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- An Over-the-Counter Approach to the FOREX Market
by Christian Zimmermann in NEP-DGE blog, 2015-05-27 20:06:07 UTC
By Athanasios Geromichalos and Kuk Mo Jung
The FOREX market is an over-the-counter market (in fact, the largest in the world) characterized by bilateral trade, intermediation, and significant bid-ask spreads. The existing international macroeconomics literature has failed to account for these stylized facts largely due to the fact that it models the FOREX as a standard Walrasian market, therefore overlooking some important institutional details of this market. In this paper, we build on recent developments in monetary theory and finance to co [...]
- Institutions matter, state legislative committee edition
by Matt Mitchell in Neighborhood Effects, 2015-05-27 17:02:18 UTC
Last week, Mercatus published a new working paper that I coauthored with Pavel Yakovlev of Duquesne University . It addresses an understudied institutional difference between states. Some state legislative chambers allow one committee to write both spending and taxing bills while others separate these functions into two separate committees.
This institutional difference first caught my eye a few years ago when Nick Tuszynski and I reviewed the literature on institutions and state spending . Among 16 different institutions that we looked atâfrom strict balanced budget requirements to term lim [...]
- FED VICE CHAIR FISCHER: 'We should also expect spillovers when monetary policy is tightened'
by Sam Ro in Business Insider, 2015-05-26 16:45:00 UTC
The Federal Reserve can always slow the pace at which it normalizes interest rates. That was the basic message of Fed vice chair Stanley Fischer, who spoke at Tel Aviv University in Israel on Tuesday. "The tightening of U.S. policy will begin only when the U.S. expansion has advanced far enough — when we have seen further improvement in the labor market and when we are reasonably confident that the inflation rate will rise to our 2 percent goal," he said. "The stronger U.S. economy should directly benefit our foreign trading partners by raising the demand for their exports, and perhaps also [...]
- Legitimating bosses
by chris in Stumbling and Mumbling, 2015-05-26 13:37:47 UTC
A front page headline in today's print edition of the FT reads: "Malone close to victory in Charter's $55bn battle for Time Warner Cable."
Why use military terms to describe an everyday commercial transaction? When I bought a pint of milk this morning, I didn't consider it a victory. Why, then, should a takeover be any different - especially as many of them fail badly?
The answer lies in a paper by Olivier Fournot. He shows that one of the tricks bosses use to glamourize and legitimate themselves is to present themselves as Hollywood-type heroes: charismatic, often unorthodox, leaders. The FT' [...]
- Do central banks need capital?
by Steve Cecchetti and Kim Schoenholtz in Money, Banking and Financial Markets, 2015-05-26 12:19:47 UTC
If you ask monetary economists whether we should care if a central bank’s capital level falls below zero (even for an extended period of time), most will say no. Pose the same question to central bank governors, and the answer in nearly every case will be yes. What accounts for this stark difference? How can something that seems not to matter in theory be so important in practice? The economists correctly argue that central banks are fundamentally different from commercial banks, so they can go about their business even if they have negative net worth. However, central bankers know instincti [...]
- The infrastructure financing problem
by firstname.lastname@example.org (Gulzar Natarajan) in Urbanomics, 2015-05-26 02:21:00 UTC
Where does infrastructure financing money come from? I blogged earlier about how, contrary to conventional wisdom, the overwhelmingly dominant share of infrastructure financing comes from bank loans and the bonds have a marginal role. But for China, syndicated loans form the lion's share of infrastructure financing. The total annual infrastructure bonds raised have been around $10-12 bn for all emerging markets excluding China. And about infrastructure debt funds , the amounts raised globally are minuscule compared to the requirement. Just $4.7 bn was raised in �2011, the highest ever raised g [...]
- Want to help the environment? First fix your work-life balance
by Andreas Chai, Senior Lecturer at Griffith University in The Conversation, 2015-05-26 02:00:06 UTC
Take that extra hour off work. Just don't spend it burning coal or petrol. Rawpixel/Shutterstock.com When it comes to climate change, do you practice what you preach? While many of us express strong concern about the issue, there tends to be a yawning gap between this concern and many people’s willingness to actually act on it by doing things like using less power or petrol.
