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Manage Research Papers

1234 - Exchange Rates and Consumer Prices : Evidence from Brexit

Holger Breinlich, Elsa Leromain, Dennis Novy and Thomas Sampson

This paper studies how the depreciation of sterling following the Brexit referendum affected consumer prices in the United Kingdom. Our identification strategy uses input-output linkages to account for heterogeneity in exposure to import costs across product groups. We show that, after the referendum, inflation increased by more for product groups with higher import shares in consumer expenditure. This effect is driven by both direct consumption of imported goods and the use of imported inputs in domestic production. Our results are consistent with complete pass-through of import costs to consumer prices and imply an aggregate exchange rate pass-through of 0.29. We estimate the Brexit vote increased consumer prices by 2.9 percent, costing the average household £870 per year. The increase in the cost of living is evenly shared across the income distribution, but differs substantially across regions.

Date
Friday, 13 December 2019
Tags
2019, Inactive

1233 - Markups, Quality, and Trade Costs

Natalie Chen and Luciana Juvenal

We investigate theoretically and empirically how exporters adjust their mark ups across destinations depending on bilateral distance, tariffs, and the quality of their exports. Under the assumption that trade costs are both ad valorem and per unit, our model predicts that mark ups rise with distance and fall with tariffs, but these effects are heterogeneous and are smaller in magnitude for higher quality exports. We find strong support for the predictions of the model using a unique data set of Argentinean firm-level wine exports combined with experts wine ratings as a measure of quality.

Date
Thursday, 12 December 2019
Tags
2019, Inactive

1132 - Housing insecurity, homelessness and populism: Evidence from the UK

Thiemo Fetzer, Srinjoy Sen & Pedro CL Souza

Homelessness and precarious living conditions are on the rise across much of theWesternworld. Thispaperexploitsexogenousvariationintheaffordability of rents due to a cut that substantially lowered housing benefit – a welfare benefit aimed at helping low income households pay rent. Before April 2011, local housing allowance covered up to the median level of market rents; from April 2011 onwards, only rents lower than the 30th percentile were covered. We exploit that the extent of cuts significantly depend on statistical noise due to estimation of percentiles. We document that the affordability shock caused a significant increase in: evictions; individual bankruptcies; property crimes; share of households living in insecure temporary accommodation; statutory homelessness and actual rough sleeping. The fiscal savings of the cut are much smaller than anticipated. We estimate that for every pound saved by the central government, council spending to meet statutory obligations for homelessness prevention increases by 53 pence. We further document political effects: the housing benefit cut causes lower electoral registration rates and is associated with lower turnout and higher support for Leave in the 2016 EU referendum, most likely driven by its unequal impact on the composition of those that engage with democratic processes.

Date
Tuesday, 10 December 2019
Tags
2019, Active

1231 - Erasing Ethnicity? Propaganda, Nation Building and Identity in Rwanda

Arthur Blouin & Sharun W. Mukand

This paper examines whether propaganda broadcast over radio helped to change interethnic attitudes in post-genocide Rwanda. We exploit variation in exposure to the government’s radio propaganda due to the mountainous topography of Rwanda. Results of lab-in-the-field experiments show that individuals exposed to government propaganda have lower salience of ethnicity, increased inter-ethnic trust and show more willingness to interact face-to-face with members of another ethnic group. Our results suggest that the observed improvement in inter-ethnic behavior is not cosmetic, and reflects a deeper change in interethnic attitudes. The findings provide some of the first quantitative evidence that the salience of ethnic identity can be manipulated by governments.

