Martin Feldstein: Can the Euro Zone Survive Economic Recovery? The economic recovery that the euro zone anticipates in 2010 could bring with it new tensions. Indeed, in the extreme, some countries could find themselves considering whether to leave the single currency altogether.
Paul Krugman, NYT Blog: No exit. The latest forecast are out. The Fed expects unemployment to come down only very gradually — over 9 percent at the end of 2010, over 8 percent at the end of 2011, around 7 percent at the end of 2012. Inflation, meanwhile is expected to remain consistently below the Fed’s target. Which raises the question, why is anyone talking about an “exit strategy”? On the Fed’s own forecasts, the economy will remain seriously depressed three years from now.
Martin Ellison, Thomas J. Sargent, VoxEU: Bad forecasters can be good policymakers. The Federal Reserve Open Market Committee has been criticised for making forecasts that are inferior to Federal Reserve staff forecasts. This column argues that FOMC forecasts are worst-case scenarios used to inform policy decisions, rather than best estimates of future events. It says that FOMC forecasts are a rational response to doubts about the staff’s model.
Charles Steindel, NY Fed: Implications of the Financial Crisis for Potential Growth: Past, Present, and Future. The scale of the recent collapse in asset values and the magnitude of the recession suggest that activities connected to the increase in values over the 2002-07 period―notably, expansion of the financial markets, homebuilding, and real estate―were overstated. If this is true, aggregate U.S. economic growth would have been overstated, implying that previous rates of potential gross domestic product (GDP) growth may also have been overstated and that the trajectory of potential GDP may be slower going forward. Slowing growth in the finance, homebuilding, and real estate sectors could hold back aggregate growth. A detailed examination of these sectors’ direct contributions to GDP, however, suggests that overstatements of past growth would likely not have made a large difference in recorded GDP growth. Slower growth in these sectors would have, at most, a moderate direct effect on aggregate economic activity. The recent experience’s longer term effects on GDP would seem to stem largely from factors other than the retrenchment in these sectors."
Martin Wolf, FT Blog: Tax the windfall banking bonuses. Windfall taxes are a ghastly idea. But banks are making exceptional profits because they are beneficiaries of unlimited state insurance. Profits being made today are also in large part the fruit of the free money provided by the central bank. I now find the idea of a windfall tax on banks appealing.
John H. Bishop, Cornell: The Case for a Job-Creation Tax Credit. Employers would have to expand their payrolls on net to qualify for the credit, in order to prevent companies from simply firing and rehiring people. They would then receive a 15 percent rebate on any increase in their 2010 wage bill over their 2009 level. Firms would also receive a 10 percent rebate for the increase of their 2011 wage bill over the 2009 wage bill.
Douglas J. Elliott, Martin Neil Baily, Brookings: Telling the Narrative of the Financial Crisis: Not Just a Housing Bubble. We believe there were many factors that led to the financial crisis and which explain its intensity. These causes reflect mistakes, bad incentives, and flawed structures across the board: in the financial markets, among regulators and government officials, and in our larger society. We believe it would be a tragic error to operate under the assumption that the massive blow to our economy from which we are slowly recovering was the result simply of a huge housing bubble. The danger of this belief is that it provides arguments for inaction on many of the problems that we see continuing to exist in our financial markets and institutions and their regulation. If we are correct, the chances of another major blow‐up in the next decade or two are much higher than one would assume when judging the crisis as effectively just a housing bubble of mammoth proportions.
Daron Acemoglu, MIT: What Makes a Nation Rich? Could it be that people in hot places are inherently lazy, or that Protestant work ethic is the true driver of economic success? Or perhaps the richest countries are those that were former British colonies? Or maybe it's as simple as tracing which nations have the largest populations of European descent? Jeffrey Sachs attributes the relative success of nations to geography and weather. Jared Diamond, the famous ecologist and best-selling author, thinks the origin of world inequality stems from the historical endowment of plant and animal species and the advancement of technology. The problem with all of these theories is that while they superficially fit some specific cases, others radically disprove them. They all offer some insight into certain aspects of poverty, but they all ignore incentives. People need incentives to invest and prosper; they need to know that if they work hard, they can make money and actually keep that money. And the key to ensuring those incentives is sound institutions — the rule of law and security and a governing system that offers opportunities to achieve and innovate. That's what determines the haves from the have-nots.
Thomas Dee, Brian Jacob, NBER: The Impact of No Child Left Behind on Student Achievement. The impact of NCLB is identified using a comparative interrupted time series analysis that relies on comparisons of the test-score changes across states that already had school-accountability policies in place prior to NCLB and those that did not. Our results indicate that NCLB generated statistically significant increases in the average math performance of 4th graders (effect size = 0.22 by 2007) as well as improvements at the lower and top percentiles. There is also evidence of improvements in 8th grade math achievement, particularly among traditionally low-achieving groups and at the lower percentiles. However, we find no evidence that NCLB increased reading achievement in either 4th or 8th grade.
Mark J. Perry's Blog for Economics and Finance: U.S. Share of World GDP Remarkably Constant. U.S. share of world GDP has been relatively constant for the last 40 years, and is actually slightly higher in 2009 (26.7%) that it was in 1975 (26.3%). It's also interesting that the EU15's share of world GDP has declined from about 36% of world output in 1969 to only 27% in 2009.
Rebecca Smith, WSJ: Nothing to Sneeze At: Doctors' Neckties Seen as Flu Risk. Hospitals Propose Bans, but Old-Schoolers Resist Loosening Up; a Germ-Free Design.
