Rong Qian, Carmen M. Reinhart, Kenneth Rogoff, VoxEU: Do countries “graduate” from crises? Some historical perspective. Are declarations of victory against the global crisis premature? This column argues that “graduation” – the emergence from recurrent crisis bouts – is a long and painful process which neither developed nor developing countries look close to completing. Two centuries of evidence suggests that most countries need 50 years before the chances of further crises subside.
Garry Tang, Christian Upper, BIS: Debt reduction after crises. A possible concern is that a sustained period of debt reduction might lead to low growth in the future. Our analysis casts doubt on this. Growth rebounds rather quickly in most of our episodes, even though debt ratios continue to fall. We take this as indication that it is possible to reduce debt and still experience healthy growth. For this to be the case, policymakers have first to fix the problems in the banking system that led to the financial crisis. The experience of
Marco Bassetto, R. Andrew Butters, Chicago Fed: What is the relationship between large deficits and inflation in industrialized countries? The evidence presented in this article shows that large fiscal deficits in industrialized countries did not coincide with higher inflation, nor did large deficits precede higher inflation. Facing sizable fiscal imbalances, central banks in these countries were nonetheless able to maintain an orderly monetary policy. A tempting interpretation is that these central banks stood fast because their independence allowed them to do so and they wanted to preserve their solid reputations; at the same time, central bank independence shielded governments from the temptation to force the monetization of debt, and led fiscal authorities to revert quickly to a sustainable debt path. However, a full account of the institutions that supported price stability in the face of large fiscal shocks is beyond the scope of this article.
Pietro Catte el al, Bank of Italy: The role of macroeconomic policies in the global crisis. We focus on 2002-07 and perform a number of counterfactual simulations to investigate two central elements of the story, namely: (a) an over-expansionary US monetary policy and the absence of effective macro-prudential supervision, which permitted a prolonged expansion of debt-financed consumer spending; (b) the decision of China and other emerging countries to pursue an export-led growth strategy supported by pegging their currencies to the US dollar, resulting in a huge build-up of their official reserves, in conjunction with sluggish domestic demand in surplus advanced economies characterized by low potential output growth. The results of the simulations lend support to the view that if substantial, globally coordinated demand rebalancing had been undertaken in a timely manner, the macroeconomic and financial imbalances would not have accumulated to the extent that they did and the financial turmoil might have had less drastic global consequences.
Christian Merkl, Dennis Wesselbaum, IZA: Extensive vs. Intensive Margin in Germany and the United States: Any Differences? We provide an update of older
Ana Rute Cardoso, Paulo Guimaraes, José Varejão, IZA: Are Older Workers Worthy of Their Pay? An Empirical Investigation of Age-Productivity and Age-Wage Nexuses. Using longitudinal employer-employee data spanning over a 22-year period, we compare age-wage and age-productivity profiles and find that productivity increases until the age range of 50-54, whereas wages peak around the age 40-44. At younger ages, wages increase in line with productivity gains but as prime-age approaches, wage increases lag behind productivity gains. As a result, older workers are, in fact, worthy of their pay, in the sense that their contribution to firm-level productivity exceeds their contribution to the wage bill. On the methodological side, we note that failure to account for the endogenous nature of the regressors in the estimation of the wage and productivity equations biases the results towards a pattern consistent with underpayment followed by overpayment type of policies.
Ron Kaniel, Cade Massey, David T. Robinson, NBER: The Importance of Being an Optimist: Evidence from Labor Markets. Dispositional optimism is a personality trait associated with individuals who believe, either rightly or wrongly, that in general good things tend to happen to them more often than bad things. Using a novel longitudinal data set that tracks the job search performance of MBA students, we show that dispositional optimists experience significantly better job search outcomes than pessimists with similar skills. During the job search process, they spend less effort searching and are offered jobs more quickly. They are choosier and are more likely to be promoted than others. Although we find optimists are more charismatic and are perceived by others to be more likely to succeed, these factors alone do not explain away the findings. Most of the effect of optimism on economic outcomes stems from the part that is not readily observed by one's peers.
Eric P. Bettinger, NBER: Paying to Learn: The Effect of Financial Incentives on Elementary School Test Scores. Policymakers and academics are increasingly interested in applying financial incentives to individuals in education. This paper presents evidence from a pay for performance program taking place in
Noelia Duchovny, Colin Baker, CBO: How Does Obesity in Adults Affect Spending on Health Care? From 1987 to 2007, the fraction of adults who were overweight or obese increased from 44 percent to 63 percent; almost two-thirds of the adult population now falls into one of those categories. The share of obese adults rose particularly rapidly, more than doubling from 13 percent to 28 percent. Health care spending per adult grew substantially in all weight categories between 1987 and 2007, but the rate of growth was much more rapid among the obese (defined as those with a body-mass index greater than or equal to 30). Spending per capita for obese adults exceeded spending for adults of normal weight by about 8 percent in 1987 and by about 38 percent in 2007. If the distribution of adults by weight between 1987 and 2007 had changed only to reflect demographic changes, such as the aging of the population, then health care spending per adult in 2007 would have been roughly 3 percent below the actual 2007 amount.
Raquel Fernández, NBER: Does Culture Matter? The evidence that culture matters for a large variety of economic outcomes is by now sufficiently strong that most readers would find it convincing. The evidence presented in this paper shows that cultural preferences and beliefs have a life of their own in the sense that, even when removed from the environment in which they originated, they continue to exercise influence over individual outcomes. Culture plays a quantitatively significant role in explaining variation in women’s work and fertility outcomes. Second-generation Americans whose parents come from countries with stronger family ties tend to have lower geographic mobility, a higher probability of unemployment, and lower hourly wages even after controlling for individual characteristics such as age, education, marital status, gender, and number of children as well as state fixed effects.
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