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- Band or Point Inflation Targeting? An Experimental Approach
by Christian Zimmermann in NEP-DGE blog, 2016-10-24 16:08:23 UTC
BY Camille Cornand and Cheick Kader M’Baye
We conduct laboratory experiments with human subjects to test the rationale of adopting a band versus point inflation targeting regime. Within the standard New Keynesian model, we evaluate the macroeconomic performances of both regimes according to the strength of shocks affecting the economy. We find that when the economy faces small shocks, the average level of inflation as well as its volatility are significantly lower in a band targeting regime, while the output gap and interest rate le [...]
- Policy and Measurement
by Steve Cecchetti and Kim Schoenholtz in Money, Banking and Financial Markets, 2016-10-24 11:57:22 UTC
"When you can measure what you are speaking about, and express it in numbers, you know something about it; but when you cannot measure it, when you cannot express it in numbers, your knowledge is of a meagre and unsatisfactory kind." William Thomson, Lord Kelvin, 1883 . Policy, especially monetary policy, is about numbers. Is inflation close to target? How fast is the economy growing? What fraction of the workforce is employed? And, what is the relationship between the policymakers’ tools and their objectives? Answering all of these questions requires measuring a broad array of economic indic [...]
- 3 professors have a radical idea for how to remove bias from the criminal justice system
by ? in Business Insider, 2016-10-22 12:04:00 UTC
Dan Kitwood/Getty Many experts and politicians believe there is, as Hillary Clinton has said repeatedly, "systematic racism throughout the criminal justice system."
As recently as the first presidential debate, Hillary Clinton made this point a hallmark of her criminal justice agenda. She claimed that to address this disparity and implicit bias, she has earmarked money in her initial budget for "retraining" police.
But is training enough to eliminate racial bias? We don't think so.
Indeed, people of color make up about 30% of the United States' population, but they account for 60% of those imp [...]
- Monetary policy for a bubbly world
by Christian Zimmermann in NEP-DGE blog, 2016-10-21 13:53:58 UTC
By Vladimir Asriyan, Luca Fornaro, Alberto Martin and Jaume Ventura
We propose a model of money, credit and bubbles, and use it to study the role of monetary policy in managing asset bubbles. In this model, bubbles pop up and burst, generating fluctuations in credit, investment and output. Two key insights emerge from the analysis. First, the growth rate of bubbles, which is driven by agents’ expectations, can be set in real or in nominal terms. This gives rise to a novel channel of monetary policy, as changes in the inflation rate affect the [...]
- Is the Fed a firefighter or an arsonist?, by Scott Sumner
by ? in Econlog, 2016-10-20 13:20:17 UTC
Most economists view the Fed as a sort of firefighter, an institution that pushes back against "shocks" that mysteriously arise in the private sector. Bob Hetzel and Josh Hendrickson have a different view. Here's Josh :
The predominant difference between this view and the Taylor view presented above can be expressed in terms of whether the Federal Reserve can be seen as an inflation fighter or an inflation creator, as summarized by Hetzel (2008a). The inflation-fighter view suggests that ''inflation shocks are the initializing factor in inflation'' and ''explanations of inflation stress FOM [...]
- What order? Perturbation methods for stochastic volatility asset pricing and business cycle models
by Christian Zimmermann in NEP-DGE blog, 2016-10-19 15:18:01 UTC
By Oliver de Groot
When a DSGE model features stochastic volatility, is a third-order perturbation approximation sufficient? The answer is often no. A key parameter – the standard deviation of stochastic volatility innovations – does not appear in the coefficients of the decision rules of endogenous variables until a fourth- or sixth-order perturbation approximation (depending on the functional form of the stochastic volatility process). This paper shows analytically this general result and demonstrates, using three models, that important mode [...]
- The Richness of Giving: Charity Selection and Charitable Gifts in a Large Field Experiment
by maximorossi in NEP-LTV blog, 2016-10-19 14:27:57 UTC
Daniel Lee ; John List ; Michael Price ; Shachar Kariv
We build on previous work in the charitable giving literature by examining not only how much subjects give to charity, but also which charities subjects prefer. We operationalize this choice in an artefactual field experiment with a representative sample of respondents. We then use these data to structurally model motives for giving. The novelty of this design allows us to ask several interesting questions regarding the choices one undertakes when deciding both whether and how much to give to charity. Further, we ask these q [...]
