JUNE 24 2011

ECB: Inflation in the Euro Area and the United States. Why do inflation rates in the United States and the euro area react differently to similar shocks. While exact numerical results such as those shown in Charts D and E are model-specific, a general conclusion that can be derived from these kind of exercises is that US inflation reacts more strongly to movements in oil prices and the output gap than euro area inflation does. At the same time, the exercises confirm the higher persistence of inflation in the euro area and underline the importance for monetary policy to anchor inflation expectations in a manner which is compatible with price stability over the medium term.

Menzie Chinn, Barry Eichengreen, and Hiro Ito, University of Wisconsin: A forensic analysis of global imbalances. Changes in the budget balance appear to be an important factor affecting current account balances for advanced current account deficit countries such as the United States and the United Kingdom. The effect of the “saving glut variables” on current account balances has been relatively stable for emerging market countries, suggesting the prominence of those factors is not a particularly recent phenomenon. We also find the 2006-08 period to be the structural break for emerging market countries, and to a lesser extent, for industrialized countries. When we investigate what can explain the purportedly anomalous behavior in the current account balances during the 2006-08 period, we find that stock market performance and real housing appreciation explain the unusual current account balances in the pre-crisis period; fiscal procyclicality and monetary policy stance do not seem to matter as much. Extrapolating to the future, we find that for the U.S., fiscal consolidation alone cannot induce significant current account deficit reduction. For China, financial development may help shrink its current account surplus, but only when it is coupled with financial liberalization. These findings suggest that unless countries implement substantial policy changes, the global imbalances are unlikely to disappear.

Michael Greenstone, Adam Looney, The Hamilton Project: A Strategy for America’s Energy Future: Illuminating Energy’s Full Costs. Our energy choices are based on the visible costs that appear on utility bills and at the gas pump. This system masks the social costs arising from those energy choices, including shorter lives, higher health care expenses, a changing climate, and weakened national security. As a result, we pay unnecessarily high costs for energy.

Björn Bartling, Ernst Fehr, Daniel Schunk, IZA: Health Effects on Children's Willingness to Compete. The formation of human capital is important for a society’s welfare and economic success. Recent literature shows that child health can provide an important explanation for disparities in children's human capital development across different socio-economic groups. While this literature focuses on cognitive skills as determinants of human capital, it neglects non-cognitive skills. We analyze data from economic experiments with preschoolers and their mothers to investigate whether child health can explain developmental gaps in children's non-cognitive skills. Our measure for children's non-cognitive skills is their willingness to compete with others. Our findings suggest that health problems are negatively related to children's willingness to compete and that the effect of health on competitiveness differs with socio-economic background. Health has a strongly negative effect in our sub-sample with low socioeconomic background, whereas there is no effect in our sub-sample with ! high socio-economic background.

Jennifer Sloan Mccombs et al, RAND: Making Summer Count. The loss of knowledge and educational skills during the summer months is cumulative over the course of a student's career and further widens the achievement gap between low- and upper-income students, according to a RAND Corporation study issued today. The study confirms that students who attend summer programs can disrupt the educational loss and do better in school than peers who do not attend the same programs.

Sheldon H. Jacobson, Douglas M. King, Rong Yuan, University of Illinois: A note on the relationship between obesity and driving. Vehicle travel and obesity rates in the United States have surged in recent decades. This paper contributes to the mounting evidence of a link between them by drawing attention to a very close relationship between trends in miles driven per licensed driver and adult obesity rates six years later. It also presents evidence on why the effect might be expected to be lagged by six years. A simple model is produced, which predicts reductions in obesity rates over the next few years. If these reductions come about, the model will be seen to offer a powerful insight into the relationship between driving and obesity. If the relationship is more than coincidental, it has implications for transport policy and supports the development of a multi-pronged, interdisciplinary approach to tackle increased driving and obesity.

David Leonhardt, NYT Blog: A Look at How Many Calories $1 Will Buy. One dollar’s worth of Coke has 447 calories, while $1 of iceberg lettuce has just 16.5. To look at it another way, you would have to spend about $5 to buy 2,000 calories at McDonald’s, $19 to buy 2,000 calories worth of canned tuna and $60 to buy 2,000 calories worth of lettuce. These gaps have become larger over time, as this chart makes clear:

Melissa Bateson et al, Current Biology: Agitated Honeybees Exhibit Pessimistic Cognitive Biases. We ask whether honeybees display a pessimistic cognitive bias when they are subjected to an anxiety-like state induced by vigorous shaking designed to simulate a predatory attack. We show for the first time that agitated bees are more likely to classify ambiguous stimuli as predicting punishment. Shaken bees also have lower levels of hemolymph dopamine, octopamine, and serotonin. In demonstrating state-dependent modulation of categorization in bees, and thereby a cognitive component of emotion, we show that the bees’ response to a negatively valenced event has more in common with that of vertebrates than previously thought. This finding reinforces the use of cognitive bias as a measure of negative emotional states across species and suggests that honeybees could be regarded as exhibiting emotions.