Luiz de Mello, Pires, Ricardo, American Association Of Wine Economists: Message On The Bottle: Colours And Shapes Of Wine Labels. Wine consumers rely mainly on the label on the bottle to infer the quality of its content. There are strong preferences for selected colour-shape combinations in label design. Surprisingly, colour alone does not elicit as strong preferences as certain shapes do, at least when they are assessed irrespectively of the shapes featured in the label. Other combinations, on the other hand, are very resilient, especially those that contain colour hues, such as brown, yellow, black and green, in labels with salient rectangular and hexagonal patterns.
Center for Science in the Public Interest: Two Thumbs Down’ for Movie Theater Popcorn. It's hard to picture someone mindlessly ingesting three McDonald's Quarter Pounders with 12 pats of butter while watching a movie. But according to new laboratory analyses that food is nutritionally comparable to what you’d find in a medium popcorn and soda combo at Regal, the country’s biggest movie theater chain: 1,610 calories and three days’ worth—60 grams—of saturated fat. "Regal and AMC are our nominees for Best Supporting Actor in the Obesity Epidemic."
Friday, November 27, 2009
Friday, November 20, 2009
NOVEMBER 20 2009
Daniel Cooper, Boston Fed: Impending U.S. Spending Bust? The Role of Housing Wealth as Borrowing Collateral. Data from the Panel Study of Income Dynamics suggest that house values affect consumption by serving as collateral for households to borrow against to smooth their spending. The consumption of households who need to borrow against their home equity increases by roughly 11 cents per $1.00 increase in their housing wealth. Changing house values, however, have little effect on the expenditures of households who do not need to borrow to finance their consumption. Based on these results, the paper further finds that declining housing wealth has a relatively small implied negative impact on aggregate consumption expenditures.
Isabel Vansteenkiste, ECB: What triggers prolonged inflation regimes? This paper empirically assesses 91 countries over the period 1960-2006. The results suggest that for all cases considered a more fixed exchange rate regime and lower real policy rates increase the probability of an inflation start. For advanced economies a positive output gap, higher global inflation and a less democratic environment were seen to be detrimental for triggering inflation starts. Finally, oil prices, M2 growth and government spending were never statistically significant.
Richard Baldwin, Daria Taglioni, VoxEU: The illusion of improving global imbalances. Is the continued existence of global imbalances driving the world economy towards another global crisis? The IMF and World Bank have calmed the waters by projecting reductions in the imbalances of the world’s largest trading nations – especially China and the US. These projections are almost surely wrong. The rapid collapse of trade between the third quarter of 2008 and the first quarter of 2009 improved most balances of trade. It could not have done otherwise; if both imports and exports drop rapidly, the gap between them drops equally rapidly. In the same mechanistic manner, the recovery of trade flows – a recovery that seems to have started this summer – will almost surely return the US, Germany, China and others to their old paths.
Carlo Favero, VoxEU: Uncertainty and the tale of two depressions: Eichengreen and O’Rourke have compared today’s crisis to the Great Depression via the synoptic analysis of world industrial production, trade, and stock market. Their main conclusion was that the most recent crisis remained dramatic on 1 September 2009 by the standards of the Great Depression. My proposed measure of uncertainty is the spread between Moody's Seasoned Baa Corporate Bond Yield and Moody's Seasoned Aaa Corporate Bond Yield. This measure suggest a striking difference between the situation now and in the early 1930s. The evolution of uncertainty suggests that the current situation is much less dramatic by the standards of the Great Depression.
Kieran McQuinn, Geraldine Slevin, Central Bank of Ireland: The United States as a growth leader for the Euro Area. In our modelling framework we assume that the United States acts a growth leader for the Euro area. We examine the long-run relationship by examining the possibility of technology spillovers. In particular, we assess whether there is a relationship between the rate of total factor productivity (TFP) growth in different industry sub-sector categories in the US and their counterparts in Europe. The greater the difference in levels between TFP in the United States and Europe, the greater the growth rate of European TFP. Our results indicate that ICT has a positive impact on productivity growth in Europe. We also find that increased use of ICT increases the convergence of EU TFP levels to US TFP levels. The results of this study highlight the need for Euro area policy-makers to focus their energies on policies likely to improve the ability of the Euro area to absorb and learn from technologies advanced in the United States.
The Netherlands introduce ”GPS tax” for cars, Independent, UK: The Netherlands just decided to revamp their car tax. First the taxes on the acquisition of cars, currently 25% of the sales price and the yearly car tax are scrapped. This is replaced by a base tax of €0.03 per driven kilometer, an amount that is increased for gas-guzzlers, heavy vehicles and rush-hour traffic. Distances and times are determined by GPS in every vehicle.
Paul De Grauwe, VoxEU: Top-down versus bottom-up macroeconomics. There is a general perception today that the financial crisis came about as a result of inefficiencies in the financial markets and economic actors’ poor understanding of the nature of risks. Yet mainstream macroeconomic models, as exemplified by the dynamic stochastic general equilibrium (DSGE) models, are populated by agents who are maximising their utilities in an intertemporal framework using all available information including the structure of the model. Agents in these models have incredible cognitive abilities. These are extraordinary assumptions that leave the outside world perplexed about what macroeconomists have been doing during the last decades. PDG contrasts the incongruous rational expectations top-down model with a bottom-up model where no individual is capable of understanding the full complexity of a market system. The bottom-up model creates correlations in beliefs that generate waves of optimism and pessimism. The latter produce endogenous business cycles akin to the Keynesian “animal spirits.
U.S. Department of Education: Race to the Top Competition. Secretary of Education Arne Duncan today released the final application for more than $4 billion from the Race to the Top Fund, which will reward states that have raised student performance in the past and have the capacity to accelerate achievement gains with innovative reforms.
