SEPTEMBER 21 2017

Chiranjit Chakraborty, Andreas Joseph, BoE: Machine learning at central banks. We present popular modelling approaches, such as artificial neural networks, tree-based models, support vector machines, recommender systems and different clustering techniques. Important concepts like the bias-variance trade-off, optimal model complexity, regularisation and cross-validation are discussed to enrich the econometrics toolbox in their own right. We present three case studies relevant to central bank policy, financial regulation and economic modelling more widely. First, we model the detection of alerts on the balance sheets of financial institutions in the context of banking supervision. Second, we perform a projection exercise for UK CPI inflation on a medium-term horizon of two years. Here, we introduce a simple training-testing framework for time series analyses. Third, we investigate the funding patterns of technology start-ups with the aim to detect potentially disruptive innovators in financial technology. Machine learning models generally outperform traditional modelling approaches in prediction tasks, while open research questions remain with regard to their causal inference properties.

Wolfgang Dauth, Sebastian Findeisen, Jens Südekum, Nicole Woessner, VOX: The rise of robots in the German labour market. Recent research has shown that industrial robots have caused severe job and earnings losses in the US. This column explores the impact of robots on the labour market in Germany, which has many more robots than the US and a much larger manufacturing employment share. Robots have had no aggregate effect on German employment, and robot exposure is found to actually increase the chances of workers staying with their original employer. This effect seems to be largely down to efforts of work councils and labour unions, but is also the result of fewer young workers entering manufacturing careers.

Seth Wynes, Kimberly A Nicholas, Environmental Research Letters: The climate mitigation gap: education and government recommendations miss the most effective individual actions. Current anthropogenic climate change is the result of greenhouse gas accumulation in the atmosphere, which records the aggregation of billions of individual decisions. Here we consider a broad range of individual lifestyle choices and calculate their potential to reduce greenhouse gas emissions in developed countries, based on 148 scenarios from 39 sources. We recommend four widely applicable high-impact (i.e. low emissions) actions with the potential to contribute to systemic change and substantially reduce annual personal emissions: having one fewer child (an average for developed countries of 58.6 tonnes CO2-equivalent (tCO2e) emission reductions per year), living car-free (2.4 tCO2e saved per year), avoiding airplane travel (1.6 tCO2e saved per roundtrip transatlantic flight) and eating a plant-based diet (0.8 tCO2e saved per year). These actions have much greater potential to reduce emissions than commonly promoted strategies like comprehensive recycling (four times less effective than a plant-based diet) or changing household lightbulbs (eight times less). Though adolescents poised to establish lifelong patterns are an important target group for promoting high-impact actions, we find that ten high school science textbooks from Canada largely fail to mention these actions (they account for 4% of their recommended actions), instead focusing on incremental changes with much smaller potential emissions reductions. Government resources on climate change from the EU, USA, Canada, and Australia also focus recommendations on lower-impact actions. We conclude that there are opportunities to improve existing educational and communication structures to promote the most effective emission-reduction strategies and close this mitigation gap.

Noam Scheiber, NYT: The Shkreli Syndrome: Youthful Trouble, Tech Success, Then a Fall. People who become entrepreneurs are not only apt to have had high self-esteem while growing up (and to have been white, male and financially secure). They are also more likely than others to have been intelligent people who engaged in illicit activities in their teenage years and early 20s. And those indiscretions have not been limited to using drugs or skipping school, but have included antisocial acts like taking property by force or stealing goods worth less than $50. In light of the recent troubles of Mr. Shkreli and other scandal-ridden entrepreneurs like Travis Kalanick, the former Uber chief executive, and Parker Conrad, a founder and ousted chief executive of the multibillion-dollar human resources software firm Zenefits, the question is whether youthful rule-breaking might have foreshadowed not only their rise, but also their fall.

Micha Kaiser, Mirjam Reutter, Alfonso Sousa-Poza, Kristina Strohmaier, IZA: Smoking and the Business Cycle: Evidence from Germany. In this paper, we use data from the German Socio-Economic Panel to investigate the effect on cigarette consumption of macro-economic conditions in the form of regional unemployment rates. The results from our panel data models, several of which control for selection bias, indicate that the propensity to become a smoker increases significantly during an economic downturn, with an approximately 0.7 percentage point increase for each one percentage point rise in the unemployment rate. Conversely, conditional on the individual being a smoker, cigarette consumption decreases during recessions, with a one percentage point increase in the regional unemployment rate leading to an up to 0.8 percent decrease in consumption.

Roland G. Fryer J., Harvard University: Management and Student Achievement: Evidence from a Randomized Field Experiment. This study examines the impact on student achievement of implementing management training for principals in traditional public schools in Houston, Texas, using a school-level randomized field experiment. Across two years, principals were provided 300 hours of training on lesson planning, data-driven instruction, and teacher observation and coaching. The findings show that offering management training to principals significantly increases student achievement in all subjects in year one and has an insignificant effect in year two. We argue that the results in year two are driven by principal turnover, coupled with the cumulative nature of the training. Schools with principals who are predicted to remain in their positions for both years of the experiment demonstrate large treatment effects in both years – particularly those with principals who are also predicted to implement the training with high fidelity – while those with principals that are predicted to leave have statistically insignificant effects in each year of treatment.

Daniel Charbonneau , Takao Sasaki, Anna Dornhaus, PLOS: Who needs ‘lazy’ workers? Inactive workers act as a ‘reserve’ labor force replacing active workers, but inactive workers are not replaced when they are removed. Social insect colonies are highly successful, self-organized complex systems. Surprisingly however, most social insect colonies contain large numbers of highly inactive workers. Although this may seem inefficient, it may be that inactive workers actually contribute to colony function. Indeed, the most commonly proposed explanation for inactive workers is that they form a ‘reserve’ labor force that becomes active when needed, thus helping mitigate the effects of colony workload fluctuations or worker loss. Thus, it may be that inactive workers facilitate colony flexibility and resilience. However, this idea has not been empirically confirmed. Here we test whether colonies of Temnothorax rugatulus ants replace highly active (spending large proportions of time on specific tasks) or highly inactive (spending large proportions of time completely immobile) workers when they are experimentally removed. We show that colonies maintained pre-removal activity levels even after active workers were removed, and that previously inactive workers became active subsequent to the removal of active workers. Conversely, when inactive workers were removed, inactivity levels decreased and remained lower post-removal.