- Earnings among Nine Ethnic Minorities and the Han Majority in Chinaâs Cities
by maximorossi in NEP-LTV blog, 2016-10-19 14:27:14 UTC
Gustafsson, Björn Anders (University of Gothenburg) ; Yang, Xiuna (China Development Research Foundation)
This paper asks if economic growth and steps towards a market economy have affected earnings gaps between the Han and nine large urban ethnic minorities: Zhuang, Hui, Manchurian, Tujia, Uighur, Miao, Tibetan, Mongol and Korean. It also asks how earnings premiums and earnings penalties have changed for the nine ethnic minorities. For the analysis we use a subsample of the 2005 China’s Inter-Census Survey. We find examples of three different changes over time in earnings premi [...]
- Inequality Aversion and Marginal Income Taxation
by maximorossi in NEP-LTV blog, 2016-10-19 14:26:31 UTC
Aronsson, Thomas (Department of Economics, Umeå School of Business and Economics, Umeå University) ; Johansson-Stenman, Olof (Department of Economics, School of Business, Economics and Law, Göteborg University)
This paper deals with tax policy responses to inequality aversion by examining the first-best Pareto-efficient marginal tax structure when people are inequality averse. In doing so, we distinguish between four different and widely used models of inequality aversion. The results show that empirically and experimentally quantified degrees of inequality aversion have potenti [...]
- On the measurement of long-run income inequality. Empirical evidence from Norway, 1875-2013
by maximorossi in NEP-LTV blog, 2016-10-19 14:25:50 UTC
Rolf Aaberge ; Anthony B Atkinson ; Jørgen Modalsli (Statistics Norway)
In seeking to understand inequality today, a great deal can be learned from history. However, there are few countries for which the long-run development of income inequality has been charted. Many countries have records of incomes, taxes and social support. This paper presents a new methodology constructing income inequality indices from such tabular data. The methodology is applied to Norway, for which rich historical data sources exist covering the period 1875 to 2013. Taking careful account of the definit [...]
- Fiscal Policy, Inequality and the Poor in the Developing World
by maximorossi in NEP-LTV blog, 2016-10-19 14:25:05 UTC
Nora Lustig (Department of Economics, Tulane University)
Using comparable fiscal incidence analysis, this paper examines the impact of fiscal policy on inequality and poverty in twenty-five countries for around 2010. Success in fiscal redistribution is driven primarily by redistributive effort (share of social spending to GDP in each country) and the extent to which transfers/subsidies are targeted to the poor and direct taxes targeted to the rich. While fiscal policy always reduces inequality, this is not the case with poverty. Fiscal policy increases poverty in four countries [...]
- Bootstrapping DSGE models
by Christian Zimmermann in NEP-DGE blog, 2016-10-17 14:10:45 UTC
By Giovanni Angelini, Giuseppe Cavaliere and Luca Fanelli
This paper explores the potential of bootstrap methods in the empirical evaluation of dynamic stochastic general equilibrium (DSGE) models and, more generally, in linear rational expectations models featuring unobservable (latent) components. We consider two dimensions. First, we provide mild regularity conditions that suffice for the bootstrap Quasi-Maximum Likelihood (QML) estimator of the structural parameters to mimic the asymptotic distribution of the QML estimator. Consisten [...]
- Rewriting the textbook: covered interest parity
by Steve Cecchetti and Kim Schoenholtz in Money, Banking and Financial Markets, 2016-10-17 12:50:11 UTC
“Toto, I’ve a feeling we’re not in Kansas anymore.” Dorothy in The Wizard of Oz For decades, textbooks on international economics and finance built a part of their scaffolding on the foundation of a relationship called covered interest parity (CIP). CIP postulates that, in a world of free capital flows, currency-hedged returns on equivalent-risk assets will equalize across countries. For example, the return to investing in a 1-year U.S. Treasury bill will equal the return to purchasing euros, investing the proceeds in a 1-year German Government liability, and purchasing a contr [...]