João Ramos and Benno Torgler, CREMA: Are Academics Messy? Testing the Broken Windows Theory with a Field Experiment in the Work Environment. We conduct a field experiment in a shared area of a workplace in academia (department common room). We explore academics’ and postgraduate students’ behaviour under an order condition (clean environment) and a disorder condition (messy environment). We find strong support that signs of disorderly behaviour triggers littering. In the disorder treatment 59% of the subjects litter compared to 18% in the order condition. When academic staff members and postgraduate students observe that others violated the social norm of keeping the common room clean the probability of littering increases ceteris paribus by around 40 percent.
Bryan Caplan, Econlog: The Effect of Children on Happiness: Hasty readers of happiness research often conclude that kids are a disaster for happiness. A recent paper in the Journal of Happiness Research ("Children and Life Satisfaction" by Luis Angeles) finds that kids often increase overall life satisfaction. The paper takes advantage of a key feature of the British household panel survey: It follows the same people over time, so you can re-run the standard equations with fixed effects. This simple and intuitive adjustment wipes out the standard results. The data set is so massive (almost 89k observations) that it should be possible to detect even microscopic effects of kids on happiness. None detected. But they also find that as long as they're married, having children makes people happier than they were before. Moms gain more than dads.
Catherine Rampell, NYT Blog: Money, Gender and Job Satisfaction. The typical woman earns less than the typical man, even when controlling for factors like career choice, education and experience. Men and women are about equally likely to say that they are satisfied with their jobs; about 65 percent of both sexes say they are satisfied. But it typically takes a lot less money to get women to say they are satisfied with their work than it does to get men to say it.
David Card, Gordon Dahl, NBER: Family Violence and Football. Our key hypothesis is that negative emotional cues - benchmarked relative to a rationally expected reference point - make a breakdown of control more likely. We test this hypothesis using data on police reports of family violence on Sundays during the professional football season. Controlling for location and time fixed effects, weather factors, the pre-game point spread, and the size of the local viewing audience, we find that upset losses by the home team (losses in games that the home team was predicted to win by more than 3 points) lead to an 8 percent increase in police reports of at-home male-on-female intimate partner violence. We also find that unexpected losses in highly salient or frustrating games have a 50%to 100% larger impact on rates of family violence.
Emily Kaiser, Reuters: Worried about U.S. debt? Send Your Donations to here. The U.S. Treasury Department is accepting gifts in the form of donations to help pay down the nation’s $7.6 trillion debt. The program isn’t new – for years, the Treasury has accepted such donations, which last year added up to more than $3 million, but it’s attracting more attention this year amid public outcry over the nation’s soaring debt. Checks can be made payable to the Bureau of the Public Debt’s office in Parkersburg, W.V.
Isabel Vansteenkiste, ECB: What triggers prolonged inflation regimes? This paper empirically assesses 91 countries over the period 1960-2006. The results suggest that for all cases considered a more fixed exchange rate regime and lower real policy rates increase the probability of an inflation start. For advanced economies a positive output gap, higher global inflation and a less democratic environment were seen to be detrimental for triggering inflation starts. Finally, oil prices, M2 growth and government spending were never statistically significant.
Richard Baldwin, Daria Taglioni, VoxEU: The illusion of improving global imbalances. Is the continued existence of global imbalances driving the world economy towards another global crisis? The IMF and World Bank have calmed the waters by projecting reductions in the imbalances of the world’s largest trading nations – especially China and the US. These projections are almost surely wrong. The rapid collapse of trade between the third quarter of 2008 and the first quarter of 2009 improved most balances of trade. It could not have done otherwise; if both imports and exports drop rapidly, the gap between them drops equally rapidly. In the same mechanistic manner, the recovery of trade flows – a recovery that seems to have started this summer – will almost surely return the US, Germany, China and others to their old paths.
Carlo Favero, VoxEU: Uncertainty and the tale of two depressions: Eichengreen and O’Rourke have compared today’s crisis to the Great Depression via the synoptic analysis of world industrial production, trade, and stock market. Their main conclusion was that the most recent crisis remained dramatic on 1 September 2009 by the standards of the Great Depression. My proposed measure of uncertainty is the spread between Moody's Seasoned Baa Corporate Bond Yield and Moody's Seasoned Aaa Corporate Bond Yield. This measure suggest a striking difference between the situation now and in the early 1930s. The evolution of uncertainty suggests that the current situation is much less dramatic by the standards of the Great Depression.
Kieran McQuinn, Geraldine Slevin, Central Bank of Ireland: The United States as a growth leader for the Euro Area. In our modelling framework we assume that the United States acts a growth leader for the Euro area. We examine the long-run relationship by examining the possibility of technology spillovers. In particular, we assess whether there is a relationship between the rate of total factor productivity (TFP) growth in different industry sub-sector categories in the US and their counterparts in Europe. The greater the difference in levels between TFP in the United States and Europe, the greater the growth rate of European TFP. Our results indicate that ICT has a positive impact on productivity growth in Europe. We also find that increased use of ICT increases the convergence of EU TFP levels to US TFP levels. The results of this study highlight the need for Euro area policy-makers to focus their energies on policies likely to improve the ability of the Euro area to absorb and learn from technologies advanced in the United States.
The Netherlands introduce ”GPS tax” for cars, Independent, UK: The Netherlands just decided to revamp their car tax. First the taxes on the acquisition of cars, currently 25% of the sales price and the yearly car tax are scrapped. This is replaced by a base tax of €0.03 per driven kilometer, an amount that is increased for gas-guzzlers, heavy vehicles and rush-hour traffic. Distances and times are determined by GPS in every vehicle.