Date
Friday, 06 December 2019
Tags
2019, Active

1230 - High Dimensional Latent Panel Quantile Regression with an Application to Asset Pricing

Alexandre Belloni, Mingli Chen, Oscar Hernan Madrid Padilla, and Zixuan (Kevin) Wang

We propose a generalization of the linear panel quantile regression model to accommodate both sparse and dense parts: sparse means while the number of covariates available is large, potentially only a much smaller number of them have a nonzero impact on each conditional quantile of the response variable; while the dense part is represented by a low-rank matrix that can be approximated by latent factors and their loadings. Such a structure poses problems for traditional sparse estimators, such as the `1-penalised Quantile Regression, and for traditional latent factor estimator, such as PCA. We propose a new estimation procedure, based on the ADMM algorithm, that consists of combining the quantile loss function with `1 and nuclear norm regularization. We show, under general conditions, that our estimator can consistently estimate both the nonzero coefficients of the covariates and the latent low-rank matrix. Our proposed model has a “Characteristics + Latent Factors” Asset Pricing Model interpretation: we apply our model and estimator with a large-dimensional panel of financial data and find that (i) characteristics have sparser predictive power on latent factors were controlled (ii) the factors and coefficients at upper and lower quantiles are different from the median.

Date
Thursday, 05 December 2019
Tags
2019, Active

1229 - Monte Carlo Sampling Processes and Incentive Compatible Allocations in Large Economies

Peter J. Hammond, Lei Qiao & Yeneng Sun

Monte Carlo simulation is used in [13] to characterize a standard stochastic framework involving a continuum of random variables that are conditionally independent given macro shocks. This paper presents some general properties of such Monte Carlo sampling processes, including their one-way Fubini extension and regular conditional independence. In addition to the almost sure convergence of Monte Carlo simulation considered in [13], here we also consider norm convergence when the random variables are square integrable. This leads to a necessary and sufficient condition for the classical law of large numbers to hold in a general Hilbert space. Applying this analysis to large economies with asymmetric information shows that the conflict between incentive compatibility and Pareto efficiency is resolved asymptotically for almost all sampling economies, corresponding to some results in [21] and [24].

Date
Thursday, 07 November 2019
Tags
2019, Active

1227 - Tariffs and Politics: Evidence from Trump’s Trade Wars

Thiemo Fetzer and Carlo Schwarz

We use the recent trade escalation between the US, China, the European Union (EU), Canada and Mexico to study whether retaliatory tariffs are politically targeted. Using aggregate and individual-level data we find evidence that the retaliatory tariffs disproportionally targeted areas that swung to Trump in 2016, but not to other Republican candidates. We propose a novel simulation approach to construct counterfactual retaliation responses. This allows us to both quantify the extent of political targeting and assess the general feasibility. Further, the counterfactual retaliation responses allow us to shed light on the potential trade-offs between achieving a high degree of political targeting and managing the risks to ones own economy. China, while being constrained in its retaliation design, appears to put large weight on achieving maximal political targeting. The EU seems successful in maximizing the degree of political targeting, while at the same time minimizing the potential damage to its own economy and consumers.

Date
Tuesday, 22 October 2019
Tags
2019, Active

1226 - A Game of Hide and Seek in Networks

Francis Bloch, Bhaskar Dutta & Marcin Dziubinski

We propose and study a strategic model of hiding in a network, where the network designer chooses the links and his position in the network facing the seeker who inspects and disrupts the network. We characterize optimal networks for the hider, as well as equilibrium hiding and seeking strategies on these networks. We show that optimal networks are either equivalent to cycles or variants of a core-periphery networks where every node in the periphery is connected to a single node in the core.

Date
Monday, 21 October 2019
Tags
2019, Active

1225 - Patent-Based News Shocks

Danilo Cascaldi-Garcia & Marija Vukotic

In this paper we exploit firm-level data on patent grants and subsequent reactions of their stocks to identify technological news shocks. Changes in stock market valuations due to announcements of individual patent grants represent expected future increases in the technology level, which we refer to as patent-based news shocks. Our patent-based news shocks resemble diffusion news in that they do not affect total factor productivity in the short-run but account for about 20 percent of its variations after five years. These shocks induce positive co-movement between consumption, output, investment and hours. Unlike the existing empirical evidence, patent-based news shocks generate a positive response in inflation and the federal funds rate, in line with a standard New Keynesian model. Patenting activity in electronic and electrical equipment industries within the manufacturing sector and computer programming and data processing services within the services sector play a crucial role in driving our results.