- Independence at the CFPB and the Fed
by email@example.com (Carola) in Quantitative Ease, 2016-10-15 19:42:00 UTC
One of my major motivations in starting this blog a few years ago was to have a space to grapple with the topic of central bank independence and accountability. One of the most important things I have learned since then is that independence and accountability are highly multi-dimensional concepts; different institutions can be granted different types of independence, and can fail to be accountable in countless ways. As a corollary, nominal or de jure independence does not guarantee de facto independence. Likewise, an institution may be accountable in name only. A recent ruling by the U.S. Cou [...]
- The New Normal
by thebusinesscycleblog in The business cycle blog, 2016-10-15 15:07:31 UTC
Research on the how demographics may have shaped recent trends in economic growth and real interest rates by Etienne Gagnon, Benjamin K. Johannsen, and J. David Lopez-Salido here [...]
- Foreign Official Holdings of U.S Treasuries, Stock Effect and the Economy: A DSGE Approach
by Christian Zimmermann in NEP-DGE blog, 2016-10-15 15:02:38 UTC
John Nana Francois
Previous studies focus on quantifying the effect of foreign official holdings of long-term U.S Treasuries (FOHL) on the long-term interest rate. The consensus is that FOHL has a large and negative effect on the long-term interest rate. The long-term interest rate matters in determining aggregate demand, (Andres et al., 2004). However, these studies discount the macroeconomic implications of FOHL on the U.S economy. This paper extends the literature and studies the macroeconomic implications of FOHL shocks through their imp [...]
- The Earned Income Tax Credit: Targeting the Poor but Crowding Out Wealth
by Christian Zimmermann in NEP-DGE blog, 2016-10-13 19:17:26 UTC
By Maren Froemel and Charles Gottlieb
In this paper, we quantify the effects of the Earned Income Tax Credit (EITC) from a macroeconomic perspective. We use an incomplete markets model to analyze jointly the labor supply and saving responses to changes in tax credit generosity and their aggregate and distributional implications. In line with existing literature, our results show that the EITC is an effective policy instrument to raise labor force participation and provide insurance to working poor households. However, we show that the EITC als [...]
- Social science does not reward citing outside the field
by dan in Decision Science News, 2016-10-13 03:48:55 UTC
THE SOCIAL AND NATURAL SCIENCES DIFFER IN THIS REGARD
We have talked in the past about how economics does not cite other fields much (see Pieters and Baumgartner, 2002 ). Are authors rewarded for writing papers this way? In social science, the answer seems to be yes.
A recent article in Plos One “The Impact of Boundary Spanning Scholarly Publications and Patents” by Xiaolin Shi, Lada A. Adamic, Belle L. Tseng, and Gavin S. Clarkson looks at the correlations between a paper’s impact and whether it cites within or across fields:
The question we ask is simple: given the proximity in subject ar [...]
- Pro-Basketball Player Demand for the New Urban Lifestyle
by Matthew Kahn in Environmental and Urban Economics, 2016-10-12 14:41:00 UTC
Fifteen years ago, Amazon's Pat Bajari and I started to work together on an urban economics paper studying household choice of housing type (i.e number or rooms, building year built) and neighborhood within major metropolitan areas. �At first, we assumed that a household head already had a job and then searched for a place to live. �This sequential approach would have greatly helped us because if people work in different locations, then the same neighborhood offers a different length commute for different people. This variation is very useful for allowing an economist to estimate the disutilit [...]
- Debt forgiveness in the German mirror
by nmpostelvinay in NEP-HIS blog, 2016-10-12 12:55:09 UTC
The Economic Consequences of the 1953 London Debt Agreement
By Gregori Galofré-Vilà (Oxford), Martin McKee (London School of Hygiene and Tropical Medicine), Chris Meissner (UC Davis) and David Stuckler (Oxford)
Abstract: In 1953 the Western Allied powers implemented a radical debt-relief plan that would, in due course, eliminate half of West Germany’s external debt and create a series of favourable debt repayment conditions. The London Debt Agreement (LDA) correlated with West Germany experiencing the highest rate of economic growth recorded in Europe in the 1950s and 1960s. In this paper we [...]
