Kelly Evans, WSJ blog: The recession might be over, but how goes the recovery? We posed that question to two prominent Wall Street economists with two very different views of 2010. Bruce Kasman, chief economist at J.P. Morgan, sees the U.S. growing at about a 3.5% pace for most of next year. That appears optimistic compared to Jan Hatzius, chief economist at Goldman Sachs, who sees gross domestic product growth of 2% or so at the start of the year tapering off to just 1.5% by year-end.
Stephen Cecchetti et al, VoxEU: Financial crises are different! Reinhart and Rogoff have drawn lessons from previous financial crises to predict the dismal fallout from the current crisis. We analyse 40 systemic banking crises in 35 countries and find substantial variation. This financial crises stands out. But the variation in past experiences suggests that the major economies may regain their pre-crisis levels of output by the second half of 2010.
Paul Krugman, NYT blog: Adjustment and the dollar: To narrow international imbalances, we need a lower relative price of US output. Because prices are sticky, by far the easiest way to get there is dollar depreciation.
Joseph Stiglitz, National Interest: Death Cometh for the Greenback. The current system is simply unsustainable no matter how many cries on Wall Street there are to the contrary. Countries will be more and more reluctant to lend to the United States at the favorable terms that they have in the past, while the disadvantages associated with global instability may be mounting. We will be moving away from current arrangements, the dollar-reserve system. There are only two questions: will the movement away be orderly or disorderly, and will America play a part in shaping the new system that will emerge?
Deniz Igan et al, IMF: Three Cycles. Housing, Credit, and Real Activity. We examine the characteristics and comovement of cycles in house prices, credit, real activity and interest rates in advanced economies during the past 25 years, using a dynamic generalized factor model. House price cycles generally lead credit and business cycles over the long term, while in the short to medium term the relationship varies across countries. Interest rates tend to lag other cycles at all time horizons. While global factors are important, the U.S. business cycle, house price cycle and interest rate cycle generally lead the respective cycles in other countries over all time horizons, while the U.S. credit cycle leads mainly over the long term.
Lisa B. Kahn, Yale: The Long-Term Labor Market Consequences of Graduating from College in a Bad Economy. Labor market consequences of graduating from college in a bad economy are large, negative and persistent. Those who graduate in bad economies may suffer from underemployment and are more likely to experience job mismatching since they have fewer jobs from which to choose. The disadvantage may persist if the importance of early labor market experience outweighs the later benefit of a better economy for factors such as promotions and training. Cohorts who graduate in worse national economies are in lower level occupations, have slightly higher tenure and higher educational attainment, while labor supply is unaffecte.
The Danish Economic Council: The Danish Economy. There are several reasons to expect a slow recovery, and that it will take years before the Danish production is at the same level as before the crisis. Important reasons are that households have suffered considerable wealth losses, that public finances have deteriorated which implies a need for fiscal consolidation and that there still is a considerable need for consolidation in the financial sector. The chairmanship recommends further fiscal easing next year than already planned for. Denmark is in need of a new plan to ensure long run fiscal sustainability. Early retirement in Denmark should be the main focus with regard to improve the fiscal sustainability.
Barry Eichengreen, Douglas A. Irwin, NBER: The Slide to Protectionism in the Great Depression: Who Succumbed and Why? The Great Depression was a breeding ground for protectionism. Those countries that clung to the gold standard were more likely to restrict trade than those that abandoned it. Without the flexibility to depreciate their currencies, they turned to trade restrictions in hopes that these would boost their domestic industries and curb unemployment. Had more countries been willing to abandon the gold standard and use monetary policy to counter the slump, fewer would have been driven to impose trade restrictions.
Shawn Kantor, Alexander Whalley, NBER: Do Universities Generate Agglomeration Spillovers? Evidence from Endowment Value Shocks. Using data on university endowments and stock market variation to proxy for university spending on research, K/W find that a 10 percent increase in higher education spending increases local labor income outside of the education sector by about 0.5 percent. Comparing this spillover to the results in related studies, they conclude that university activity does not appear to make a place any more productive than other forms of economic activity. However, the spillover effect of university spending is significantly larger for firms that are "technologically closer" to universities.
Andrew Gelman et al, Columbia: Inequality and Poverty: American and International Perspectives. Income inequality in the United States has risen during the past several decades. Has this produced an increase in partisan voting differences between rich and poor? We examine trends from the 1940s through the 2000s in the country as a whole and in the states. We find no clear relation between income inequality and class-based voting.
Shankar Vedantam, WPost: Persistence of Myths Could Alter Public Policy Approach. The conventional response to myths and urban legends, for example about the flu vaccine, is to counter bad information with accurate information. But the new psychological studies show that denials and clarifications, for all their intuitive appeal, can paradoxically contribute to the resiliency of popular myths.