Why should we care about this “value-action gap”? Well for one thing, these practices can make a big difference: up to an estimated 20% of household emissions , according to one US study. Things like using housing i [...]
- How far can cultural differences be traced back?
by noname in ZeeConomics, 2015-05-25 09:26:08 UTC
Cultural differences between countries are quite large, and likely affect differences in economic development. But how did these differences arise in the first place? Consider recent history: it’s not a stretch to believe that Europeans who immigrated to the US were generally individualistic, adventurous, entrepreneurial people who potentially did not fit in well with their existing society; they were possibly non-conformist, less obedient that those who stayed.
Values such as individualism, innovativeness and entrepreneurialism gave these immigrants an edge in the longer term, and this made t [...]
- #tbt Michał Kalecki 1943 Political Aspects of Full Employment
by Mike Isaacson in Vulgar Economics, 2015-05-21 17:00:00 UTC
In the 72 years since its publication, Michał Kalecki's Political Aspects of Full Employment has received little in the way of faithful formalization. The currency it has found has been mostly in grave departures from its premises and conclusions. For the most part, the paper has been treated as if it were a theory of the business cycle. Perhaps the most notable of these endeavors was William Nordhaus' 1975 paper , although a nod to this direction was recognized by Joan Robinson in her 1972 speech at Cambridge. This view generally sees Kalecki's theory as saying that political power determine [...]
- Is Bitcoin Doomed?
by George Selgin in Free Banking, 2015-05-21 13:07:46 UTC
OK, I’m being melodramatic.Â But the question actually posed by the PanAm PostÂ was “Will Bitcoin’s Fixed Money Supply Be Its Downfall?” Â was only slightly less so.Â They had me take the “yes” position.Â But as my doubts about Bitcoin’s future are far from certain,Â I was delighted to see that they got Konrad Graf, a Bitcoin fan who has done some very good work on that cybercurrency’s early development , to oppose me.
The crucial questions, I believe, are whether any exchange medium can become widely adopted without also serving as an economy’s medium of account–that is, the medium to w [...]
- Causal Policy Effects Induced by Disasters
by Matthew Kahn in Environmental and Urban Economics, 2015-05-19 18:01:00 UTC
In the aftermath of the Amtrak train disaster, railroad unions are demanding that a second engineer ride in each train. � This poses an interesting public policy question related to behavioral economics. �A second engineer would be costly to hire and the union would love to have more well paying union jobs. �But, a benefit of the second engineer would be that the probability of a disaster would decline. � A key question is how much would safety be improved by having "four hands on the wheel"? � It has been pointed out that train riding per mile is much safer than auto travel per mile but behav [...]
- Does Technological Progress Lead to more Human Capital Formation? Evidence from the French Industrial Revolution
by nmpostelvinay in NEP-HIS blog, 2015-05-19 16:20:17 UTC
The Complementarity between Technology and Human Capital in the Early Phase of Industrialization
By Raphael Franck (Bar-Ilan University and Brown University, email@example.com) and Oded Galor (Brown University, Oded_Galor@brown.edu)
The research explores the effect of industrialization on human capital formation. Exploiting exogenous regional variations in the adoption of steam engines across France, the study establishes that in contrast to conventional wisdom that views early industrialization as a predominantly desk [...]
- The Euro Area's Debt Hangover
by Stephen G. Cecchetti in Huffington Post Business, 2015-05-19 13:57:53 UTC
This post was co-authored with Kermit Schoenholtz, also an authorized HuffPo blogger, whose name should be added to the byline
The ongoing difficulties in Greece - combined with the ECB's dramatic actions to ward off deflation - are distracting attention from what may be the euro area's biggest and most pervasive problem: debt.
You wouldn't know it from the record low level of government bond yields, but much of Europe lives under a severe debt burden. Nonfinancial corporate debt exceeds 100 percent of GDP in Belgium, Finland, France, Ireland, Luxembourg, Netherlands, Portugal, and Spain. A [...]
