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2017-09-22

• Modelling a complex world: Improving macro-models
  by Christian Zimmermann in NEP-DGE blog, 2017-09-22 16:04:25 UTC

  By Warwick J. McKibbin and Andrew Stoeckel http://d.repec.org/n?u=RePEc:een:camaaa:2017-56&r=dge Macro models have come under criticism for their ability to understand or predict major economic events such as the global financial crisis and its aftermath. Some of that criticism is warranted; but, in our view, much is not. This paper contributes to the debate over the adequacy of benchmark DSGE models by showing how three extensions, which are features that have characterized the global economy since the early 2000s, are necessary to improve our understanding of global shocks and policy insigh [...]

2017-09-21

• Optimal Ramsey Capital Income Taxation —A Reappraisal
  by Christian Zimmermann in NEP-DGE blog, 2017-09-21 15:29:43 UTC

  By YiLi Chien and Yi Wen http://d.repec.org/n?u=RePEc:fip:fedlwp:2017-024&r=dge This paper addresses a long-standing problem in the optimal Ramsey capital taxation literature. The tractability of our model enables us to solve the Ramsey problem analytically along the entire transitional path. We show that the conventional wisdom on Ramsey tax policy and its underlying intuition and rationales do not hold in our model and may thus be misrepresented in the literature. We uncover a critical trade off for the Ramsey planner between aggregate allocative efficiency in terms of the modified golden ru [...]

• Are consistent expectations better than rational expectations?
  by Christian Zimmermann in NEP-DGE blog, 2017-09-21 15:01:16 UTC

  By Elliot Aurissergues http://d.repec.org/n?u=RePEc:hal:wpaper:hal-01558223&r=dge In this paper, I argue that agents may prefer learning a misspecified model instead of learning the rational expectation model. I consider an economy with two types of agent. Fundamentalists learn a model where endogenous variables depend on relevant exogenous variables whereas followers learn a model where endogenous variables are function of their lagged values. A Fundamentalist is like a DSGE econometrician and a follower is like a VAR econometrician. If followers (resp. fundamentalists) give more accurate for [...]

• Thesis Thursday: Lidia Engel
  by Chris Sampson in The Academic Health Economists' Blog, 2017-09-21 06:00:49 UTC

  On the third Thursday of every month, we speak to a recent graduate about their thesis and their studies. This month’s guest is Dr Lidia Engel who graduated with a PhD from Simon Fraser University . If you would like to suggest a candidate for an upcoming Thesis Thursday, get in touch . Title Going beyond health-related quality of life for outcome measurement in economic evaluation Supervisors David Whitehurst , Scott Lear , Stirling Bryan Repository link https://theses.lib.sfu.ca/thesis/etd10264 Your thesis explores the potential for expanding the ‘evaluative space’ in economic evaluation. Wh [...]

2017-09-20

• The harm of high housing costs
  by chris in Stumbling and Mumbling, 2017-09-20 12:06:13 UTC

  The Resolution Foundation points out that people are spending three times as much of their incomes on housing today than they were 50 years ago, and that 30-year-olds spend more of their income on housing than did their grandparents at the same age. You can see this as an inter-generational injustice. But there’s another question here: are high house prices bad for the economy generally? I suspect they might be, for several reasons: First, sharply rising house prices are associated with increasing household debt, which increases the chance of a financial crisis which has long- lasting advers [...]

2017-09-18

• Operational Risk and Financial Stability
  by Steve Cecchetti and Kim Schoenholtz in Money, Banking and Financial Markets, 2017-09-18 11:56:01 UTC

  “There are only two types of organizations: those that know that they’ve been hacked and those that don’t yet know.” Dmitri Alperovitch , Crowdstrike ( CNBC , December 15, 2016) Recent disasters—both natural and man-made—prompt us to reflect on the relationship between operational risk and financial stability. Severe weather in sensitive locations, such as Hurricane Irma in Florida, raises questions about the resilience of the financial infrastructure. The extraordinary breach at Equifax highlights the public goods aspect of data protection, with potential implications for the availability of [...]