Michael Lewis, Vanity Fair: Wall Street on the Tundra. Icelands economic cataclysm has at least one upside: Iceland is now the world leader in terms of gender equality. But Iceland’s rise from fourth place in the gender equality stakes to first adds weight to what might be called the Dumb Male Theory of Iceland’s collapse. The theory holds that 1. men are instinctively and destructively overconfident when investing 2. Iceland’s banks allowed men to explore those dismal investment instincts on a global scale.
Olivia Hudson, NYT: A Language of Smiles. Do some languages predispose — in a subtle way — their speakers to be merrier than the speakers of other languages? A set of experiments investigating the effects of facial movements on mood used different vowel sounds as a stealthy way to get people to pull different faces. The results showed that if you read aloud a passage full of vowels that make you scowl — the German vowel sound ü, for example — you’re likely to find yourself in a worse mood than if you read a story similar in content but without any instances of ü. Similarly, saying ü over and over again generates more feelings of ill will than repeating a or o.
Friday, October 30, 2009
Friday, October 23, 2009
OCTOBER 23 2009
David Altig, Fed Atlanta: The growing case for a jobless recovery. Companies across the US economy are holding off on hiring even as the profit outlook improves, amid economic uncertainty and their own success at raising productivity in rough waters.
Claudia R. Sahm, Matthew D. Shapiro, Joel B. Slemrod, Sahm, Slemrod, NBER: Household Response to the 2008 Tax Rebate: Survey Evidence and Aggregate Implications. Only about one-fifth of respondents in the Reuters/University of Michigan survey report that the US 2008 tax rebates led them to mostly increase spending, while over half said it would lead them to mostly pay off debt. The results imply that the rebates provided only a modest stimulus to spending per dollar of rebate.
Kristie M. Engemann, Howard J. Wall, Fed St Louis: The Effects of Recessions Across Demographic Groups. The burdens of a recession are not spread evenly across demographic groups. Men accounted for more than three quarters of net job losses. The employment of single people fell at more than twice the rate that it did for married people, while black employment fell at one-and-a-half times the rate that white employment did. The employment change during the recession has been greatest for those without a high school diploma.
A.B Atkinson, University of York: Economics as a Moral Science. Inaugural Joseph Rowntree Foundation Lecture. Economy should be thought of as a moral science. One way of representing this is to say that market employment is a “merit good”. The employment target may therefore be rationalised in terms of social integration, to reduce social exclusion.
Howard Lempel et al, Brookings: Economic Cost and Health Care Workforce Effects of School Closures in the U.S. Closing schools in the United States for four weeks would reduce U.S. GDP by between $10 and $47 billion dollars, a cost equivalent to 0.1% to 0.3% of 2008 U.S. GDP. In addition, such a policy could lead to the absence of 6-19% of relevant healthcare personnel just when these workers are most needed, when incidence is high. Multiplier effect brought about by a multi-billion dollar decline in economic outpup can be substantially larger. These estimates have to be compared with the epidemiological benefits of school closure.
Mathias Trabandt, Harald Uhlig, NBER: How Far Are We From The Slippery Slope? The Laffer Curve Revisited. We analyze the Laffer curves for labor taxation and capital income taxation quantitatively for the US, the EU-14 and individual European countries by comparing the balanced growth paths of a neoclassical growth model. US can increase tax revenues by 30% by raising labor taxes and 6% by raising capital income taxes. For the EU-14 we obtain 8% and 1%. Denmark and Sweden are on the wrong side of the Laffer curve for capital income taxation.
Hans de Zwart, NL: The European Human Capital Index: Why I Should Move to Sweden and avoid Italy
Lee E. Ohanian, VoxEU: Herbert Hoover and the start of the Great Depression. What started the Great Depression? The industrial decline began before monetary contraction or banking panics – the conventional culprits – took hold. Ohanian attributes the massive drop in manufacturing hours to President Hoover’s labour policies, which kept nominal and real wages high.
Roland G. Fryer, Jr, Steven D. Levitt, NBER: An Empirical Analysis of the Gender Gap in Mathematics. Girls in the US do appear to lag behind boys in math, at least in the early years of schooling. Early Childhood Longitudinal Study Kindergarten Cohort show that upon entering kindergarten, the girls have about the same math ability as the boys. But by fifth grade, the girls are, on average, two and a half months behind. F/L explore a wide range of possible explanations in the U.S. data, including less investment by girls in math, low parental expectations, and biased tests, but find little support for any of these theories. Their attempts to find an answer in the data are, as they put it, a “failure.”
Robert Goodland and Jeff Anhang, Worldwatch Institute: Livestock and Climate Change. The environmental impact of the lifecycle and supply chain of animals raised for food has been vastly underestimated, and in fact accounts for at least half of all human-caused greenhouse gases (GHGs),
Robert T. Hodgson, Journal of Wine Economics: An Analysis of the Concordance Among 13 U.S. Wine Competitions. An analysis of the number of wine Gold medals received in multiple competitions indicates that the probability of winning a Gold medal at one competition is stochastically independent of the probability of receiving a Gold at another competition, indicating that winning a Gold medal is greatly influenced by chance alone.