Date
Wednesday, 18 September 2019
Tags
2019, Active

1224 - E-governance, Accountability, and Leakage in Public Programs: Experimental Evidence from a Financial Management Reform in India

Abhijit Banerjee, Esther Duflo, Clement Imbert, Santhosh Mathew & Rohini Pande

Can e-governance reforms improve government policy? By making information available on a real time basis, information technologies may reduce the theft of public funds. We analyze a large field experiment and the nationwide scale-up of a reform to India's workfare program. Advance payments were replaced by "just-in-time" payments, triggered by e-invoicing, making it easier to detect misreporting. Leakages went down: program expenditures dropped by 24%, while employment slightly increased; there were fewer fake households in the official database; program officials' personal wealth fell by 10%. However, payment delays increased. The nationwide scale-up resulted in a persistent 19% reduction in program expenditure.

Date
Tuesday, 17 September 2019
Tags
2019, Active

1223 - The Political Economy of the Prussian Three-class Franchise

Sascha O. Becker and Erik Hornung

Did the Prussian three-class franchise, which politically over-represented the economic elite, affect policy-making? Combining MP-level political orientation, derived from all roll call votes in the Prussian parliament (1867–1903), with constituency characteristics, we analyze how local vote inequality, determined by tax payments, affected policymaking during Prussia’s period of rapid industrialization. Contrary to the predominant view that the franchise system produced a conservative parliament, higher vote inequality is associated with more liberal voting, especially in regions with large-scale industry. We argue that industrialists preferred self-serving liberal policies and were able to coordinate on suitable MPs when vote inequality was high.

Date
Monday, 09 September 2019
Tags
2019, Active

1222 - Analysis of Networks via the Sparse β-Model

Mingli Chen, Kengo Kato & Chenlei Leng

Data in the form of networks are increasingly available in a variety of areas, yet statistical models allowing for parameter estimates with desirable statistical properties for sparse networks remain scarce. To address this, we propose the Sparse β-Model (SβM), a new network model that interpolates the celebrated Erdos-Renyi model and the β-model that assigns one different parameter to each node. By a novel reparameterization of the β-model to distinguish global and local parameters, our SβM can drastically reduce the dimensionality of the β-model by requiring some of the local parameters to be zero. We derive the asymptotic distribution of the maximum likelihood estimator of the SβM when the support of the parameter vector is known. When the support is unknown, we formulate a penalized likelihood approach with the `0-penalty. Remarkably, we show via a monotonicity lemma that the seemingly combinatorial computational problem due to the `0-penalty can be overcome by assigning nonzero parameters to those nodes with the largest degrees. We further show that a β-min condition guarantees our method to identify the true model and provide excess risk bounds for the estimated parameters. The estimation procedure enjoys good finite sample properties as shown by simulation studies. The usefulness of the SβM is further illustrated via the analysis of a microfinance take-up example.

Date
Wednesday, 28 August 2019
Tags
2019, Active

1221 - The Pre-1914 UK Productivity Slowdown: A Reappraisal

Nicholas Crafts and Terence C. Mills

This paper re-examines UK productivity growth in the decades before World War I using a new dataset compiled by Thomas and Dimsdale (2017). We find that the productivity slowdown of the early 20th century was quite modest and does not deserve to be called a climacteric. A more serious slowdown in labour productivity growth occurred in the 1870s. Neither of these episodes should be regarded as a precedent for the current severe deterioration in UK productivity performance. Nor should a late-Victorian productivity slowdown be attributed to the end of the steam age despite the popularity of this belief.

