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    This lecture argues that the Global Financial Cycle is a challenge for the validity of the Mundellian trilemma. I present evidence that US monetary policy shocks are transmitted internationally and affect financial conditions even in inflation targeting economies with large financial markets. Hence flexible exchange rates are not enough to guarantee monetary autonomy in a world of large capital flows.

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    A crucial issue in studying social insurance programs is whether they affect work decisions through income or substitution effects. We examine this in the context of U.S. Social Security Disability Insurance (DI), one of the largest social insurance programs in the U.S. The formula linking DI payments to past earnings has discontinuous changes in the marginal replacement rate that allow us to use a regression kink design to estimate the effect of payment size on earnings. Using Social Security Administration data on all new DI beneficiaries from 2001 to 2007, we document a robust income effect of DI payments on earnings. Our preferred estimate is that an increase in DI payments of one dollar causes an average decrease in beneficiaries' earnings of twenty cents. This suggests that the income effect represents an important factor in driving DI-induced reductions in earnings.

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    Card's (1990) study of the Mariel supply shock is an important contribution to the literature that measures the labor market impact of immigration. My recent reappraisal (Borjas, 2015) revealed that even the most cursory reexamination implied that the wage of low-skill (non-Hispanic) working men in Miami declined substantially in the years after Mariel. In the three months since the public release of my paper, there has already been one "re-reappraisal" of the evidence. Peri and Yasenov (2015) make a number of alternative methodological choices that lead them to conclude that Mariel did not have a wage impact. This paper isolates the source of the conflicting results. The main reasons for the divergence are that Peri and Yasenov calculate wage trends in a pooled sample of men and women, but ignore the contaminating effect of increasing female labor force participation. They also include non-Cuban Hispanics in the analysis, but ignore that at least a third of those Hispanics are foreign-born and arrived in the 1980s, further contaminating the calculated wage trend. And, most conspicuously, they include "workers" aged 16-18 in the sample. Because almost all of those "workers" are still enrolled in high school and lack a high school diploma, this very large population of high school students is systematically misclassified as high school dropouts. This fundamental error in data construction contaminates the analysis and helps hide the true effect of the Mariel supply shock.

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    Worldwide, extreme poverty is often concentrated in spaces where people and property are not safe enough to sustain effective markets, and where development assistance is dangerous - and might even induce violence. Expanding governance by coercively taking control of territory may enable markets and development programs, but costs to local residents may exceed benefits, especially if that expansion is violent. We estimate for the first time whether a large counterinsurgency program improves welfare. We exploit the staggered roll-out of the Philippine "Peace and Development Teams" counterinsurgency program, which treated 12% of the population between 2002 and 2010. Though treatment temporarily increased violence, the program progressively reduced child malnutrition: by 10% in the first year, and by 30% from year three onwards. Improved nutritional status was not due to increased health and welfare expenditures, but instead to improved governance. Treatment effects are comparable to those of conventional child health interventions, though conventional programs are likely infeasible in this setting. Rebels apparently react to treatment by shifting to neighboring municipalities, as malnutrition worsens there - with statistically significant 'treatment' effects of similar size. Thus overall program effects are close to zero. These findings invite an evidence-based discussion of governance expansion, an extensive margin of development.

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    This paper proposes a tractable way to model boundedly rational dynamic programming. The agent uses an endogenously simplified, or "sparse," model of the world and the consequences of his actions and acts according to a behavioral Bellman equation. The framework yields a behavioral version of some of the canonical models in macroeconomics and finance. In the life-cycle model, the agent initially does not pay much attention to retirement and undersaves; late in life, he progressively saves more, generating realistic dynamics. In the consumption-savings model, the consumer decides to pay little or no attention to the interest rate and more attention to his income. Ricardian equivalence and the Lucas critique partially fail because the consumer may not pay full attention to taxes and policy changes. In a Merton-style dynamic portfolio choice problem, the agent endogenously pays limited or no attention to the varying equity premium and hedging demand terms. Finally, in the neoclassical growth model, agents act on a simplified model of the macroeconomy; in equilibrium, fluctuations are larger and more persistent.

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    We use 130 years of data on historical migrations to the United States to show a causal effect of the ancestry composition of US counties on foreign direct investment (FDI) sent and received by local firms. To isolate the causal effect of ancestry on FDI, we build a simple reduced-form model of migrations: migrations from a foreign country to a US county at a given time depend on (i) a push factor, causing emigration from that foreign country to the entire United States, and (ii) a pull factor, causing immigration from all origins into that US county. The interaction between time-series variation in country-specific push factors and county-specific pull factors generates quasi-random variation in the allocation of migrants across US counties. We find that a doubling of the number of residents with ancestry from a given foreign country relative to the mean increases by 4.2 percentage points the probability that at least one local firm invests in that country, and increases by 31% the number of employees at domestic recipients of FDI from that country. The size of these effects increases with the ethnic diversity of the local population, the geographic distance to the origin country, and the ethno-linguistic fractionalization of the origin country.