2017-09-16

• The benefits of hosting the Olympics are nonexistent — no cities want to host them
  by ? in Business Insider, 2017-09-16 14:30:00 UTC

  Buda Mendes/Getty It’s official: We now have hosts for the next two Summer Olympics. Paris will host in 2024 and Los Angeles in 2028. It looks like a victory for the International Olympic Committee, as the result could be Olympic Games without the embarrassments of  empty seats  and  foul water  of Rio, the massive  cost overruns of Sochi  or the awkward  political moments of Beijing . But the  announcement  also marks a failure: Only two cities competed for the 2024 Summer Olympic Games – Paris and Los Angeles – and two for the 2022 Winter Olympic Games – Beijing and Almaty, Kazakhstan. I’ve [...]

2017-09-14

• Consumer Forecast Revisions: Is Information Really so Sticky?
  by noreply@blogger.com (Carola) in Quantitative Ease, 2017-09-14 16:21:00 UTC

  My paper " Consumer Forecast Revisions: Is Information Really so Sticky? " was just accepted for publication in Economics Letters . This is a short paper that I believe makes an important point.  Sticky information models are one way of modeling imperfect information. In these models, only a fraction (λ) of agents update their information sets each period. If λ is low, information is quite sticky, and that can have important implications for macroeconomic dynamics. There have been several empirical approaches to estimating λ. With micro-level survey data, a non-parametric and time-varying esti [...]

• Bitcoin Mining and Energy Subsidies: The Case of China
  by Matthew Kahn in Environmental and Urban Economics, 2017-09-14 16:07:00 UTC

  Erin Mansur and I have a well cited 2013 JPUBE paper documenting that energy intensive firms cluster where energy prices are low (the paper has several other ideas!). �Siqi Zheng, Jianfeng Wu and Weizeng Sun and I have a 2017 JUE paper studying China's industrial parks. �In these parks, land, capital and electricity is often subsidized. � Th e NY Times reports today on an obvious synergy of �these two papers. �Energy intensive bitcoin companies in China are locating in cheap energy places and mining the coins. This produces cash and carbon because in places with cheap power in China, the power [...]

• Poor Behavior, Good Behavioral Policies? Double Standards for the North and South
  by Svenja Flechtner in Development Economics, 2017-09-14 10:24:56 UTC

  Behavioral approaches to development economics and policy have gained momentum in recent years. A growing number of papers studying behavior of people in poor countries have been published in top journals, accompanied by the rise of randomized controlled trials (RCTs). In 2015, the World Development Report was dedicated to behavioral and cognitive research and policy. Papers studying how to nudge farmers to use fertilizers or increase savings have become classics in the field. Lots of hope has been placed into social experiments and behavioral policies to fight global poverty . Behavioral pol [...]

2017-09-13

• Financial Regulation and Shadow Banking: A Small-Scale DSGE Perspective
  by Christian Zimmermann in NEP-DGE blog, 2017-09-13 16:32:40 UTC

  By Patrick Fève and Olivier Pierrard http://d.repec.org/n?u=RePEc:tse:wpaper:31822&r=dge In this paper, we revisit the role of regulation in a small-scale dynamic stochastic general equilibrium (DSGE) model with interacting traditional and shadow banks. We estimate the model on US data and we show that shadow banking interferes with macro-prudential policies. More precisely, asymmetric regulation causes a leak towards shadow banking which weakens the expected stabilizing effect. A counterfactual experiment shows that a regulation of the whole banking sector would have reduced investment fluctu [...]

2017-09-12

• Why the central bank should be a leading supervisor
  by Steve Cecchetti and Kim Schoenholtz in Money, Banking and Financial Markets, 2017-09-12 21:19:31 UTC

  “Monetary policy and concerns about the structure and condition of banks and the financial system more generally are inextricably intertwined. […]neither monetary policy nor the financial system will be well served if our central bank is deprived from interest in, and influence over, the structure and performance of the financial system.” Paul A. Volcker, March 17, 2010 . Should central banks be a leading supervisor, including supervising systemically important institutions? This is a question that members of the U.S. Congress periodically raise .  Our answer is unequivocally yes . As the lend [...]

2017-09-11

• Chris Sampson’s journal round-up for 11th September 2017
  by Chris Sampson in The Academic Health Economists' Blog, 2017-09-11 11:00:01 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 . Core items for a standardized resource use measure (ISRUM): expert Delphi consensus survey . Value in Health Published 1st September 2017 Trial-based collection of resource use data, for the purpose of economic [...]

