Christina D. Romer, NYT: The Debate That’s Muting the Fed’s Response. The Fed could engage in much more aggressive quantitative easing, both in size and in scope, to further lower long-term interest rates and value of the dollar. It could more effectively convey to markets its intentions for the funds rate, which would also lower long-term rates. And it could set a price-level target, which, unlike an inflation target, calls for Fed policy to take past years’ price changes into account. That would lead the Fed to counteract some of the extremely low inflation during the recession with a more expansionary policy and lower real rates for a while. All of these alternatives would be helpful and would retain the Fed’s credibility as a defender of price stability. And any would be better than doing too little just because some Fed policy makers believe in an unproven, theoretical view of how inflation works.
Barry Eichengreen, Spiegel: 'Europe's Banks Are in Far Greater Danger Than People Realize'. The present bailout attempts have never made sense. Essentially, all Germany and France Greece Europe needs to strengthen its banks! Greece lived beyond its means, but in Ireland and Spain
Rochelle M Edge, Refet S. Gürkaynak, VoxEU: Dynamic stochastic general equilibrium models and their forecasts. Studies have shown that the forecasts from dynamic stochastic general equilibrium models perform better than central banks' judgemental forecasts as well as forecasts based on statistical analysis but without a theoretical foundation. This column shows that performing better is hardly good performance given how badly all three forecasts compare with reality.
Olivier Blanchard, Gian Maria Milesi-Ferretti: (Why) Should Current Account Balances Be Reduced? The purpose of this note is to discuss two complex issues. First, why might a country want to reduce its current account deficit or surplus? And second, why might the international community ask for more? Answers to these questions are needed to inform the design of “rules of the game” that countries should abide by, and address the G-20’s request to the IMF to help develop “indicative guidelines” for the reduction of global current account imbalances. In general, there are both domestic and multilateral reasons for countries to reduce current account deficits and surpluses. In many cases, current account balances reflect underlying domestic distortions. It is then in the interest of the country to remove those distortions and, in the process, reduce imbalances. We identify three instances in which the case for reducing imbalances rests on multilateral considerations.
Kenneth Rogoff, Project Syndicate: Global Imbalances without Tears. With policymakers and pundits railing against sustained oversized trade imbalances, we need to recognize that the real problems are rooted in excessive concentrations of debt. If G-20 governments stood back and asked themselves how to channel a much larger share of the imbalances into equity-like instruments, the global financial system that emerged just might be a lot more robust than the crisis-prone system that we have now.
Patrick Slovik, Boris Cournède, OECD: Macroeconomic Impact of Basel III. The estimated medium-term impact of Basel III implementation on GDP growth is in the range of -0.05 to -0.15 percentage point per annum. Economic output is mainly affected by an increase in bank lending spreads as banks pass a rise in bank funding costs, due to higher capital requirements, to their customers. To meet the capital requirements effective in 2015 (4.5% for the common equity ratio, 6% for the Tier 1 capital ratio), banks are estimated to increase their lending spreads on average by about 15 basis points. The capital requirements effective as of 2019 (7% for the common equity ratio, 8.5% for the Tier 1 capital ratio) could increase bank lending spreads by about 50 basis points. The estimated effects on GDP growth assume no active response from monetary policy. To the extent that monetary policy will no longer be constrained by the zero lower bound, the Basel III impact on economic output could be offset by a reduction (or delayed increase) in monetary policy rates by about 30 to 80 basis points.
Galina Hale, San Francisco Fed: Could We Have Learned from the Asian Financial Crisis of 1997-98? Economists drew a number of lessons from the Asian financial crisis of 1997-98 for preventing such episodes or mitigating their effects. Some of those are similar to lessons drawn from the global financial crisis of 2007-09. But differences in economic development and sophistication of the financial systems of East Asian countries compared with those of the United States and Western Europe made it difficult to apply the lessons of the earlier crisis.
Something pretty incredible is going on in Germany U.S. and much of the rest of the developed world is suffering not only with high unemployment, but also stubborn unemployment, Germany Germany
Robert Barro, WSJ: Unions vs. the Right to Work. Labor unions like to portray collective bargaining as a basic civil liberty, akin to the freedoms of speech, press, assembly and religion. For a teachers union, collective bargaining means that suppliers of teacher services to all public school systems in a state—or even across states—can collude with regard to acceptable wages, benefits and working conditions. An analogy for business would be for all providers of airline transportation to assemble to fix ticket prices, capacity and so on. From this perspective, collective bargaining on a broad scale is more similar to an antitrust violation than to a civil liberty.
Mark Thoma, The Fiscal Times: How Unions’ Trickle-Down Effect Trickled Away. Unions may have been the answer at one time, but the world has changed since the 1970s. In today’s increasingly globalized world where private-sector companies can easily move production to escape unions, where unionized jobs are disappearing because of technological change, and where states are passing laws to reduce power the power of organized labor, unions are losing their influence. The only institution powerful enough to protect workers now is government. However, it’s hard to be optimistic that any of this will actually happen. Budget problems and political realities make it unlikely that government will provide new benefits or engage in substantial redistribution. In fact, with the way things look these days, working-class households will be lucky to keep what they already have.