- How the global economy determines fertility and families
by Quy-Toan Do in Let's Talk Development, 2015-05-19 13:11:00 UTC
Attempts to understand population growth and the determinants of fertility date as far back as the late 1700s, when Thomas Malthus wrote ‘An Essay on the Principle of Population.’
Postulating that fertility decisions are influenced by women’s opportunity cost of time ( Becker, 1960 ), choice over fertility has been incorporated in more recent times into growth models in order to understand the joint behavior of population and economic development throughout history. The large majority of existing analyses examine individual countries in a closed-economy setting. However, in an era of ev [...]
- Optimal Savings for Retirement: The Role of Individual Accounts
by Christian Zimmermann in NEP-DGE blog, 2015-05-19 01:40:07 UTC
By Julia Le Bland and Almuth Scholl
We employ a life-cycle model with income risk to analyze how tax-deferred individual accounts affect households’ savings for retirement. We consider voluntary accounts as opposed to mandatory accounts with minimum contribution rates. We contrast add-on accounts with carve-out accounts that partly replace social security contributions. Quantitative results suggest that making add-on accounts mandatory has adverse welfare effects across income groups. Carve-out accounts generate positive welfare across all i [...]
- The Very Model of a Modern Monetary Economist
by George Selgin in Free Banking, 2015-05-18 19:38:16 UTC
I’m very well acquaintedâ¦ with matters mathematical,
I understand equations, both the simple and quadratical,
About binomial theorem I’m teeming with a lot o’ news,
With many cheerful facts about the square of the hypotenuse.
I’m very good at integral and differential calculus;
I know the scientific names of beings animalculous:
In short, in matters vegetable, animal, and mineral,
I am the very model of a modern Major-General .
One of the chief goals Catoâs Center for Monetary and Financial Alternatives is to make people aware of alternatives to conventional monetary systemsât [...]
- Regulatory quakes and tremors
by Steve Cecchetti and Kim Schoenholtz in Money, Banking and Financial Markets, 2015-05-18 12:34:05 UTC
If there were a regulatory Richter scale that measured the shaking of the financial system, the 2010 Dodd-Frank Act would register about 8, while the 2011 Basel III framework might be a bit above 7.� (For reference, the 1906 San Francisco earthquake was a 7.8). Fortunately, this shaking is mostly for the better – helping to make the financial system more resilient in the long run. The new “Bailout Prevention Act” of Senators Vitter and Warren also might be an 8 on the shaking scale, but it would be a true disaster, because it undermines the Fed’s role as crisis lender of last resort. I [...]
- Past Evidence on Trends in Within City Health Inequality
by Matthew Kahn in Environmental and Urban Economics, 2015-05-17 14:23:00 UTC
Dora Costa and I have just published an urban economics piece about the trends in the geography of health inequality in major U.S cities 100 years ago. �Here is the source:� AER May 2015 Papers and Proceedings piece. Here is our Intro Today, there is great interest in the geography of opportunity.� Recent research using linked income tax records has documented that poor children born in Atlanta have a lower probability moving up the economic ladder than poor children who grew up in San Jose (Chetty et. al. 2014).�� Such research emphasizes the causal role of “place” as a key factor in dete [...]
- Large Firm Dynamics and the Business Cycle
by Christian Zimmermann in NEP-DGE blog, 2015-05-17 00:48:14 UTC
By Vasco Carvalho and Basile Grassi
Do large firm dynamics drive the business cycle? We answer this question by developing a quantitative theory of aggregate fluctuations caused by firm-level disturbances alone. We show that a standard heterogeneous firm dynamics setup already contains in it a theory of the business cycle, without appealing to aggregate shocks. We offer a complete analytical characterization of the law of motion of the aggregate state in this class of models – the firm size distribution – and show that the resulting closed [...]