Date
Wednesday, 07 August 2019
Tags
2019, Active

1220 - Can Workfare Programs Moderate Conflict? Evidence from India

Thiemo Fetzer

Can public interventions persistently reduce conflict? Adverse weather shocks, through their impact on incomes, have been identified as robust drivers of conflict in many contexts. An effective social insurance system moderates the impact of adverse shocks on house hold in comes,and hence,could attenuate the link between these shocks and conflict. This paper shows that a public employment program in India, by providing an alternative source of income through a guarantee of 100 days of employment at minimum wages, effectively provides insurance. This has an indirect pacifying effect. By weakening the link between productivity shocks and incomes, the program uncouples productivity shocks from conflict, leading persistently lower conflict levels.

Date
Monday, 05 August 2019
Tags
2019, Active

1219 - Education and Polygamy: Evidence from Cameroon

Pierre André and Yannick Dupraz

We take advantage of a wave of school constructions in Cameroon after World War II and use variations in school supply at the village level to estimate labor and marriage market returns to education in the 1976 population census. Education increases the likelihood to be in a polygamous union for men and for women, as well as the overall socioeconomic status of the spouse. We argue that education increases polygamy for women because it allows them to marry more educated and richer men, who are more likely to be polygamists. To show this, we estimate a structural model of marriage with polygamy. The positive affinity between a man’s polygamy and a woman’s education is mostly explained by the affinity of education.

Date
Saturday, 03 August 2019
Tags
2019, Active

1218 - How Polarized are Citizens? Measuring Ideology from the Ground-Up

Mirko Draca and Carlo Schwarz

Strong evidence has been emerging that major democracies have become more politically polarized, at least according to measures based on the ideological positions of political elites. We ask: have the general public (‘citizens’) followed the same pattern? Our approach is based on unsupervised machine learning models as applied to issue position survey data. This approach firstly indicates that coherent, latent ideologies are strongly apparent in the data, with a number of major, stable types that we label as: Liberal Centrist, Conservative Centrist, Left Anarchist and Right Anarchist. Using this framework, and a resulting measure of ‘citizen slant’, we are then able to decompose the shift in ideological positions across the population over time. Specifically, we find evidence of a ‘disappearing center’ in a range of countries with citizens shifting away from centrist ideologies into anti-establishment ‘anarchist’ ideologies over time. This trend is especially pronounced for the US.

Date
Friday, 02 August 2019
Tags
2019, Active

1217 - On Target? The Incidence of Sanctions Across Listed Firms in Iran

Mirko Draca, Jason Garred, Leanne Stickland and Nele Warrinnier

How successful are sanctions at targeting the economic interests of political elites in affected countries? We study the efficacy of targeting in the case of Iran, using information on the stock exchange-listed assets of two specific political entities with substantial influence over the direction of Iran’s nuclear program. Our identification strategy focuses on the process of negotiations for sanctions removal, examining which interests benefit most from news about diplomatic progress. We find that the stock returns of firms owned by targeted political elites respond especially sharply to such news, though other listed firms unconnected to these elites also benefit from progress towards sanctions relief. These results indicate the ‘bluntness’ of sanctions on Iran, but also provide evidence of their effectiveness in generating economic incentives for elite policymakers to negotiate a deal for sanctions relief.

Date
Thursday, 01 August 2019
Tags
2019, Active

1216 - The Sources of British Economic Growth since the Industrial Revolution: Not the Same Old Story

Nicholas Crafts

This paper updates the classic growth accounting research of the early 1980s taking account of improved data that has subsequently become available. The picture of long-run growth which results from incorporating many revisions is considerably different. The long-run path of productivity growth is now that of a roller-coaster with twin peaks in the third quarters of the 19th and 20th centuries rather than a U-shape. Productivity growth appears to have been very slow to accelerate in the Industrial Revolution, the notion of an Edwardian climacteric is not persuasive and the current productivity slowdown stands out as unprecedented.

Date
Sunday, 14 July 2019
Tags
Active, 2019

1215 - Is the UK Productivity Slowdown Unprecedented?