Stephen Coate et al, Cornell University: Pet Overpopulation: An Economic Analysis. This paper develops a tractable dynamic model whose positive predictions square well with key features of the current U.S. market for pets. The model is used to understand, from a welfare economic perspective, the sense in which there is “overpopulation" of pets and the underlying causes of the problem. The paper also employs the model to consider what policies might be implemented to deal with the problem. A calibrated example is developed to illustrate these corrective policies and quantify the welfare gains they produce. A strategy is to work on the demand side taxing the sale of pure breed puppies or kittens.
Claudia R. Sahm, Matthew D. Shapiro, Joel B. Slemrod, Sahm, Slemrod, NBER: Household Response to the 2008 Tax Rebate: Survey Evidence and Aggregate Implications. Only about one-fifth of respondents in the Reuters/University of Michigan survey report that the US 2008 tax rebates led them to mostly increase spending, while over half said it would lead them to mostly pay off debt. The results imply that the rebates provided only a modest stimulus to spending per dollar of rebate.
Kristie M. Engemann, Howard J. Wall, Fed St Louis: The Effects of Recessions Across Demographic Groups. The burdens of a recession are not spread evenly across demographic groups. Men accounted for more than three quarters of net job losses. The employment of single people fell at more than twice the rate that it did for married people, while black employment fell at one-and-a-half times the rate that white employment did. The employment change during the recession has been greatest for those without a high school diploma.
A.B Atkinson, University of York: Economics as a Moral Science. Inaugural Joseph Rowntree Foundation Lecture. Economy should be thought of as a moral science. One way of representing this is to say that market employment is a “merit good”. The employment target may therefore be rationalised in terms of social integration, to reduce social exclusion.
Howard Lempel et al, Brookings: Economic Cost and Health Care Workforce Effects of School Closures in the U.S. Closing schools in the United States for four weeks would reduce U.S. GDP by between $10 and $47 billion dollars, a cost equivalent to 0.1% to 0.3% of 2008 U.S. GDP. In addition, such a policy could lead to the absence of 6-19% of relevant healthcare personnel just when these workers are most needed, when incidence is high. Multiplier effect brought about by a multi-billion dollar decline in economic outpup can be substantially larger. These estimates have to be compared with the epidemiological benefits of school closure.
Mathias Trabandt, Harald Uhlig, NBER: How Far Are We From The Slippery Slope? The Laffer Curve Revisited. We analyze the Laffer curves for labor taxation and capital income taxation quantitatively for the US, the EU-14 and individual European countries by comparing the balanced growth paths of a neoclassical growth model. US can increase tax revenues by 30% by raising labor taxes and 6% by raising capital income taxes. For the EU-14 we obtain 8% and 1%. Denmark and Sweden are on the wrong side of the Laffer curve for capital income taxation.
Hans de Zwart, NL: The European Human Capital Index: Why I Should Move to Sweden and avoid Italy
Lee E. Ohanian, VoxEU: Herbert Hoover and the start of the Great Depression. What started the Great Depression? The industrial decline began before monetary contraction or banking panics – the conventional culprits – took hold. Ohanian attributes the massive drop in manufacturing hours to President Hoover’s labour policies, which kept nominal and real wages high.
Roland G. Fryer, Jr, Steven D. Levitt, NBER: An Empirical Analysis of the Gender Gap in Mathematics. Girls in the US do appear to lag behind boys in math, at least in the early years of schooling. Early Childhood Longitudinal Study Kindergarten Cohort show that upon entering kindergarten, the girls have about the same math ability as the boys. But by fifth grade, the girls are, on average, two and a half months behind. F/L explore a wide range of possible explanations in the U.S. data, including less investment by girls in math, low parental expectations, and biased tests, but find little support for any of these theories. Their attempts to find an answer in the data are, as they put it, a “failure.”
Robert Goodland and Jeff Anhang, Worldwatch Institute: Livestock and Climate Change. The environmental impact of the lifecycle and supply chain of animals raised for food has been vastly underestimated, and in fact accounts for at least half of all human-caused greenhouse gases (GHGs),
Robert T. Hodgson, Journal of Wine Economics: An Analysis of the Concordance Among 13 U.S. Wine Competitions. An analysis of the number of wine Gold medals received in multiple competitions indicates that the probability of winning a Gold medal at one competition is stochastically independent of the probability of receiving a Gold at another competition, indicating that winning a Gold medal is greatly influenced by chance alone.
Stephen Coate et al, Cornell University: Pet Overpopulation: An Economic Analysis. This paper develops a tractable dynamic model whose positive predictions square well with key features of the current U.S. market for pets. The model is used to understand, from a welfare economic perspective, the sense in which there is “overpopulation" of pets and the underlying causes of the problem. The paper also employs the model to consider what policies might be implemented to deal with the problem. A calibrated example is developed to illustrate these corrective policies and quantify the welfare gains they produce. A strategy is to work on the demand side taxing the sale of pure breed puppies or kittens.