Paul De Grauwe, VoxEU: Top-down versus bottom-up macroeconomics. There is a general perception today that the financial crisis came about as a result of inefficiencies in the financial markets and economic actors’ poor understanding of the nature of risks. Yet mainstream macroeconomic models, as exemplified by the dynamic stochastic general equilibrium (DSGE) models, are populated by agents who are maximising their utilities in an intertemporal framework using all available information including the structure of the model. Agents in these models have incredible cognitive abilities. These are extraordinary assumptions that leave the outside world perplexed about what macroeconomists have been doing during the last decades. PDG contrasts the incongruous rational expectations top-down model with a bottom-up model where no individual is capable of understanding the full complexity of a market system. The bottom-up model creates correlations in beliefs that generate waves of optimism and pessimism. The latter produce endogenous business cycles akin to the Keynesian “animal spirits.
U.S. Department of Education: Race to the Top Competition. Secretary of Education Arne Duncan today released the final application for more than $4 billion from the Race to the Top Fund, which will reward states that have raised student performance in the past and have the capacity to accelerate achievement gains with innovative reforms.
João Ramos and Benno Torgler, CREMA: Are Academics Messy? Testing the Broken Windows Theory with a Field Experiment in the Work Environment. We conduct a field experiment in a shared area of a workplace in academia (department common room). We explore academics’ and postgraduate students’ behaviour under an order condition (clean environment) and a disorder condition (messy environment). We find strong support that signs of disorderly behaviour triggers littering. In the disorder treatment 59% of the subjects litter compared to 18% in the order condition. When academic staff members and postgraduate students observe that others violated the social norm of keeping the common room clean the probability of littering increases ceteris paribus by around 40 percent.
Bryan Caplan, Econlog: The Effect of Children on Happiness: Hasty readers of happiness research often conclude that kids are a disaster for happiness. A recent paper in the Journal of Happiness Research ("Children and Life Satisfaction" by Luis Angeles) finds that kids often increase overall life satisfaction. The paper takes advantage of a key feature of the British household panel survey: It follows the same people over time, so you can re-run the standard equations with fixed effects. This simple and intuitive adjustment wipes out the standard results. The data set is so massive (almost 89k observations) that it should be possible to detect even microscopic effects of kids on happiness. None detected. But they also find that as long as they're married, having children makes people happier than they were before. Moms gain more than dads.
Catherine Rampell, NYT Blog: Money, Gender and Job Satisfaction. The typical woman earns less than the typical man, even when controlling for factors like career choice, education and experience. Men and women are about equally likely to say that they are satisfied with their jobs; about 65 percent of both sexes say they are satisfied. But it typically takes a lot less money to get women to say they are satisfied with their work than it does to get men to say it.
David Card, Gordon Dahl, NBER: Family Violence and Football. Our key hypothesis is that negative emotional cues - benchmarked relative to a rationally expected reference point - make a breakdown of control more likely. We test this hypothesis using data on police reports of family violence on Sundays during the professional football season. Controlling for location and time fixed effects, weather factors, the pre-game point spread, and the size of the local viewing audience, we find that upset losses by the home team (losses in games that the home team was predicted to win by more than 3 points) lead to an 8 percent increase in police reports of at-home male-on-female intimate partner violence. We also find that unexpected losses in highly salient or frustrating games have a 50%to 100% larger impact on rates of family violence.
Emily Kaiser, Reuters: Worried about U.S. debt? Send Your Donations to here. The U.S. Treasury Department is accepting gifts in the form of donations to help pay down the nation’s $7.6 trillion debt. The program isn’t new – for years, the Treasury has accepted such donations, which last year added up to more than $3 million, but it’s attracting more attention this year amid public outcry over the nation’s soaring debt. Checks can be made payable to the Bureau of the Public Debt’s office in Parkersburg, W.V.
Friday, November 13, 2009
NOVEMBER 13 2009
Mark A. Wynne and Erasmus K. Kersting, Dallas Fed: Trade, Globalization and the Financial Crisis. Indexing to the peaks in global industrial production in both episodes, global trade fell 32 percent during the first year of the Great Recession, compared with 15 percent during the first year of the Great Depression. As the financial crisis unfolded, U.S. imports fell by more than could be justified by the changes in the fundamentals. We see a similar situation with U.S. exports, using foreign income and the value of the dollar as the fundamental drivers of export growth in a statistical model. The drying up of trade finance may be responsible for trade flows declining by more than fundamentals warrant. We’re still a long way from having a good understanding of the vital role trade financing plays in lubricating the wheels of international commerce, but concerns about deglobalization are in many ways overblown.
Gauti B. Eggertsson, NY Fed: What Fiscal Policy Is Effective at Zero Interest Rates? Tax cuts can deepen a recession if the short-term nominal interest rate is zero, according to a standard New Keynesian business cycle model. An example of a contractionary tax cut is a reduction in taxes on wages. This tax cut deepens a recession because it increases deflationary pressures. Another example is a cut in capital taxes. This tax cut deepens a recession because it encourages people to save instead of spend at a time when more spending is needed. Fiscal policies aimed directly at stimulating aggregate demand work better. These policies include 1) a temporary increase in government spending; and 2) tax cuts aimed directly at stimulating aggregate demand rather than aggregate supply, such as an investment tax credit or a cut in sales taxes.
Paul Krugman, NYT Blog: Depression multipliers. There are two problems with estimating multipliers relevant to our current situation. First, you need to look at what happens under liquidity-trap conditions — and except in Japan,these haven’t prevailed anywhere since the 1930s. The second is that in the United States, fiscal policy was never forceful enough to provide a useful natural experiment. Barry Eichengreen and Kevin O’Rourke use a broad international cross-section to overcome this problem. This works because a number of countries had major military buildups during the 1930s — fiscal expansions that can be regarded as exogenous to the economic situation. What do E&R find? Initial fiscal multipliers of 2 or more, although they shrink over time.