• Lael Brainard: Phillips Curve Confusion
  by Stephen Williamson in Stephen Williamson: New Monetarist Economics, 2017-09-11 00:16:00 UTC

  As background for this piece, you can read this forthcoming St. Louis Fed Review article, "Inflation Control: Do Central Bankers Have It Right?" and/or the accompanying slides from a presentation for the Australasian Macroeconomics Society in Canberra, August 2017. The paper gathers together informal stuff I have written on so-called Neo-Fisherism and monetary policy. Conventional central banking inflation control is typically driven by Phillips curve (PC) theory. Roughly, PC theory says that current inflation increases as the difference between some measure of actual aggregate economic activi [...]

2017-09-09

• A Structural Discrete Choice Model of Amazon's HQ Decision: A Blog Post (not an Econometrica!)
  by Matthew Kahn in Environmental and Urban Economics, 2017-09-09 14:48:00 UTC

  Dating at least back to Dennis Carlton's 1983 RESTAT paper,� � economists have written down an indirect profit equation that measures a given firm's profit if it locates in a given geographic area such as Chicago or Nashville. �Suppose there are 87 of these different locations. �A profit maximizing firm will estimate its profit if it opens its headquarters in each of these locations and then choose the location based on the maximum value across these 87 numbers. Why would a decision maker such as Amazon earn different profit if it builds a headquarters in different locations? 1. the rent it pa [...]

• Immigrants as scapegoats
  by chris in Stumbling and Mumbling, 2017-09-09 12:24:35 UTC

  People who care about things like evidence and prosperity have pointed out that proposals to limit EU immigration after Brexit are bad for the economy . It’s not sufficient, however, merely to point out facts. We must also ask: why – of all the false beliefs it is possible to have about the economy – is the idea that migrants significantly depress wages so widespread and entrenched? In some cases, of course, it’s simply a rationalization of hostility to migrants. Some people would hate immigrants whoever they were and whatever they did. The claim they do economic damage is a cloak for [...]

2017-09-08

• The Amazon HQ City Decision and Lessons for Urban Adaptation to Climate Change
  by Matthew Kahn in Environmental and Urban Economics, 2017-09-08 14:48:00 UTC

  Amazon will soon choose a new location for building its 2nd headquarters. � Chicago may be chosen . �The winning city will receive an influx of high paying jobs and this will boost housing prices, human capital, restaurant demand and tax revenues. �Cities are competing by offering tax breaks. �Will Winner's Curse arise as cities over-pay? Now let me turn to climate change adaptation. �Critics of my free market adaptation work sometimes argue that a large percentage of the population have the wrong beliefs such that these climate deniers under-estimate the risks that a geographic area such as M [...]

2017-09-07

• What Is the "Right" Policy Rate?
  by macroblog in Macroblog, 2017-09-07 17:59:02 UTC

  What is the right monetary policy rate? The Cleveland Fed, via Michael Derby in the Wall Street Journal , provides one answer—or rather, one set of answers: The various flavors of monetary policy rules now out there offer formulas that suggest an ideal setting for policy based on economic variables. The best known of these is the Taylor Rule, named for Stanford University's John Taylor, its author. Economists have produced numerous variations on the Taylor Rule that don't always offer a similar story... There is no agreement in the research literature on a single "best" rule, and diffe [...]

• Goods and Factor Market Integration: A Quantitative Assessment of the EU Enlargement
  by Christian Zimmermann in NEP-DGE blog, 2017-09-07 15:44:13 UTC

  By Lorenzo Caliendo, Luca David Opromolla, Fernando Parro and Alessandro Sforza http://d.repec.org/n?u=RePEc:cep:cepdps:dp1494&r=dge The economic effects from labor market integration are crucially affected by the extent to which countries are open to trade. In this paper we build a multi-country dynamic general equilibrium model with trade in goods and labor mobility across countries to study and quantify the economic effects of trade and labor market integration. In our model trade is costly and features households of different skills and nationalities facing costly forward-looking relocatio [...]

2017-09-04

• More on New p-Value Thresholds
  by Francis Diebold in No Hesitations, 2017-09-04 17:17:00 UTC

  I recently blogged �on a new proposal heavily backed by elite statisticians to "redefine statistical significance", forthcoming in the elite journal Nature Human Behavior . (A link to the proposal appears at the end of this post.)� I have a bit more to say.� It's not just that I find the proposal counterproductive; I have to admit that I also find it genuinely annoying, bordering on offensive. I find it inconceivable that the authors' p<.005 recommendation will affect their own behavior, or that of others like them. They're all skilled statisticians, hardly so naive as to declare a "discov [...]

