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.