Friday, October 16, 2009
OCTOBER 16 2009
Maurice Obstfeld, Kenneth Rogoff, UCLA/Harvard: Global Imbalances and the Financial Crisis: Products of Common Causes: Both have their origins in economic policies followed in a number of countries in the 2000s and in distortions that influenced the transmission of these policies through U.S. and ultimately through global financial markets. In the U.S., the interaction among the Fed’s monetary stance, global real interest rates, credit market distortions, and financial innovation created the toxic mix of conditions making the U.S. the epicenter of the global financial crisis. Outside the U.S., exchange rate and other economic policies followed by emerging markets such as China contributed to the United States’ ability to borrow cheaply abroad and thereby finance its unsustainable housing bubble. The global imbalances did not cause the leverage and housing bubbles, but they were a critically important codeterminant.
Ravi Jagannathan et al, NBER: Why are we in a recession? The financial crisis is the symptom not the disease! We argue that the large increase in the developed world’s labor supply, triggered by geo-political events and technological innovations, is the major underlying cause of the global macro economic imbalances that led to the great recession. The inability of existing institutions in the US and the rest of the world to cope with this shock set the stage for the great recession: The inability of emerging economies to absorb savings through domestic investment and consumption due to inadequate national financial markets and difficulties in enforcing financial contracts; the currency controls motivated by immediate national objectives; and the inability of the US economy to adjust to the perverse incentives caused by huge money inflows leading to a breakdown of checks and balances at various financial institutions. A sustainable recovery will only occur when the natural flow of capital from developed to developing nations is restored.
Christian Broda et al, VoxEU: The new global balance – Part II: Higher rates rather than weaker dollar in 2010. Many expect the dollar to continue to depreciate over the foreseeable future. But it may strengthen in 2010 if the Federal Reserve exits quantitative easing sooner than its counterparts and the US economy enjoys a strong rebound.
C. Fred Bergsten, Forein Affairs: The Dollar and the Deficits. The global economic crisis has revealed the folly of large U.S. budget and trade deficits, as well as of the strong dollar that makes them possible. If it is serious about recovery, the United States must balance the budget, stimulate private saving, and embrace a declining dollar. Any sudden stop in lending to the United States would drive the dollar down, push inflation and interest rates up, and perhaps bring on a hard landing for the United States -- and the world economy at large.
Larry Summers, White House Blog: Despite the extraordinary depth of this most recent crisis, the pattern it followed – a pattern in which instability emanating from the financial sector ultimately resulted in hundreds of thousands of middle class families who had nothing to do with the financial sector losing their jobs or much of the their savings – is disturbingly familiar.
Richard Kilbride, ING: A Long Slog to Fix Unemployment. As things recover, companies are likely to extend the work week of part-timers. Raising the average work week from 33 hours, which it is now, to 33.8 hours, where it was at the start of the recession, would be equivalent to hiring 3 million workers. However, this would only be adding hours, not adding new jobs. This is not good news for the new entrants to the labor market, or for the 4 million out of work from retail, construction, manufacturing or finance. As Bruce Springsteen said “These jobs are gone and they ain’t comin’ back.”
George J. Borjas, Rachel M. Friedberg, NBER: Recent trends in the earnings of new immigrants to the United States. While there was a continuous decline in the earnings of new immigrants 1960-1990, the trend reversed in the 1990s, with newcomers doing as well in 2000, relative to natives, as they had 20 years earlier. This improvement in immigrant performance is not explained by changes in origin-country composition, educational attainment or state of residence. Changes in labor market conditions, including changes in the wage structure which could differentially impact recent arrivals, can account for only a small portion of it. The upturn appears to have been caused in part by a shift in immigration policy toward high-skill workers matched with jobs, an increase in the earnings of immigrants from Mexico, and a decline in the earnings of native high school dropouts. However, most of the increase remains a puzzle.
Douglas Elmendorf, CBO: The Economic Effects of Policies to Reduce Greenhouse-Gas Emissions. Cap-and-trade would reduce US GDP below what it would otherwise have been—by roughly ¼ to ¾ percent in 2020 and by between 1 and 3½ percent in 2050.
Anthony B. Atkinson, Thomas Piketty, Emmanuel Saez, NBER: Top incomes in the long run of history. Most countries experience a dramatic drop in top income shares in the first part of the 20th century in general due to shocks to top capital incomes during the wars and depression shocks. Top income shares do not recover in the immediate post war decades. However, over the last 30 years, top income shares have increased substantially in English speaking countries and in India and China but not in continental Europe countries or Japan. This increase is due in part to an unprecedented surge in top wage incomes. As a result, wage income comprises a larger fraction of top incomes than in the past.