Nicholas Crafts and Terence C. Mills

We estimate trend UK labour productivity growth using a Hodrick-Prescott filter method. We use the results to compare downturns where the economy fell below its pre-existing trend. We find that the current productivity slow down has resulted in productivity being 19.7% below the pre-2008 trend path in 2018. This is nearly double the previous worst productivity short fall ten years after the start of a downturn. On this criterion the slow down is unprecedented in the last 250 years. We conjecture that this reflects a combination of adverse circumstances, namely, a financial crisis, a weakening impact of ICT and impending Brexit

Date
Saturday, 13 July 2019
Tags
2019, Active

1214 - Experimentation in Dynamic R&D Competition

Anastasios Dosis & Abhinay Muthoo

We study a two-stage, winner-takes-all, R&D race, in which, at the outset, firms are uncertain regarding the viability of the project. Learning through experimentation introduces a bilateral (dynamic) feedback mechanism. For relatively low-value products,the equilibrium stopping time coincides with the socially efficient stopping time although firms might experiment excessively in equilibrium; for relatively high-value products, firms might reduce experimentation and stop rather prematurely due to the fundamental free-riding effect. Perhaps surprisingly, a decrease in the value of the product can spur experimentation.

Date
Friday, 12 July 2019
Tags
2019, Active

1213 - Identification with External Instruments in Structural VARs under Partial Invertibility

Silvia Miranda-Agrippino & Giovanni Ricco

This paper discusses the conditions for identification in SVAR-IVs when only the shock of interest or a subset of the structural shocks can be recovered as a linear combination of the VAR residuals. This condition of partial invertibility is very general, often of empirical relevance, and less stringent than the standard full invertibility that is routinely assumed in the SVAR literature. We show that, under partial invertibility, the dynamic responses can be correctly recovered using an external instrument even when this correlates with leads and lags of other invertible shocks. We call this a limited lead-lag exogeneity condition. We evaluate our results in a simulated environment, and provide an empirical application to the case of monetary policy shocks.

Date
Thursday, 11 July 2019
Tags
2019, Active

1212 - Rent extraction with securities plus cash

Tingjun Liu & Dan Bernhardt

Auctions employing steeper securities generate greater revenues when bidders have equal opportunity costs. However, when opportunity costs rise sufficiently quickly with valuations, security bids decrease in NPV and steeper securities reduce seller revenues. We show that when such adverse selection obtains, using combinations of securities with differing steepness can generate higher revenues than using securities of the same steepness. We determine the optimal combination of cash plus equity; identify a novel way of implementing the optimal mechanism via decreasing royalty rates; establish the robustness of the mechanism; and identify when auction designs combining cash with steeper-than-equity securities increase seller revenues.

Date
Wednesday, 10 July 2019
Tags
2019, Active

1211 - The Night and Day of Amihud’s (2002) Liquidity Measure

Yashar H. Barardehi, Dan Bernhardt, Thomas G. Ruchti & Marc Weidenmier

Amihud’s (2002) stock (il)liquidity measure averages the daily ratio of absolute closeto-close return to dollar volume, including overnight returns, while trading volumes come from regular trading hours. Our modified measure addresses this mis-match by using open-to-close returns. It better explains cross-sections of returns, doubling estimated liquidity premia over 1964–2017. Using non-synchronous trading near close as an instrument reveals that overnight returns are primarily information-driven and orthogonal to price impacts of trading. Thus, including them in liquidity proxies magnifies measurement error, understating liquidity premia. Our modification especially matters when applications in finance and accounting render use of intraday data infeasible/undesirable.

Date
Tuesday, 09 July 2019
Tags
2019, Active

1210 - Selective Hiring and Welfare Analysis in Labor Market Models

Christian Merkl & Thijs van Rens

Firms select not only how many, but also which workers to hire. Yet, in most labor market models all workers have the same probability of being hired. We argue that selective hiring crucially affects welfare analysis. We set up a model that is isomorphic to a search model under random hiring but allows for selective hiring. With selective hiring, the positive predictions of the model change very little, but implications for welfare are different for two reasons. First, a hiring externality occurs with random but not with selective hiring. Second, the welfare costs of unemployment are much larger with selective hiring, because unemployment risk is distributed unequally across workers.