Annette Bergemann, Marco Caliendo, Gerard J. van den Berg, Klaus F. Zimmermann, IZA: The Threat Effect of Participation in Active Labor Market Programs on Job Search Behavior of Migrants in Germany. Labor market programs may affect unemployed individuals' behavior before they enroll. Such ex ante effects may differ according to ethnic origin. We apply a novel method that relates self-reported perceived treatment rates and job search behavioral outcomes, such as the reservation wage or search intensity, to each other. We compare German native workers with migrants with a Turkish origin or Central and Eastern European (including Russian) background. Job search theory is used to derive theoretical predictions. We examine the omnibus ex ante effect of the German ALMP system, using the novel IZA Evaluation Data Set, which includes self-reported assessments of the variables of interest as well as an unusually detailed amount of information on behavior, attitudes and past outcomes. We find that the ex ante threat effect on the reservation wage and search effort varies considerably among the groups considered.
Sáez-Martí, Maria, Zenou, Yves, Stockholm University: Cultural Transmission, Discrimination and Peer Effects. Workers can have good or bad work habits. These traits are transmitted from one generation to the next through a learning and imitation process which depends on parents’ investment on the trait and the social environment where children live. We show that, if a high enough proportion of employers have taste-based prejudices against minority workers, their prejudices are always self-fulfilled in steady state. Affirmative Action improves the welfare of minorities whereas integration is beneficial to minority workers but detrimental to workers from the majority group. If Affirmative Action quotas are high enough or integration is strong enough, employers’ negative stereotypes cannot be sustained in steady-state.
Catherine Rampell, NYT Blog: Bernanke for Early Childhood Education? Traditionally, Federal Reserve chairmen have generally avoided wading into fiscal policy matters, in order to help preserve the independence of the Fed. The Fed, after all, sets monetary policy, and it doesn’t want politicians sticking their noses into interest rates either. My how times have changed. On Wednesday, the Fed chairman, Ben S. Bernanke, not only gave an entire speech about the spending and taxation challenges facing local governments but explicitly advocated against cuts to education spending:
Rajashri Chakrabarti, NY Fed: Vouchers, Responses, and the Test-Taking Population: Regression Discontinuity Evidence from Florida. This paper investigates whether the threat of vouchers and the stigma associated with the Florida Florida
Simon Burgess, Deborah Wilson, Jack Worth, University of Bristol: A natural experiment in school accountability: the impact of school performance information on pupil progress and sorting. We test the hypothesis that the publication of school performance tables raises school effectiveness. Our data allow us to implement a classic difference-in-difference analysis comparing outcomes in England and Wales , before and after the abolition of the tables in Wales Wales Wales
Eleonora Patacchini, Yves Zenou, VoxEU: Are friends important in educational outcomes? Most people agree that friends matter – not just for personal wellbeing but for achieving their goals in life. Several studies have shown this to be particularly the case in education but the detection and measure of such peer effects is often found wanting. Using detailed information on friendship networks of American high-school students, this column finds that the friends we make at age 15 to 18 have a strong and persistent effect on our lives.
Mark A. Aguiar, Mark Bils, NBER: Has Consumption Inequality Mirrored Income Inequality? We find that the consumption inequality implied by savings behavior largely tracks income inequality between 1980 and 2007. We use a demand system to correct for systematic measurement error in the CE's expenditure data. Specifically, we consider trends in the relative expenditure of high income and low income households for different goods with different income (total expenditure) elasticities. Our estimation exploits the difference in the growth rate of luxury consumption inequality versus necessity consumption inequality. This "double-differencing,'' which we implement in a regression framework, corrects for mis-measurement that can systematically vary over time by good and income group. This second exercise indicates that consumption inequality has closely tracked income inequality over the period 1980-2007. Both of our measures show a significantly greater increase in consumption inequality than what is obtained from the CE's total household expenditure data directly.
Economics Department, OECD: Health Care Systems: Getting More Value For Money. On average across the OECD, life expectancy at birth could be raised by more than two years, while holding health care spending steady, if all countries were to become as efficient as the best performers. By way of comparison, assuming no reform, a 10% increase in health care spending would increase life expectancy by only three to four months. Reinforcing priority setting would contribute to improved efficiency. This would require particular attention in countries such as Austria , Greece , Luxembourg , Mexico and Sweden Australia , Canada , Denmark , Italy , Mexico , Sweden , Switzerland and the United Kingdom
Mathilde Almlund et al, IZA: Personality psychology and economics. The predictive power of personality measures is compared with the predictive power of measures of cognition captured by IQ and achievement tests. For many outcomes, personality measures are just as predictive as cognitive measures, even after controlling for family background and cognition. Moreover, standard measures of cognition are heavily influenced by personality traits and incentives. Measured personality traits are positively correlated over the life cycle. However, they are not fixed and can be altered by experience and investment. Intervention studies, along with studies in biology and neuroscience, establish a causal basis for the observed effect of personality traits on economic and social outcomes. Personality traits are more malleable over the life cycle compared to cognition, which becomes highly rank stable around age 10. Interventions that change personality are promising avenues for addressing poverty and disadvantage.
Anindya Sen, Marcel Voia, Frances Woolley, Carleton University: Hot or Not: How Appearance Affects Earnings and Productivity in Academia. In this paper we examine the impact of a professor’s appearance, as rated by students, on his or her salary, controlling for research and teaching productivity. We also estimate the impacts of a professor’s appearance on the quality of his or her teaching, as evaluated by students, and the impact of appearance on research productivity, as measured by citations, publications, co-authorship, and grant funding. Our study is based on data describing economics professors at sixteen universities. Although a relatively small proportion of our sample is rated “hot” by students, hotness generates, for some, a significant earnings premium, even with comprehensive controls for productivity. We find a strong relationship between hotness and teaching productivity, but a much weaker relationship between hotness and research productivity.
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