David Runciman, LRB: How messy it all is. Among rich countries, the more unequal ones do worse according to almost every quality of life indicator you can imagine (The Spirit Level). They do worse even if they are richer overall, so that per capita GDP turns out to be much less significant for general wellbeing than the size of the gap between the richest and poorest 20 per cent of the population
Ravi Jagannathan et al, NBER: Why are we in a recession? The financial crisis is the symptom not the disease! We argue that the large increase in the developed world’s labor supply, triggered by geo-political events and technological innovations, is the major underlying cause of the global macro economic imbalances that led to the great recession. The inability of existing institutions in the US and the rest of the world to cope with this shock set the stage for the great recession: The inability of emerging economies to absorb savings through domestic investment and consumption due to inadequate national financial markets and difficulties in enforcing financial contracts; the currency controls motivated by immediate national objectives; and the inability of the US economy to adjust to the perverse incentives caused by huge money inflows leading to a breakdown of checks and balances at various financial institutions. A sustainable recovery will only occur when the natural flow of capital from developed to developing nations is restored.
Christian Broda et al, VoxEU: The new global balance – Part II: Higher rates rather than weaker dollar in 2010. Many expect the dollar to continue to depreciate over the foreseeable future. But it may strengthen in 2010 if the Federal Reserve exits quantitative easing sooner than its counterparts and the US economy enjoys a strong rebound.
C. Fred Bergsten, Forein Affairs: The Dollar and the Deficits. The global economic crisis has revealed the folly of large U.S. budget and trade deficits, as well as of the strong dollar that makes them possible. If it is serious about recovery, the United States must balance the budget, stimulate private saving, and embrace a declining dollar. Any sudden stop in lending to the United States would drive the dollar down, push inflation and interest rates up, and perhaps bring on a hard landing for the United States -- and the world economy at large.
Larry Summers, White House Blog: Despite the extraordinary depth of this most recent crisis, the pattern it followed – a pattern in which instability emanating from the financial sector ultimately resulted in hundreds of thousands of middle class families who had nothing to do with the financial sector losing their jobs or much of the their savings – is disturbingly familiar.
Richard Kilbride, ING: A Long Slog to Fix Unemployment. As things recover, companies are likely to extend the work week of part-timers. Raising the average work week from 33 hours, which it is now, to 33.8 hours, where it was at the start of the recession, would be equivalent to hiring 3 million workers. However, this would only be adding hours, not adding new jobs. This is not good news for the new entrants to the labor market, or for the 4 million out of work from retail, construction, manufacturing or finance. As Bruce Springsteen said “These jobs are gone and they ain’t comin’ back.”
George J. Borjas, Rachel M. Friedberg, NBER: Recent trends in the earnings of new immigrants to the United States. While there was a continuous decline in the earnings of new immigrants 1960-1990, the trend reversed in the 1990s, with newcomers doing as well in 2000, relative to natives, as they had 20 years earlier. This improvement in immigrant performance is not explained by changes in origin-country composition, educational attainment or state of residence. Changes in labor market conditions, including changes in the wage structure which could differentially impact recent arrivals, can account for only a small portion of it. The upturn appears to have been caused in part by a shift in immigration policy toward high-skill workers matched with jobs, an increase in the earnings of immigrants from Mexico, and a decline in the earnings of native high school dropouts. However, most of the increase remains a puzzle.
Douglas Elmendorf, CBO: The Economic Effects of Policies to Reduce Greenhouse-Gas Emissions. Cap-and-trade would reduce US GDP below what it would otherwise have been—by roughly ¼ to ¾ percent in 2020 and by between 1 and 3½ percent in 2050.
Anthony B. Atkinson, Thomas Piketty, Emmanuel Saez, NBER: Top incomes in the long run of history. Most countries experience a dramatic drop in top income shares in the first part of the 20th century in general due to shocks to top capital incomes during the wars and depression shocks. Top income shares do not recover in the immediate post war decades. However, over the last 30 years, top income shares have increased substantially in English speaking countries and in India and China but not in continental Europe countries or Japan. This increase is due in part to an unprecedented surge in top wage incomes. As a result, wage income comprises a larger fraction of top incomes than in the past.
David Runciman, LRB: How messy it all is. Among rich countries, the more unequal ones do worse according to almost every quality of life indicator you can imagine (The Spirit Level). They do worse even if they are richer overall, so that per capita GDP turns out to be much less significant for general wellbeing than the size of the gap between the richest and poorest 20 per cent of the population
Friday, October 9, 2009
OCTOBER 9 2009
Tobias Adrian, Arturo Estrella, NY Fed: Monetary Tightening Cycles and the Predictability of Economic Activity. Eleven of fourteen monetary tightening cycles since 1955 were followed by increases in unemployment; three were not. The term spread at the end of these cycles discriminates almost perfectly between subsequent outcomes, but levels of nominal or real interest rates, as well as other interest rate spreads, generally do not.