Douglas Elmendorf, CBO: Entitlement Spending and the Long-Term Budget Outlook. Federal debt held by the public will equal about 60 percent of GDP by the end of this fiscal year, the highest level since the early 1950s. As a result, further large deficits and increases in the debt will raise serious economic risks. US policy is on an unsustainable path to an extent that cannot be solved by minor tinkering. The country faces a fundamental disconnect between the services the people expect the government to provide, particularly in the form of benefits for older Americans, and the tax revenues that people are willing to send to the government to finance those services.
Michael Kumhof, Douglas Laxton, IMF: Fiscal Deficits and Current Account Deficits. The effectiveness of recent fiscal stimulus packages significantly depends on the assumption of non-Ricardian savings behavior. We show that, under the same assumption, fiscal deficits can have worrisome implications if they turn out to be permanent. First, if they occur in large countries they significantly raise the world real interest rate. Second, they cause a short run current account deterioration equal to around 50 percent of the fiscal deficit deterioration. Third, the longer run current account deterioration equals almost 75 percent for a large economy such as the United States, and almost 100 percent for a small open economy.
William Cohen, Vanity Fair: Endless Summers. Throughout his dazzling but controversial career—top World Bank economist, Treasury secretary, Harvard University president, and now head of the White House National Economic Council—Larry Summers has been his own worst enemy. Tim Geithner, the Treasury secretary: “Larry has not had the jobs he’s had because he’s misunderstood. He’s had them because some of the best leaders in our country understand quite well how much he has to offer.”
Edward L. Glaeser, Harvard: With tax break, a big carbon footprint. The tax code encourages Americans to live in big, energy-guzzling homes, instead of thrifty apartments, and Congress seems intent on further unbalancing the federal budget to egg on home buyers. The stimulus package ”home buyers tax credit” ($8,000) continues the long-standing federal push toward far-flung McMansions and away from dense, apartment living. President Obama could do the country, and the planet, a service by either refusing to sign the extension of the credit or by insisting that it be accompanied by offsetting reductions in the home mortgage interest deduction.
Ann Huff Stevens, Jessamyn Schaller, NBER: Short-run Effects of Parental Job Loss on Children's Academic Achievement. We find that a parental job loss increases the probability of children’s grade retention by 0.8 percentage points, or around 15 percent. After conditioning on child fixed effects, there is no evidence of significantly increased grade retention prior to the job loss, suggesting a causal link between the parental employment shock and children’s academic difficulties. This is in contrast to earlier work that has found only limited evidence of short-run effects of displacement on children’s academic outcomes. These effects are concentrated among children whose parents have a high school education or less.
Will Dobbie, Roland G. Fryer, NBER: Are High Quality Schools Enough to Close the Achievement Gap? Harlem Children's Zone (HCZ), which combines community investments with reform minded charter schools, is one of the most ambitious social experiments to alleviate poverty of our time. We provide the first empirical test of the causal impact of HCZ on educational outcomes, with an eye toward informing the long-standing debate whether schools alone can eliminate the achievement gap or whether the issues that poor children bring to school are too much for educators alone to overcome. Harlem Children's Zone is effective at increasing the achievement of the poorest minority children. Taken at face value, the effects in middle school are enough to close the black-white achievement gap in mathematics and reduce it by nearly half in English Language Arts.
Michèle Belot (Oxford), Jonathan James (Essex): Healthy school meals and Educational Outcomes. This paper provides quasi-experimental evidence exploiting a campaign lead in the UK in 2004 (“Feed Me Better” by Jamie Oliver), which introduced drastic changes in the meals offered in the schools of one Borough – Greenwich, shifting from low-budget processed meals towards healthier options. We find evidence that educational outcomes did improve significantly in English and Science. We also find that the campaign lead to a 15% fall in authorised absences – which are most likely linked to illness and health.
David O. Meltzer, Zhuo Chen, NBER: The impact of minimum wage rates on body weight in the United States. To examine this, we use data from the Behavioral Risk Factor Surveillance System from 1984-2006 to test whether variation in the real minimum wage was associated with changes in body mass index. We find that a $1 decrease in the real minimum wage was associated with a 0.06 increase in BMI. This relationship was significant across gender and income groups and largest among the highest percentiles of the BMI distribution. Real minimum wage decreases can explain 10% of the change in BMI since 1970.
Jan-Emmanuel De Neve, James H. Fowler, LSE: The MAOA Gene Predicts Credit Card Debt. This paper presents the first evidence of a specific gene predicting real world economic behavior. Using data from the National Longitudinal Study of Adolescent Health, we show that individuals with a polymorphism of the MAOA gene that has lower transcriptional efficiency are significantly more likely to report having credit card debt. Having one or both MAOA alleles of the low efficiency type raises the average likelihood of having credit card debt by 7.8% and 15.9% respectively.
Larry Hardesty, MIT: What computer science can teach economics. Many economists assume that, while the Nash equilibrium for a particular market may be hard to find, once found, it will accurately describe the market’s behavior. Constantinos Daskalakis, an assistant professor in MIT’s Computer Science and Artificial Intelligence Laboratory, has showed that some common game-theoretical problems are so hard to calculate that all the computers in the world couldn’t find the Nash equilibrium in the lifetime of the universe. Daskalakis is suggesting that they can’t accurately represent what happens in the real world.
Gauti B. Eggertsson, NY Fed: What Fiscal Policy Is Effective at Zero Interest Rates? Tax cuts can deepen a recession if the short-term nominal interest rate is zero, according to a standard New Keynesian business cycle model. An example of a contractionary tax cut is a reduction in taxes on wages. This tax cut deepens a recession because it increases deflationary pressures. Another example is a cut in capital taxes. This tax cut deepens a recession because it encourages people to save instead of spend at a time when more spending is needed. Fiscal policies aimed directly at stimulating aggregate demand work better. These policies include 1) a temporary increase in government spending; and 2) tax cuts aimed directly at stimulating aggregate demand rather than aggregate supply, such as an investment tax credit or a cut in sales taxes.