Date
Monday, 08 July 2019
Tags
2019, Active

1209 - Positive and Negative Campaigning in Primary and General Elections

Dan Bernhardt & Meenakshi Ghosh

We analyze primary and general election campaigning. Positive campaigning builds a candidate’s reputation; negative campaigning damages a rival’s. Each primary candidate hopes to win the general election; but failing that, he wants his primary rival to win. We establish that general elections always feature more negative campaigning than positive, as long as reputations are easier to tear down than build up. In contrast, if the effects of primary campaigns strongly persist, primary elections always feature more positive campaigning than negative. This reflects that a primary winner benefits only from his positive primary campaigning in general elections, and negative campaigning by a rival hurts.

Date
Sunday, 07 July 2019
Tags
2019, Active

1208 - Taxation and Supplier Networks: Evidence from India

Lucie Gadenne, Tushar K. Nandi and Roland Rathelot

Do tax systems distort firm-to-firm trade? This paper considers the effect of tax policy on supplier networks in a large developing economy, the state of West Bengal in India. Using administrative panel data on firms, including transaction data for 4.8 million supplier-client pairs, we first document substantial segmentation of supply chains between firms paying Value-Added Taxes (VAT) and non-VAT-paying firms. We then develop a model of firms’ sourcing and tax decisions within supply chains to understand the mechanisms through which tax policy interacts with supply networks. The model predicts partial segmentation in equilibrium because of both supply-chain distortions (taxes affect how much firms trade with each other) and strategic complementarities in firms’ tax choices. Finally, we test the model’s predictions using variations over time within-firm and within supplier-client pairs. We find that the tax system distorts firms’ sourcing decisions, and suggestive evidence of strategic complementarities in firms’ tax choices within supplier networks.

Date
Saturday, 06 July 2019
Tags
2019, Active

1207 - Externalities and financial crisis – enough to cause collapse?

Marcus Miller and Lei Zhang

After the boom in US subprime lending came the bust - with a run on US shadow banks. The magnitude of boom and bust were, it seems, amplified by two significant externalities triggered by aggregate shocks: the endogeneity of bank equity due to mark-to-market accounting and of bank liquidity due to ‘fire-sales’ of securitised assets. We show how adding a systemic ‘bank run’ to the canonical model of Adrian and Shin allows for a tractable analytical treatment - including the counterfactual of complete collapse that forces the Treasury and the Fed to intervene.

Date
Saturday, 29 June 2019
Tags
2019, Active

1206 - Malas Notches

Ben Lockwood

This paper shows that the sufficient statistic approach to the welfare properties of income (and other) taxes does not easily extend to tax systems with notches, because with notches, changes in bunching induced by changes in tax rates have a first-order effect on tax revenues. In an income tax setting, we show that the marginal excess burden (MEB) of a change in the top rate of tax is given by the Feldstein (1999) formula for the MEB of a proportional tax, plus a correction term. These correction terms cannot be calculated just from knowledge of the elasticity of taxable income and quantitatively, they can be large. An application to VAT is discussed; with a calibration to UK data, the MEB of the VAT is roughly three times what is would be if VAT was simply a proportional tax.

Date
Friday, 28 June 2019
Tags
2019, Active

1205 - Accounting for Mismatch Unemployment

Thijs van Rens and Benedikt Herz

We investigate unemployment due to mismatch in the United States over the past three and a half decades. We propose an accounting framework that allows us to estimate the contribution of each of the frictions that generated labor market mismatch. Barriers to job mobility account for the largest part of mismatch unemployment, with a smaller role for barriers to worker mobility. We find little contribution of wage-setting frictions to mismatch.

Date
Thursday, 27 June 2019
Tags
2019, Active

1204 - A test of speculative arbitrage: is the cross-section of volatility invariant?