Charles Calomiris, NBER: Banking Crises and the Rules of the Game. Banking crises properly defined consist either of panics or waves of costly bank failures. These phenomena were rare historically compared to the present. A historical analysis of the two phenomena reveals that they do not always coincide, are not random events, cannot be seen as the inevitable result of human nature or the liquidity transforming structure of bank balance sheets, and do not typically accompany business cycles or monetary policy errors. Rather, risk-inviting microeconomic rules of the banking game that are established by government have always been the key additional necessary condition to producing a propensity for banking distress, whether in the form of a high propensity for banking panics or a high propensity for waves of bank failures.
Alan S. Blinder, VoxEU: On the measurability of offshorability. Fear of offshoring may force its way back onto policy agendas soon. This column uses a survey of individual workers to measure the offshorability of particular jobs and says that about 25% of US jobs are offshorable. Surprisingly, routine tasks are not more offshorable but those held by more educated workers are.
Courtney Coile, Phillip B. Levine, NBER: The Market Crash and Mass Layoffs: How the Current Economic Crisis May Affect Retirement. Recent dramatic declines in U.S. stock and housing markets have led to widespread speculation that shrinking retirement accounts and falling home equity will lead workers to delay retirement. Yet the weakness in the labor market and its impact on retirement is often overlooked. If older job seekers have difficulty finding work, they may retire earlier than expected. On net, we predict that the increase in retirement attributable to the rising unemployment rate will be almost 50 percent larger than the decrease in retirement brought about by the stock market crash.
J. Bradford DeLong, UCLA: The anti-history boys. If you asked a modern economic historian like me why the world is currently in the grips of a financial crisis and a deep economic downturn, I would tell you that this is the latest episode in a long history of similar bubbles, crashes, crises, and recessions. But if you ask the same question of a modern macroeconomist you will find that he says that he does not know, and that macroeconomic models attribute economic downturns to various causes. Most, he points out, “rely on some form of large quarterly movements in the technological frontier. Some have collective shocks to the marginal utility of leisure. If modern macroeconomists do not reconnect with history – if they do not realize just what their theories are crystallized out of and what the point of the enterprise is – then their profession will wither and die
Anne Boschini, Astri Muren, Mats Persson: Constructing Gender in the Economics Lab. Several experimental studies on altruism have found women to be more generous than men. We investigate whether observed gender gaps in generosity can be explained by experimental setting, where some settings are more conducive than others to activating gender identity and social norms. In a dictator game we study priming along two dimensions: 1) some subjects enter their gender on the first page of the questionnaire (Pre) while others enter their gender on the last page (Post) and 2) some subjects are seated in single-sex rooms (Homogeneous) while others are seated in gender-mixed rooms (Mixed). It turns out that gender differences occur (women are more generous than men) only for the combination Pre and Mixed. The effect is driven by males: men are sensitive to priming, while women are not.
Andrew Ross Sorkin, Vanity Fair: Wall Street’s Near-Death Experience. With the implosion of Lehman Brothers, in September 2008, the realization dawned: Morgan Stanley and Goldman Sachs could be next. In an extensive excerpt from his new book, the author reveals the incredible scramble that took place—desperate phone calls, seat-of-the-pants merger proposals, flaring tempers—as Washington got tough and Wall Street titans Lloyd Blankfein and John Mack fought for survival.
Charles Calomiris, NBER: Banking Crises and the Rules of the Game. Banking crises properly defined consist either of panics or waves of costly bank failures. These phenomena were rare historically compared to the present. A historical analysis of the two phenomena reveals that they do not always coincide, are not random events, cannot be seen as the inevitable result of human nature or the liquidity transforming structure of bank balance sheets, and do not typically accompany business cycles or monetary policy errors. Rather, risk-inviting microeconomic rules of the banking game that are established by government have always been the key additional necessary condition to producing a propensity for banking distress, whether in the form of a high propensity for banking panics or a high propensity for waves of bank failures.
Alan S. Blinder, VoxEU: On the measurability of offshorability. Fear of offshoring may force its way back onto policy agendas soon. This column uses a survey of individual workers to measure the offshorability of particular jobs and says that about 25% of US jobs are offshorable. Surprisingly, routine tasks are not more offshorable but those held by more educated workers are.
Courtney Coile, Phillip B. Levine, NBER: The Market Crash and Mass Layoffs: How the Current Economic Crisis May Affect Retirement. Recent dramatic declines in U.S. stock and housing markets have led to widespread speculation that shrinking retirement accounts and falling home equity will lead workers to delay retirement. Yet the weakness in the labor market and its impact on retirement is often overlooked. If older job seekers have difficulty finding work, they may retire earlier than expected. On net, we predict that the increase in retirement attributable to the rising unemployment rate will be almost 50 percent larger than the decrease in retirement brought about by the stock market crash.