Paul Krugman, NYT Blog: Depression multipliers. There are two problems with estimating multipliers relevant to our current situation. First, you need to look at what happens under liquidity-trap conditions — and except in Japan,these haven’t prevailed anywhere since the 1930s. The second is that in the United States, fiscal policy was never forceful enough to provide a useful natural experiment. Barry Eichengreen and Kevin O’Rourke use a broad international cross-section to overcome this problem. This works because a number of countries had major military buildups during the 1930s — fiscal expansions that can be regarded as exogenous to the economic situation. What do E&R find? Initial fiscal multipliers of 2 or more, although they shrink over time.
Douglas Elmendorf, CBO: Entitlement Spending and the Long-Term Budget Outlook. Federal debt held by the public will equal about 60 percent of GDP by the end of this fiscal year, the highest level since the early 1950s. As a result, further large deficits and increases in the debt will raise serious economic risks. US policy is on an unsustainable path to an extent that cannot be solved by minor tinkering. The country faces a fundamental disconnect between the services the people expect the government to provide, particularly in the form of benefits for older Americans, and the tax revenues that people are willing to send to the government to finance those services.
Michael Kumhof, Douglas Laxton, IMF: Fiscal Deficits and Current Account Deficits. The effectiveness of recent fiscal stimulus packages significantly depends on the assumption of non-Ricardian savings behavior. We show that, under the same assumption, fiscal deficits can have worrisome implications if they turn out to be permanent. First, if they occur in large countries they significantly raise the world real interest rate. Second, they cause a short run current account deterioration equal to around 50 percent of the fiscal deficit deterioration. Third, the longer run current account deterioration equals almost 75 percent for a large economy such as the United States, and almost 100 percent for a small open economy.
William Cohen, Vanity Fair: Endless Summers. Throughout his dazzling but controversial career—top World Bank economist, Treasury secretary, Harvard University president, and now head of the White House National Economic Council—Larry Summers has been his own worst enemy. Tim Geithner, the Treasury secretary: “Larry has not had the jobs he’s had because he’s misunderstood. He’s had them because some of the best leaders in our country understand quite well how much he has to offer.”
Edward L. Glaeser, Harvard: With tax break, a big carbon footprint. The tax code encourages Americans to live in big, energy-guzzling homes, instead of thrifty apartments, and Congress seems intent on further unbalancing the federal budget to egg on home buyers. The stimulus package ”home buyers tax credit” ($8,000) continues the long-standing federal push toward far-flung McMansions and away from dense, apartment living. President Obama could do the country, and the planet, a service by either refusing to sign the extension of the credit or by insisting that it be accompanied by offsetting reductions in the home mortgage interest deduction.
Ann Huff Stevens, Jessamyn Schaller, NBER: Short-run Effects of Parental Job Loss on Children's Academic Achievement. We find that a parental job loss increases the probability of children’s grade retention by 0.8 percentage points, or around 15 percent. After conditioning on child fixed effects, there is no evidence of significantly increased grade retention prior to the job loss, suggesting a causal link between the parental employment shock and children’s academic difficulties. This is in contrast to earlier work that has found only limited evidence of short-run effects of displacement on children’s academic outcomes. These effects are concentrated among children whose parents have a high school education or less.
Will Dobbie, Roland G. Fryer, NBER: Are High Quality Schools Enough to Close the Achievement Gap? Harlem Children's Zone (HCZ), which combines community investments with reform minded charter schools, is one of the most ambitious social experiments to alleviate poverty of our time. We provide the first empirical test of the causal impact of HCZ on educational outcomes, with an eye toward informing the long-standing debate whether schools alone can eliminate the achievement gap or whether the issues that poor children bring to school are too much for educators alone to overcome. Harlem Children's Zone is effective at increasing the achievement of the poorest minority children. Taken at face value, the effects in middle school are enough to close the black-white achievement gap in mathematics and reduce it by nearly half in English Language Arts.
Michèle Belot (Oxford), Jonathan James (Essex): Healthy school meals and Educational Outcomes. This paper provides quasi-experimental evidence exploiting a campaign lead in the UK in 2004 (“Feed Me Better” by Jamie Oliver), which introduced drastic changes in the meals offered in the schools of one Borough – Greenwich, shifting from low-budget processed meals towards healthier options. We find evidence that educational outcomes did improve significantly in English and Science. We also find that the campaign lead to a 15% fall in authorised absences – which are most likely linked to illness and health.
David O. Meltzer, Zhuo Chen, NBER: The impact of minimum wage rates on body weight in the United States. To examine this, we use data from the Behavioral Risk Factor Surveillance System from 1984-2006 to test whether variation in the real minimum wage was associated with changes in body mass index. We find that a $1 decrease in the real minimum wage was associated with a 0.06 increase in BMI. This relationship was significant across gender and income groups and largest among the highest percentiles of the BMI distribution. Real minimum wage decreases can explain 10% of the change in BMI since 1970.
Jan-Emmanuel De Neve, James H. Fowler, LSE: The MAOA Gene Predicts Credit Card Debt. This paper presents the first evidence of a specific gene predicting real world economic behavior. Using data from the National Longitudinal Study of Adolescent Health, we show that individuals with a polymorphism of the MAOA gene that has lower transcriptional efficiency are significantly more likely to report having credit card debt. Having one or both MAOA alleles of the low efficiency type raises the average likelihood of having credit card debt by 7.8% and 15.9% respectively.