- The Fiscal Multiplier in Small Open Economy: The Role of Liquidity Frictions
by Christian Zimmermann in NEP-DGE blog, 2016-10-11 14:27:15 UTC
By Jasmin Sin
This paper studies the fiscal multiplier using a small-open-economy DSGE model enriched with financial frictions. It shows that the multiplier is large when frictions are present in domestic and international financial markets. The reason is that in the model government bonds are more liquid than private financial assets and that entrepreneurs face liquidity constraints. A bond-financed fiscal expansion eases these constraints and stimulates investment and hence growth. This mechanism, however, breaks down under the assumption [...]
- 299 â Are higher house prices a benefit or a problem?
by David Pannell in Pannell Discussions, 2016-10-10 15:00:12 UTC
In the research reported in PD298 , we used the impact on house prices as an indicator of the benefits of an investment in a public amenity. This is a well-established approach, but twice in recent times I’ve encountered an attitude that higher house prices are more of a cost than a benefit. Could that be right?
The issue that people have in mind when they raise this concern is housing affordability. This certainly is something that is worthy of attention. House prices in many parts of Australia (and other developed countries) are often so high that they place great financial stress on buyers [...]
- Clinton versus Trump on Financial Regulation
by Steve Cecchetti and Kim Schoenholtz in Money, Banking and Financial Markets, 2016-10-10 12:51:08 UTC
Will the U.S. Presidential election have an impact on financial regulation? The answer depends on who becomes President, the priorities of the winner, and the inclinations of the Congress. That said, we thought it would be useful to examine what the candidates say they will do. To summarize, we find Republican nominee Trump’s call to “dismantle Dodd-Frank” deeply troubling. By comparison, our differences with Democratic nominee Clinton are relatively minor. Let’s start with Donald Trump. It is difficult to identify more than general statements regarding nominee Trump’s views on financial regul [...]
- Gasoline Prices, Transport Costs, and the U.S. Business Cycles
by Hakan Yilmazkuday in Hakan Yilmazkuday's Blog, 2016-10-10 00:35:00 UTC
� Gasoline Prices, Transport Costs, and the U.S. Business Cycles One sentence summary : Technology and monetary policy shocks have significant effects on the U.S. business cycles in the long run, while gasoline supply and demand shocks play an important role in the short run. The corresponding paper by Hakan Yilmazkuday has been published at Journal of Economic Dynamics and Control . The working paper version is available here. Abstract The effects of gasoline prices on the U.S. business cycles are investigated. In order to distinguish between gasoline supply and gasoline demand shocks, the pr [...]
- When to distrust elites
by chris in Stumbling and Mumbling, 2016-10-08 10:30:15 UTC
Whom should we trust: elites or the people? I’m in two minds here.
On the one hand, on the issues of immigration and Brexit , I’m with the elites.
But in other respects, I’m on the side of the people. I’ve repeatedly argued for worker democracy against managerialism, and have consistently pointed out the shortcomings of professional fund managers. And I’ve pointed out that popular opinion – as measured by ratios (pdf) of consumer spending to asset prices – can do a better job of forecasting future economic conditions than professional forecasters can manage .
So, am I just confused?
No. There [...]
- Socializing investment
by chris in Stumbling and Mumbling, 2016-10-07 12:49:18 UTC
Philip Hammond promised this week “to renew and expand Britain’s infrastructure”. This might represent a return to Keynesianism in more ways than one.
The obvious sense is that he’ll be using fiscal policy counter-cyclically, supporting the economy during a time of Brexit-induced uncertainty; economists expect real GDP growth of only 0.7 per cent next year, well below long-term averages.
But there’s another sense. Keynes also looked forward to “a somewhat comprehensive socialisation of investment.” Hammond might push us in this direction.
My chart, taken from ONS and OBR data, puts this into [...]