio [...]
- The Enigma of Chinese Business Records
by joymanlee in NEP-HIS blog, 2017-01-11 13:14:18 UTC
Discovering Economic History in Footnotes: The Story of the Tong Taisheng Merchant Archive (1790-1850)
By Debin Ma (London School of Economics) and Weipeng Yuan (Chinese Academy of Social Sciences)
Abstract: The Tong Taisheng ( 统泰升 ) merchant account books in Ningjin county of northern China in 1800-1850 constitute the most complete and integrated surviving archive of a family business for pre-modern China. They contain unusually detailed and high-quality statistics on exchange rates, commodity prices and other information. Utilized once in the 1950s, the archive has been left largely untouc [...]
- In 2008, we accurately predicted the evolution of unemployment rate in Italy!
by Ivan Kitov in Economics as Classical Mechanics, 2017-01-10 12:46:00 UTC
In this blog, three and a half years ago we revisited our prediction of the rate of unemployment in Italy, which had been made in our 2008 paper. Five years after this publication, we found that the accuracy of prediction was excellent. We decided that our model works well. Since the model has a natural 11-year horizon, in this post we check our original (2008!) prediction for 2013 and 2016 (preliminary) using new estimates. According to the OECD, the unemployment rate in 2015 is 12.0%. For 2016, the rate is 11.6%. There is no doubt; these values again fully validate our model of unemploym [...]
- Coal pollution and health before WWI
by Nicholas Gruen in Club Troppo, 2017-01-09 17:23:57 UTC
Research Design Meets Market Design: Using Centralized Assignment for Impact Evaluation
By: Abdulkadiroğlu, Atila (Duke University) ; Angrist, Joshua (MIT) ; Narita, Yusuke (Yale University) ; Pathak, Parag A. (MIT)
Atmospheric pollution was an important side effect of coal-fired industrialisation in the nineteenth century. In Britain emissions of black smoke were on the order of fifty times as high as they were a century later. In this paper we examine the effects of these emissions on child development by analysing the heights on enlistment during the First World War of men bor [...]
- We gave Sri Lankan microenterprises wage subsidies to hire workers: 8 years after starting, hereâs what happened
by David McKenzie in Development Impact, 2017-01-09 14:28:00 UTC
In my very first experiment, Suresh de Mel, Chris Woodruff, and I gave small grants of capital to microenterprises in Sri Lanka. We found that these one-time grants had lasting impacts on firm profitability for male owners. However, despite these increases in firm profits, few owners made the leap from self-employed to hiring others.
In 2008 we therefore started a new experiment with a different group of Sri Lankan microenterprises, trying to see if we could help them make this transition to becoming employers. Eight years later, I’m delighted to finally have a working paper out with the resu [...]
- Thoughts on Proposed Corporate Tax Reform
by Steve Cecchetti and Kim Schoenholtz in Money, Banking and Financial Markets, 2017-01-09 14:20:30 UTC
“We teach our students that […] the benefits of a simpler, more easily administered tax system that treats different forms of income more equally may well rise as our need for revenue rises. We also teach them that progressive taxation involves a trade-off between equity and efficiency and that, when revenue requirements rise, the efficiency cost of redistribution rises as well.” Alan J. Auerbach, The Future of Fundamental Tax Reform , 1997. With a Republican government intent on major changes in fiscal policy, it’s useful to start thinking about the fundamentals of taxing and spending. The an [...]
- Moral Hazard and NBA Player Effort Before and After They Sign Long Term Contracts
by Matthew Kahn in Environmental and Urban Economics, 2017-01-06 16:14:00 UTC
Rick Barry and Nobel Laureate Bengt Holmstrom should write a principal-agent hidden effort paper together. Barry argues that the reason the NBA Portland Blazers are playing much worse as a team this year is because key players received long term contracts at the start the season and now these stars are no longer exerting effort. The more interesting piece in this article is Barry's points about a player's character. Barry argues that the Portland team's general manager is to blame here because if the GM had anticipated that certain players have a "costly effort" character then he should h [...]
- Economists in an alienated society
by chris in Stumbling and Mumbling, 2017-01-05 14:30:18 UTC
“The social power, ie the multiplied productive force”, wrote Marx, appears to people “not as their own united power but as an alien force existing outside them, of the origin and end of which they are ignorant, which they thus cannot control.”
I was reminded of this by a fine passage in The Econocracy in which the authors show that “the economy” in the sense we now know it is a relatively recent invention and that economists claim to be experts capable of understanding this alien force:
As increasing areas of political and social life are colonized by economic language and logic, the vast ma [...]
- Immigration & class struggle
by chris in Stumbling and Mumbling, 2017-01-04 14:06:39 UTC
James Bloodworth makes an important point here which I fear that some of his interlocutors don’t fully appreciate. He writes:
There does exist a discernible bien pensant willingness to pretend that immigration has no impact whatsoever on worker-employer relations…it is precisely the unwillingness on the part of liberals to acknowledge the challenges for the working class that migration brings…that is rendering the political climate gradually more inhospitable to those who want to find solutions that do not involve sealing off Britain's borders.
The error of which James accuses liberals here [...]
- Central Bank Independence: Growing Threats
by Steve Cecchetti and Kim Schoenholtz in Money, Banking and Financial Markets, 2017-01-02 12:35:56 UTC
“ The independence of the central bank to set a monetary course separate from the day-to-day of electoral politics is as fragile as it is essential .” Peter Conti-Brown The median FOMC participant forecasts that the Committee will raise the target range for the federal funds rate three times this year. That is, by the end of 2017, the range will be 1.25 to 1.50 percent. Assuming the FOMC follows through, this will be the first time in a decade that the policy rate has risen by 75 basis points in a year (see chart). It is natural to ask what sort of criticism the central bank will face and whet [...]
- have a happy 2017 recession
by Ivan Kitov in Economics as Classical Mechanics, 2017-01-02 10:24:00 UTC
Approximately 10 years ago we presented our macroeconomic model explaining the evolution of real GDP per capita in the USA [ 1 , 2 , 3 ] and other developed countries [ 4 ]. This model was formally tested by econometric tools for cointegration [ 5 ]. Standard tests have proven that the underlying concept is valid. Our model does explain the past measurements of real GDP as driven by the only population related variable – the influx of fresh blood - young people. Variations in the rate of growth for a given economy is fully defined by the change in the number of youngsters entering this econom [...]