Larry Hardesty, MIT: What computer science can teach economics. Many economists assume that, while the Nash equilibrium for a particular market may be hard to find, once found, it will accurately describe the market’s behavior. Constantinos Daskalakis, an assistant professor in MIT’s Computer Science and Artificial Intelligence Laboratory, has showed that some common game-theoretical problems are so hard to calculate that all the computers in the world couldn’t find the Nash equilibrium in the lifetime of the universe. Daskalakis is suggesting that they can’t accurately represent what happens in the real world.
Friday, November 6, 2009
NOVEMBER 6 2009
Galati et al, DNB: Did the crisis affect inflation expectations? We investigate whether the anchoring properties of long-run inflation expectations have changed around the economic crisis. By testing for structural breaks we conclude that in the United States, the euro area and the United Kingdom, long-run inflation expectations have become less firmly anchored during the crisis."
Bauer, Herrell, Fed Cleveland: Do Shipping Volumes Signal an End of the Recession? The pattern of manufacturers’ shipments looks similar to the way the 2001 recession ended. The most recent values for freight and passenger transportation services’ 12-month percentage change are still declining, but since June they have moved up from their recent lows. A series that goes back further—and that seems more closely tuned to the overall business cycle—is the Federal Highway Administration’s estimate of vehicle miles of travel. This monthly serie is up.
IMF: The State of Public Finances Cross-Country Fiscal Monitor. Japan, the United Kingdom, Ireland and Spain are projected to require the largest fiscal adjustment. Only Denmark, Korea, Norway, Australia and Sweden among advanced economies will require little or no medium-term adjustment to keep debt stocks at safe levels.
Paul Krugman, Princeton: Increasing returns in a comparative advantage world. Even during comparative-advantage trade eras increasing returns in the form of localized external economies plays a significant role. In fact, the same eras in which comparative advantage seems to have ruled international trade are also the eras in which increasing returns has seemed to exert its strongest influence on intra-national economic geography. And this observation isn’t irrelevant even in the trade context: gains from localization arguably are a significant source of gains from trade, even if they don’t seem to affect the pattern of specialization. Imports of labor-intensive goods from developing countries exert a depressing influence on the real wages of less-skilled workers in advanced countries, but the role of local external economies may offer a partial offset.
Coile, Levine, VoxEU: The current economic crisis will lead to more retirements. Some relatively wealthier workers will be forced to delay retirement, but a larger number of workers with fewer economic resources will be forced into retirement because of their inability to find new jobs. These workers may need to start collecting retirement benefits now to make ends meet, resulting in lower income in retirement and an increased risk of poverty in old age.
Paul Krugman, NYT blog: Growth and jobs. If we take 3rd quarter growth (3,5 %) to be more or less equivalent to average Clinton-era growth, even after 8 years of growth at that rate we’d only expect unemployment to have fallen from the current 9.8% to a still uncomfortably high 6.3%. If we use a Taylor rule that suggests zero rates until the unemployment rate reaches the vicinity of 7%, the Fed should stay on hold for around 6 more years.
Moyen, Stähler, Buba: Unemployment insurance and the business cycle: Prolong benefit entitlements in bad times? Because of consumption smoothing, such a countercyclical policy can be welfare-enhancing as long as it does not affect labor market adjustment too severely or even helps to reduce inefficiencies there. If, however, the labor market is quite inflexible already, procyclical behavior may be preferable. In a calibrated dynamic business cycle framework, we find that countercyclical benefit entitlement duration may be preferable in the US but not in Europe.
Bandiera et al, LSE: The causal effect of interim feedback on individuals’ university performance. Our strategy exploits a natural experiment in a leading UK university where different departments have historically different rules on the provision of feedback to their students. We find the provision of feedback has a positive effect on student’s subsequent test scores throughout the ability distribution, with the effect being more pronounced for more able students. We find no evidence of any individuals being discouraged by feedback.
Caroline M. Hoxby, NBER: The Changing Selectivity of American Colleges: The top ten percent of colleges are substantially more selective now than 5 decades ago, most colleges are not. The explanation is that the elasticity of a student's preference for a college with respect to its proximity to his home has fallen substantially over time and there has been a corresponding increase in the elasticity of his preference for a college with respect to its resources and peers. Even though tuition has been rising rapidly at the most selective schools, the deal students get there has arguably improved greatly. The result is that the "stakes" associated with admission to these colleges are much higher now than in the past.
Levitt, Superfreakonomics: Men respond strongly to cash incentives, women not. In a SAT-style math experiment with 20 questions, in one version every participant was paid 5$ to show up and 15$ for completing the test. In the second version, 5$ to show up and 2$ for each correct answer. Women’s performance did barely react to the cash incentive, average men scored an extra 2 correct answers.
Breit, Hirsch, Trinity U, TX: Why winners of the Economic Prize in the memory of Alfred Nobel took up economics, what drove them. Few wanted to become an economist to begin with (James Tobin, Vernon Smith, William Sharpe, James Heckman). Some took up economics as alternative plans were closed or not worth it (Arthur Lewis, John Harsanyi). Some dont like calling themselves an economist (Granger, Coase). Some pointed to the Role of Great Depression in taking up economics (James Tobin, Paul Samuelson, Robert Solow). Others pointed on the Role of luck (Friedman, Becker).
Zhenxiang, Kaestner, NBER: Effects of Urban Sprawl on Obesity. We exploit the plausibly exogenous variation in population density caused by the expansion of the U.S. Interstate Highway System. We find a negative association between population density and obesity. Estimates indicate that if the average metropolitan area had not experienced the decline in the proportion of population living in dense areas over the last 30 years, the rate of obesity would have been reduced by approximately 13%.