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    The dependent care mandate is one of the most popular provisions of the 2010 Affordable Care Act (ACA). This provision requires that employer-based insurance plans cover health care expenditures for workers with children 26 years old or younger. While there has been considerable scholarly and policy interest in the effects of this mandate on health insurance coverage among young adults, there has been little scholarly work measuring the costs and incidence of this mandate and who pays the costs of it. In our empirical work, we exploit the fact that some states had dependent care mandates in years prior to the passage of the ACA. Using data from the Survey of Income and Program Participation (SIPP), we find that workers at firms with employer-based coverage - whether or not they have dependent children - experience an annual reduction in wages of approximately $1,200. Our results imply that the marginal costs of mandated employer-based coverage expansions are not entirely borne only by the people whose coverage is expanded by the mandate.

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    The decline in the physical stature of the American population for more than a generation beginning with the birth cohorts of the early 1830s was brought about by a diminution in nutritional intake in spite of robust growth in average incomes. This occurred at the onset of modern economic growth on account of rising inequality and an increase in food prices, which brought about dietary changes through the substitution away from edibles toward non-edibles. In a recent working paper, Bodenhorn, Guinnane, and Mroz question this consensus view, suggesting that a decline in heights in a military sample may not be representative of the population at large. They argue that increasing wages in the civilian labor market may well induce an increased proportion of shorter men to volunteer for military service thereby driving down the mean height of soldiers even if the height of the population remains unchanged. However, they neglected to examine whether labor market conditions did actually improve during the Civil War in such a way as to induce shorter men to enlist. Had they done so they would have found just the opposite: during the course of the war real compensation in the military increased by some 39% to 66% relative to civilian earnings. This should have led to an increase in military heights if the logic of their model were accurate, when in fact they declined. Both the historical evidence and an assessment of the model indicate that failing to consider patriotism as a powerful motive for enlisting was another serious error. A thorough analysis of the Union Army height data, considering recruiting periods as short as 90 days during which labor market conditions could not have changed markedly indicates that there can be no doubt at all that the decline in the height of soldiers beginning with the birth cohorts of the early 1830s is representative of the trend in the physical stature of the male population at large. The implication is that there was a widespread diminution in nutritional status of the population in the antebellum period.

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    We provide a tractable theory of innovation and technology diffusion to explore the role of international trade in the process of development. We model innovation and diffusion as a process involving the combination of new ideas with insights from other industries or countries. We provide conditions under which each country's equilibrium frontier of knowledge converges to a Frechet distribution, and derive a system of differential equations describing the evolution of the scale parameters of these distributions, i.e., countries' stocks of knowledge. In particular, the growth of a country's stock of knowledge depends only on its trade shares and the stocks of knowledge of its trading partners. We use the framework to quantify the contribution of bilateral trade costs to cross-sectional TFP differences, long-run changes in TFP, and individual post-war growth miracles.

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    The recent unravelling of the Eurozone's financial integration raised concerns about feedback loops between sovereign and banking insolvency, and provided an impetus for the European banking union. This paper provides a "double-decker bailout" theory of the feedback loop that allows for both domestic bailouts of the banking system by the domestic government and sovereign debt forgiveness by international creditors or solidarity by other countries. Our theory has important implications for the re-nationalization of sovereign debt, macroprudential regulation, and the rationale for banking unions.

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    We discuss a method aimed at reducing the risk that spurious results are published. Researchers send their datasets to an independent third party who randomly generates training and testing samples. Researchers perform their analysis on the former and once the paper is accepted for publication the method is applied to the latter and it is those results that are published. Simulations indicate that, under empirically relevant settings, the proposed method significantly reduces type I error and delivers adequate power. The method - that can be combined with pre-analysis plans - reduces the risk that relevant hypotheses are left untested.

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    We treat rising inequality is an equilibrium outcome in which human capital investment fails to keep pace with rising demand for skills. Investment affects skill supply and prices on three margins: the type of human capital in which to invest; how much to acquire; and the intensity of use. The latter two represent the intensive margins of human capital acquisition and utilization. These choices are substitutes for the creation of new skilled workers, yet they are complementary with each other, magnifying inequality. When skill-biased technical change drives economic growth, greater inequality reduces growth.

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    In what order should a developing country adopt policy reforms? Do some policies complement each other? Do others substitute for each other? To address these questions, we develop a two-country dynamic general equilibrium model with entry and exit of firms that are monopolistic competitors. The model includes barriers to entry of new firms, barriers to international trade, and barriers to contract enforcement. We find that the same reform can have very different effects on other economic outcomes, depending on the types of distortions present. In our model, we find that reforms to trade barriers and barriers to the entry of new firms are substitutable, as are reforms to contract enforcement and trade barriers. In contrast, we find that reforms to contract enforcement and the barriers to entry are complementary. Finally, the optimal sequence of reforms requires reforming trade barriers before contract enforcement.

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    Press release about the "Revised market risk framework and work programme for the Basel Committee" (January 2016)

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    Car manufacturer VW increases annual sales in US and Western Europe despite the emissions scandal.

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    Due to NCC Clearing Bank decision the following risk parameters will be applied:read more...

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    Car giant Jaguar Land Rover is expected to lodge a planning application for a "huge expansion" of its Coventry base, says the city council.

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    London Underground staff are to stage three 24-hour strikes and other industrial action over pay and night Tubes, the RMT says.

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    The trial begins of former Deutsche Bank and Barclays traders accused of rigging a key euro benchmark borrowing rate, Euribor.

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    VTB Capital was ranked first in Dealogic’s FY 2015 league tables in the DCM Bookrunner, ECM Bookrunner and M&A Advisor categories across Russia and CIS.read more...