• Eclipsing LIBOR
  by Steve Cecchetti and Kim Schoenholtz in Money, Banking and Financial Markets, 2017-09-04 12:29:38 UTC

  “…the volume of unsecured wholesale lending has declined markedly…. This development makes LIBOR more susceptible to manipulation, and poses the risk that it may not be possible to publish the benchmark on an ongoing basis if transactions decline further.” FSOC 2016 Annual Report , page 5. The manipulation of the London Interbank Offered Rate (LIBOR) began more than a decade ago. Employees of leading global firms submitted false reports to the British Banking Association (BBA), first to influence the value of LIBOR-linked derivatives, and later (during the financial crisis) to conceal the dete [...]

2017-09-03

• A Few Thoughts About a Paul Krugman Urban Economics Tweet
  by Matthew Kahn in Environmental and Urban Economics, 2017-09-03 14:38:00 UTC

  Dr Krugman tweeted this. � �I am not smart enough to completely see his thoughts embodied in these 140 characters but I am going to try because this raises a fundamental issue in urban economics. �Below, I reproduce his cross-U.S city graph of log population density as a function of log population. I believe that Dr. K wants you to see that "smart growth" progressive cities are above the regression line while sprawling cities such as Houston, Dallas and Atlanta are below the regression line. �So what? A city such as SF (San Fran) has a higher population density than its population would on ave [...]

2017-09-01

• Banking Panics and Output Dynamics
  by Christian Zimmermann in NEP-DGE blog, 2017-09-01 14:50:31 UTC

  By Daniel Sanches http://d.repec.org/n?u=RePEc:fip:fedpwp:17-20&r=dge This paper develops a dynamic general equilibrium model with an essential role for an illiquid banking system to investigate output dynamics in the event of a banking crisis. In particular, it considers the ex-post efficient policy response to a banking crisis as part of the dynamic equilibrium analysis. It is shown that the trajectory of real output following a panic episode crucially depends on the cost of converting long-term assets into liquid funds. For small values of the liquidation cost, the recession associated with [...]

2017-08-31

• Linking the Growth of Globalisation with the Evolution of Transport Technology
  by bbatiz in NEP-HIS blog, 2017-08-31 14:54:51 UTC

  The Rise of American Ingenuity: Innovation and Inventors of the Golden Age By Ufuk Akcigit  (University of Chicago), John Grigsby (University of Chicago) and Tom Nicholas (Harvard Business School) Abstract: We examine the golden age of U.S. innovation by undertaking a major data collection exercise linking historical U.S. patents to state and county-level aggregates and matching inventors to Federal Censuses between 1880 and 1940. We identify a causal relationship between patented inventions and long-run economic growth and outline a basic framework for analyzing key macro and micro-level dete [...]

• Hurricane Harvey's Economic Damage
  by Matthew Kahn in Environmental and Urban Economics, 2017-08-31 13:12:00 UTC

  In a previous post, I wrote about Harvey �and I have also don e a radio interview about the local economics of disasters. �� The key point to keep in mind here is the importance of protecting life in the face of a severe disaster. �The death rate (deaths per million people exposed) is really low and this is wonderful and basic economics predicts this. Look at the cover from today's NY Post. � $160 billion looks like a very big number. �This is the current estimate of the total cost caused by this disaster. But the number doesn't look so big when you remember that the US economy's GNP is 1 9 tr [...]

2017-08-30

• “Resetting the Urban Network,” G. Michaels & F. Rauch (2017)
  by afinetheorem in A Fine Theorem, 2017-08-30 22:59:42 UTC

  Cities have two important properties: they are enormously consequential for people’s economic prosperity, and they are very sticky. That stickiness is twofold: cities do not change their shape rapidly in response to changing economic or technological opportunities (consider, e.g., Hornbeck and Keniston on the positive effects of the Great Fire of Boston ), and people are hesitant to leave their existing non-economic social network ( Deryagina et al show that Katrina victims, a third of whom never return to New Orleans, are materially better off as soon as three years after the hurricane, earn [...]

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