Adams, Telegraph UK: Climate change belief given same legal status as religion. An executive has won the right to sue his employer on the basis that he was unfairly dismissed for his green views after a judge ruled that environmentalism had the same weight in law as religious and philosophical beliefs.
Ronald Noe, PNAS: Economics For Monkeys. The vervet monkey of southern and eastern Africa uses grooming as a kind of currency. They determine the value of food providers and divide their attention according to the law of supply and demand.
Bauer, Herrell, Fed Cleveland: Do Shipping Volumes Signal an End of the Recession? The pattern of manufacturers’ shipments looks similar to the way the 2001 recession ended. The most recent values for freight and passenger transportation services’ 12-month percentage change are still declining, but since June they have moved up from their recent lows. A series that goes back further—and that seems more closely tuned to the overall business cycle—is the Federal Highway Administration’s estimate of vehicle miles of travel. This monthly serie is up.
IMF: The State of Public Finances Cross-Country Fiscal Monitor. Japan, the United Kingdom, Ireland and Spain are projected to require the largest fiscal adjustment. Only Denmark, Korea, Norway, Australia and Sweden among advanced economies will require little or no medium-term adjustment to keep debt stocks at safe levels.
Paul Krugman, Princeton: Increasing returns in a comparative advantage world. Even during comparative-advantage trade eras increasing returns in the form of localized external economies plays a significant role. In fact, the same eras in which comparative advantage seems to have ruled international trade are also the eras in which increasing returns has seemed to exert its strongest influence on intra-national economic geography. And this observation isn’t irrelevant even in the trade context: gains from localization arguably are a significant source of gains from trade, even if they don’t seem to affect the pattern of specialization. Imports of labor-intensive goods from developing countries exert a depressing influence on the real wages of less-skilled workers in advanced countries, but the role of local external economies may offer a partial offset.
Coile, Levine, VoxEU: The current economic crisis will lead to more retirements. Some relatively wealthier workers will be forced to delay retirement, but a larger number of workers with fewer economic resources will be forced into retirement because of their inability to find new jobs. These workers may need to start collecting retirement benefits now to make ends meet, resulting in lower income in retirement and an increased risk of poverty in old age.
Paul Krugman, NYT blog: Growth and jobs. If we take 3rd quarter growth (3,5 %) to be more or less equivalent to average Clinton-era growth, even after 8 years of growth at that rate we’d only expect unemployment to have fallen from the current 9.8% to a still uncomfortably high 6.3%. If we use a Taylor rule that suggests zero rates until the unemployment rate reaches the vicinity of 7%, the Fed should stay on hold for around 6 more years.
Moyen, Stähler, Buba: Unemployment insurance and the business cycle: Prolong benefit entitlements in bad times? Because of consumption smoothing, such a countercyclical policy can be welfare-enhancing as long as it does not affect labor market adjustment too severely or even helps to reduce inefficiencies there. If, however, the labor market is quite inflexible already, procyclical behavior may be preferable. In a calibrated dynamic business cycle framework, we find that countercyclical benefit entitlement duration may be preferable in the US but not in Europe.
Bandiera et al, LSE: The causal effect of interim feedback on individuals’ university performance. Our strategy exploits a natural experiment in a leading UK university where different departments have historically different rules on the provision of feedback to their students. We find the provision of feedback has a positive effect on student’s subsequent test scores throughout the ability distribution, with the effect being more pronounced for more able students. We find no evidence of any individuals being discouraged by feedback.
Caroline M. Hoxby, NBER: The Changing Selectivity of American Colleges: The top ten percent of colleges are substantially more selective now than 5 decades ago, most colleges are not. The explanation is that the elasticity of a student's preference for a college with respect to its proximity to his home has fallen substantially over time and there has been a corresponding increase in the elasticity of his preference for a college with respect to its resources and peers. Even though tuition has been rising rapidly at the most selective schools, the deal students get there has arguably improved greatly. The result is that the "stakes" associated with admission to these colleges are much higher now than in the past.
Levitt, Superfreakonomics: Men respond strongly to cash incentives, women not. In a SAT-style math experiment with 20 questions, in one version every participant was paid 5$ to show up and 15$ for completing the test. In the second version, 5$ to show up and 2$ for each correct answer. Women’s performance did barely react to the cash incentive, average men scored an extra 2 correct answers.
Breit, Hirsch, Trinity U, TX: Why winners of the Economic Prize in the memory of Alfred Nobel took up economics, what drove them. Few wanted to become an economist to begin with (James Tobin, Vernon Smith, William Sharpe, James Heckman). Some took up economics as alternative plans were closed or not worth it (Arthur Lewis, John Harsanyi). Some dont like calling themselves an economist (Granger, Coase). Some pointed to the Role of Great Depression in taking up economics (James Tobin, Paul Samuelson, Robert Solow). Others pointed on the Role of luck (Friedman, Becker).
Zhenxiang, Kaestner, NBER: Effects of Urban Sprawl on Obesity. We exploit the plausibly exogenous variation in population density caused by the expansion of the U.S. Interstate Highway System. We find a negative association between population density and obesity. Estimates indicate that if the average metropolitan area had not experienced the decline in the proportion of population living in dense areas over the last 30 years, the rate of obesity would have been reduced by approximately 13%.
Adams, Telegraph UK: Climate change belief given same legal status as religion. An executive has won the right to sue his employer on the basis that he was unfairly dismissed for his green views after a judge ruled that environmentalism had the same weight in law as religious and philosophical beliefs.
Ronald Noe, PNAS: Economics For Monkeys. The vervet monkey of southern and eastern Africa uses grooming as a kind of currency. They determine the value of food providers and divide their attention according to the law of supply and demand.
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