Kimberly Beaton, Bank of Canada: Credit Constraints and Consumer Spending. Consumer spending falls (rises) in response to a reduction (increase) in credit availability. Large changes in credit availability are particularly important for consumers’ spending decisions. These periods tend to be associated with periods of high economic uncertainty. Credit availability should be taken into account when modeling and forecasting consumer spending.
Lillian Cheung et al, Hong Kong Bank: Deteriorating public finances and rising government debt: implications for monetary policy. The sharp rise in government debt in many major economies following the introduction of large fiscal stimulus measures during the global financial crisis of 2008-09 has triggered concerns over its impact on long-term interest rates and the potential negative consequences for future growth and inflation. This paper shows that in the long run, a one-percentage-point increase in the federal debt-to-GDP ratio raises the equilibrium 10-year real US Treasury yield by about six basis points.
Ravi Balakrishnan et al, IMF, WEO: What’s the Damage? Medium-Term Output Dynamics after Financial Crises. This chapter concentrate on medium-term developments following financial crises in advanced, emerging, and developing economies over the past 40 years. The path of output tends to be depressed substantially and persistently following banking crises, with no rebound on average to the precrisis trend over the medium term. Initial conditions have a strong influence on the size of the output loss. What happens to short-term output is also a good predictor of the medium-term outcome. The medium-term output loss is not inevitable. Some economies succeed in avoiding it, ultimately exceeding the precrisis trajectory.
Peter S. Goodman, NYT: U.S. Job Seekers Exceed Openings by Record Ratio. Job seekers now outnumber openings six to one, the worst ratio since the government began tracking open positions in 2000. According to the Labor Department’s latest numbers, from July, only 2.4 million full-time permanent jobs were open, with 14.5 million people officially unemployed.
Lucian A. Bebchuk, Holger Spamann, Harvard University: Regulating Bankers' Pay. Equity-based awards, coupled with the capital structure of banks, tie executives’ compensation to a highly levered bet on the value of banks’ assets. Because bank executives expect to share in any gains that might flow to common shareholders, but are insulated from losses that the realization of risks could impose on preferred shareholders, bondholders, depositors, and taxpayers, executives have incentives to give insufficient weight to the downside of risky strategies. Corporate governance reforms aimed at aligning the design of executive pay arrangements with the interests of banks’ common shareholders cannot eliminate the problem.
Markus Jäger, VoxEU: Will the BRICs (read: China) really become the new global growth engine? Can the BRICs replace the much-touted US consumer as the world’s main growth engine? Jäger says the Chinese economy will continue to increase relative to all others, while the US share of global output will stagnate. But while China’s relative contribution to global growth will increase, it won’t be “driving” growth in the developed economies.
Robert J. Gordon, NBER: Misperceptions about the magnitude and timing of changes in american income inequality. The rise in American inequality has been exaggerated both in magnitude and timing. Commentators lament the large gap between the growth rates of real median household income and of private sector productivity. This paper shows that a conceptually consistent measure of this growth gap over 1979 to 2007 is only one-tenth of the conventional measure. Recent contributions in the inequality literature have raised questions about previous research on skill-biased technical change and the managerial power of CEOs. Directly supporting our theme of prior exaggeration of the rise of inequality is new research showing that price indexes for the poor rise more slowly than for the rich, causing most empirical measures of inequality to overstate the growth of real income of the rich vs. the poor. Further, as much as two-thirds of the post-1980 increase in the college wage premium disappears when allowance is made for the faster rise in the cost of living in cities where the college educated congregate and for the lower quality of housing in those cities.
Dave E. Marcotte et al, NBER: A cure for crime? Psycho-pharmaceuticals and crime trends. We examine limited international data, as well as more detailed American data to assess the relationship between crime rates and rates of prescriptions of the main categories of psychotropic drugs, while controlling for other factors which may explain trends in crime rates. We find that increases in prescriptions for psychiatric drugs in general are associated with decreases in violent crime, with the largest impacts associated with new generation antidepressants and stimulants used to treat ADHD. Our estimates imply that
about 8.5 percent of the recent crime drop was due to expanded mental health treatment.
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