- Paul Romer on mathiness
by Noah Smith in Noahpinion, 2015-05-16 16:02:00 UTC
Top growth theorist Paul Romer has an essay �in the AER Papers & Proceedings, in which he comes down harshly "mathiness" in growth theory. "Mathiness" is his term for when people (allegedly) use math in a sloppy way, to support their preferred theories. Romer warns direly that the culture of econ theory has become a lot more tolerant of mathiness: If mathiness were used infrequently,...it would do localized, temporary damage. Unfortunately...as the quantity increases, mathiness could do permanent damage because it takes costly effort to distinguish mathiness from mathematical theory.� The mark [...]
- Paul Romer and microfoundations
by Mainly Macro in Mainly Macro, 2015-05-16 11:15:00 UTC
For economists In an AER P&P paper , Paul Romer talks about many things: a distinction between scientific consensus and political discourse, a divide in growth theory between those that use models based on perfect competition and those using imperfect competition, but mainly the distinction between appropriate mathematical theory and what he calls ‘mathiness’. To better see how these things connect up, and how they could have wider applicability, I suggest reading his blog post first. There he writes: “the problems I identify in growth theory may be of broader interest. If economists can [...]
- How likely is a recession? (And how fast is a forecast?)
by ? in FRED blog, 2015-05-14 13:00:33 UTC
Predicting a recession in real time is difficult, which is why one can make good money with a good forecast. Here, FRED offers one of many such forecasts: a recession probability index computed by Marcelle Chauvet and Jeremy Piger. This forecast is backed up by research the authors have published in the peer-reviewed journals International Economic Review and the Journal of Business and Economic Statistics , with an early St. Louis Fed working paper added here for good measure. As the graph above shows, their forecasting methodâs past performance is impressive; the predicted recession dates [...]
- The El Farol problem goes digital
by Diane Coyle in The Enlightened Economist, 2015-05-13 08:51:47 UTC
I saw this tweet and it immediately reminded me of Brian Arthur’s El Farol equilibrium story.
Please develop an app that simulates Waze recommendations to assess which routes will open up based on everybody else follow Waze.
For those who don’t know it, El Farol is a bar in Santa Fe, where Arthur is based. It has great Irish music but the problem is that it’s no fun if the bar gets too crowded. What is the outcome in this situation where people are trying to choose based on beliefs about what others will choose? There is no ‘deductively rational’ solution to [...]
- 281 – Ranking Environmental Projects Revisited
by David Pannell in Pannell Discussions, 2015-05-12 21:53:43 UTC
In 2013 I put out a set of 20 blog giving practical advice about ranking environmental projects. I’ve upgraded the consolidated report about this to make it even easier to use and more broadly applicable.
My working paper on ranking environmental projects has been quite popular, with about 450 downloads, and I’ve had good feedback from various people who actually used it. I’ve put out a new version of the working paper with lots of small improvements, but with three main ones.
I’ve included two additional ways to estimate the potential benefits of a project. The original paper was based on th [...]
- Wanted: a new Blair
by chris in Stumbling and Mumbling, 2015-05-12 13:12:41 UTC
Labour needs a new Tony Blair.
I mean this in a specific sense. In the 90s, Blair realized that the economy and society had changed and so old-style leftist and rightist policies were no longer relevant; one of the key texts of New Labour was entitled Beyond Left and Right, and Blair repeated the words "new" and "modern" not just as spin, but to emphasize that new times needed new policies.
This is what Labour needs to do now. I mean this in at least four senses.
First, there's the threat (to say the least) of secular stagnation , whereby a lack of monetizable investment opportunities mean sl [...]
- Quotation of the Day…
by Don Boudreaux in Cafe Hayek, 2015-05-12 11:15:25 UTC
Tweet â¦ is from William F. Shughartâs superb 2010 presidential address â â The New Deal and Modern Memory â â to the Southern Economic Association; specifically, it’s from page 538 of the version of Billâs address published in the January 2011 issue of theÂ Southern Economic Journal (citations and footnote deleted):
In addition to price controls and rationing, individuals and businesses faced steeply higher tax rates to help finance the war effort. Â The war years were in short lean years on the home front as well as being a time of mortal peril for husbands, [...]