J. Bradford DeLong, UCLA: The anti-history boys. If you asked a modern economic historian like me why the world is currently in the grips of a financial crisis and a deep economic downturn, I would tell you that this is the latest episode in a long history of similar bubbles, crashes, crises, and recessions. But if you ask the same question of a modern macroeconomist you will find that he says that he does not know, and that macroeconomic models attribute economic downturns to various causes. Most, he points out, “rely on some form of large quarterly movements in the technological frontier. Some have collective shocks to the marginal utility of leisure. If modern macroeconomists do not reconnect with history – if they do not realize just what their theories are crystallized out of and what the point of the enterprise is – then their profession will wither and die
Anne Boschini, Astri Muren, Mats Persson: Constructing Gender in the Economics Lab. Several experimental studies on altruism have found women to be more generous than men. We investigate whether observed gender gaps in generosity can be explained by experimental setting, where some settings are more conducive than others to activating gender identity and social norms. In a dictator game we study priming along two dimensions: 1) some subjects enter their gender on the first page of the questionnaire (Pre) while others enter their gender on the last page (Post) and 2) some subjects are seated in single-sex rooms (Homogeneous) while others are seated in gender-mixed rooms (Mixed). It turns out that gender differences occur (women are more generous than men) only for the combination Pre and Mixed. The effect is driven by males: men are sensitive to priming, while women are not.
Andrew Ross Sorkin, Vanity Fair: Wall Street’s Near-Death Experience. With the implosion of Lehman Brothers, in September 2008, the realization dawned: Morgan Stanley and Goldman Sachs could be next. In an extensive excerpt from his new book, the author reveals the incredible scramble that took place—desperate phone calls, seat-of-the-pants merger proposals, flaring tempers—as Washington got tough and Wall Street titans Lloyd Blankfein and John Mack fought for survival.
Monday, October 5, 2009
OCTOBER 2 2009
Andrew K. Rose, Mark M. Spiegel, Fed SF: Predicting Crises, Part II: Did Anything Matter (to Everybody)? The enormity of the current financial collapse raises the question whether the crisis could have been predicted. This Letter examines research suggesting that early warning models would not have accurately predicted the relative severity of the current crisis across countries, casting doubt on the ability of such models to forecast similar crises in the future.
Urban Jermann, Vincenzo Quadrini, VoxEU: Paying more attention to financial shocks. The financial crisis has made it clear that macroeconomic models need to allocate a more prominent role to financial frictions. This column provides a framework where the financial sector can be the “source” of business cycle fluctuations. The model suggests that credit shocks have played an important role in all major recessions experienced by the US economy during the last two and a half decades.
Robert J. Barro, Charles J. Redlick, NBER: Macroeconomic Effects from Government Purchases and Taxes. For U.S. annual data that include WWII, the estimated multiplier for defense spending is 0.6-0.7 at the median unemployment rate. There is some evidence that this multiplier rises with the extent of economic slack and reaches 1.0 when the unemployment rate is around 12%. Multipliers for non-defense purchases cannot be reliably estimated because of the lack of good instruments. For samples that begin in 1950, increases in average marginal income-tax rates (measured by a newly constructed time series) have a significantly negative effect on real GDP. Increases in taxes seem to reduce real GDP with mainly a one-year lag due to income effects and mostly a two-year lag due to substitution (tax-rate) effects. Since the defense-spending multiplier is typically less than one, greater spending tends to crowd out other components of GDP. The largest effects are on private investment, but non-defense purchases and net exports tend also to fall. The response of private consumer expenditure differs insignificantly from zero.
Ethan Ilzetzki, Enrique G. Mendoza, Carlos A. Vegh: How big are fiscal multipliers? New evidence from new data. How much stimulus does spending provide? This column says that fiscal multipliers are much weaker in countries that have high debt, lower income, flexible exchange rates, and greater international openness. Policymakers should consider these characteristics when evaluating the benefits of any fiscal stimulus package.
Eric D, Gould, Guy Stecklov, IZA: Terror and the Costs of Crime. This paper argues that terrorism, beyond its immediate impact on innocent victims, also raises the costs of crime, and therefore, imposes a negative externality on potential criminals. Terrorism raises the costs of crime through two channels: (i) by increasing the presence and activity of the police force, and (ii) causing more people to stay at home rather than going out for leisure activities. Our analysis exploits a panel of 120 fatal terror attacks and all reported crimes for 17 districts throughout Israel between 2000 and 2005. After controlling for the fixed-effect of each district and for district-specific time trends, we show that terror attacks reduce property crimes such as burglary, auto-theft, and thefts-from-cars. Terror also reduces assaults and aggravated assaults which occur in private homes, but increases incidents of trespassing and "disrupting the police."
Adam S. Posen, PIEE: The Path of True Recovery Is Never Smooth. It takes a lot of repeated policy errors to keep a market economy down. Compared to where we were a year-ago, the world economy is in much better shape. The trick will be to sustain that positive overall environment while major adjustments take place within and between economies: from public spending to private demand; from extraordinary policy measures to normal automatic stabilizers and interest rate setting; from booms to lower sustainable growth rates; from previously favorable but now bloated sectors to new sources of employment and growth; from guaranteed banks to boring banking; and from net exporters to net importers (and vice versa). Fasten your seatbelts, it is going to be a bumpy ride for the next few years.
Michael Ehrmann, Panagiota Tzamourani, ECB: Memories of high inflation. Inflation has been well contained over the last decades in most industrialized
countries. This implies, however, that memories of high inflation are likely to fade, because over time larger parts of the population have never experienced high inflation, whereas those who have might forget. This paper tests whether memories of high inflation affect agents’ preferences about the importance attached to price stability. It finds that memories of hyperinflation are there to last, whereas those of less drastic inflation experiences tend to erode after around 10 to 15 years. The recent decline in the importance attached to price stability does therefore most likely reflect mitigated inflation concerns in an environment of low and stable inflation, but also the consequences of fading memories of high inflation. The longer central banks have successfully delivered price stability, the more important it is for them to engage in a proactive communication, especially with the younger generations, about the merits of low and stable inflation.
Urban Jermann, Vincenzo Quadrini, VoxEU: Paying more attention to financial shocks. The financial crisis has made it clear that macroeconomic models need to allocate a more prominent role to financial frictions. This column provides a framework where the financial sector can be the “source” of business cycle fluctuations. The model suggests that credit shocks have played an important role in all major recessions experienced by the US economy during the last two and a half decades.
Robert J. Barro, Charles J. Redlick, NBER: Macroeconomic Effects from Government Purchases and Taxes. For U.S. annual data that include WWII, the estimated multiplier for defense spending is 0.6-0.7 at the median unemployment rate. There is some evidence that this multiplier rises with the extent of economic slack and reaches 1.0 when the unemployment rate is around 12%. Multipliers for non-defense purchases cannot be reliably estimated because of the lack of good instruments. For samples that begin in 1950, increases in average marginal income-tax rates (measured by a newly constructed time series) have a significantly negative effect on real GDP. Increases in taxes seem to reduce real GDP with mainly a one-year lag due to income effects and mostly a two-year lag due to substitution (tax-rate) effects. Since the defense-spending multiplier is typically less than one, greater spending tends to crowd out other components of GDP. The largest effects are on private investment, but non-defense purchases and net exports tend also to fall. The response of private consumer expenditure differs insignificantly from zero.
Ethan Ilzetzki, Enrique G. Mendoza, Carlos A. Vegh: How big are fiscal multipliers? New evidence from new data. How much stimulus does spending provide? This column says that fiscal multipliers are much weaker in countries that have high debt, lower income, flexible exchange rates, and greater international openness. Policymakers should consider these characteristics when evaluating the benefits of any fiscal stimulus package.
Eric D, Gould, Guy Stecklov, IZA: Terror and the Costs of Crime. This paper argues that terrorism, beyond its immediate impact on innocent victims, also raises the costs of crime, and therefore, imposes a negative externality on potential criminals. Terrorism raises the costs of crime through two channels: (i) by increasing the presence and activity of the police force, and (ii) causing more people to stay at home rather than going out for leisure activities. Our analysis exploits a panel of 120 fatal terror attacks and all reported crimes for 17 districts throughout Israel between 2000 and 2005. After controlling for the fixed-effect of each district and for district-specific time trends, we show that terror attacks reduce property crimes such as burglary, auto-theft, and thefts-from-cars. Terror also reduces assaults and aggravated assaults which occur in private homes, but increases incidents of trespassing and "disrupting the police."
Adam S. Posen, PIEE: The Path of True Recovery Is Never Smooth. It takes a lot of repeated policy errors to keep a market economy down. Compared to where we were a year-ago, the world economy is in much better shape. The trick will be to sustain that positive overall environment while major adjustments take place within and between economies: from public spending to private demand; from extraordinary policy measures to normal automatic stabilizers and interest rate setting; from booms to lower sustainable growth rates; from previously favorable but now bloated sectors to new sources of employment and growth; from guaranteed banks to boring banking; and from net exporters to net importers (and vice versa). Fasten your seatbelts, it is going to be a bumpy ride for the next few years.
Michael Ehrmann, Panagiota Tzamourani, ECB: Memories of high inflation. Inflation has been well contained over the last decades in most industrialized
countries. This implies, however, that memories of high inflation are likely to fade, because over time larger parts of the population have never experienced high inflation, whereas those who have might forget. This paper tests whether memories of high inflation affect agents’ preferences about the importance attached to price stability. It finds that memories of hyperinflation are there to last, whereas those of less drastic inflation experiences tend to erode after around 10 to 15 years. The recent decline in the importance attached to price stability does therefore most likely reflect mitigated inflation concerns in an environment of low and stable inflation, but also the consequences of fading memories of high inflation. The longer central banks have successfully delivered price stability, the more important it is for them to engage in a proactive communication, especially with the younger generations, about the merits of low and stable inflation.
Subscribe to:
Posts (Atom)