Yashar H. Barardehi, Dan Bernhardt & Thomas G. Ruchti

We derive testable implications of Kyle and Obizhaeva’s (2016) notion of “bet invariance” for the cross-section of trade-time volatilities. We jointly develop theoretical foundations of “no speculative arbitrage” whose implications incorporate those of bet invariance. Our proposed test circumvents the unobservable nature of “bets.” Utilizing a large sample of U.S. stocks post decimilization, we show that using realized volatilities rather than expected volatilities introduces noise that substantially biases the tests. This leads us to use estimates of normalized volatilities based on running 24 month windows. We find strong support for no speculative arbitrage at a moment in time, but not across time.

Date
Wednesday, 26 June 2019
Tags
2019, Active

1203 - Blockholder Disclosure Thresholds and Hedge Fund Activism

Guillem Ordonez-Calafi & Dan Bernhardt

Blockholder disclosure thresholds are under scrutiny due to their impact on the incentives for hedge fund activism, which in equilibrium are jointly determined with real investment and managerial behavior. We set up and study a comprehensive framework of the key mechanisms at play: initial investors in a firm—who value the disciplining effects of activism on management, but incur costs trading with activists who know their own value-enhancing potential; activists—who value higher thresholds when establishing equity stakes, but incur costs if high thresholds reduce real investment or discourage managerial misbehavior; and firm managers—who weigh private benefits of value-reducing actions against potential punishment if activists intervene. We characterize the optimal thresholds for initial investors, activist funds and society. When managers are unresponsive to threat of activism, initial investors and society value tighter disclosure thresholds than activists. In contrast, activists value tighter thresholds when managerial behavior is responsive to the threat of activism.

Date
Tuesday, 25 June 2019
Tags
2019, Active

1202 - When do co-located firms selling identical products thrive?

Dan Bernhardt, Evangelos Constantinou & Mehdi Shadmehr

When consumers only see prices once they visit stores, and some consumers have time to comparison shop, co-location commits stores to compete and lower prices, which draws consumers away from isolated stores. Profits of co-located firms are a single-peaked function of the number of shoppers—co-located firms thrive when there are some shoppers, but not too many. When consumers know in advance whether they have time to shop, effects are enhanced: co-located stores may draw enough shoppers to drive the expected price paid by a non-shopper below that paid when consumers do not know if they will have time to shop

Date
Monday, 24 June 2019
Tags
2019, Active

1200 - Costly auction entry, royalty payments, and the optimality of asymmetric designs

Dan Bernhardt, Tingjun Liu, and Takeharu Sogo

We analyze optimal auction mechanisms when bidders base costly entry decisions on their valuations, and bidders pay with a fixed royalty rate plus cash. With sufficient valuation uncertainty relative to entry costs, the optimal mechanism features asymmetry so that bidders enter with strictly positive but different (ex-ante) probabilities. When bidders are ex-ante identical, higher royalty rates—which tie payments more closely to bidder valuations—increase the optimal degree of asymmetry in auction design, further raising revenues. When bidders differ ex-ante in entry costs, the seller favors the low cost entrant; whereas when bidders have different valuation distributions, the seller favors the weaker bidder if entry costs are low, but not if they are high. Higher royalty rates cause the seller to favor the weaker bidder by less, and the strong bidder by more.

Date
Thursday, 20 June 2019
Tags
2019, Active

1199 - News We Like to Share: How News Sharing on Social Networks Influences Voting Outcomes

Kirill Pogorelskiy & Matthew Shum

More voters than ever get political news from their friends on social media platforms. Is this bad for democracy? Using context-neutral laboratory experiments, we find that biased (mis)information shared on social networks affects the quality of collective decisions relatively more than does segregation by political preferences on social media. Two features of subject behavior underlie this finding: 1) they share news signals selectively, revealing signals favorable to their candidates more often than unfavorable signals; 2) they naıvely take signals at face value and account for neither the selection in the shared signals nor the differential informativeness of news signals across different sources.

Date
Saturday, 15 June 2019
Tags
2019, Active

1198 - The Dynamic Effects of Tax Audits

Arun Advani, William Elming and Jonathan Shaw

Understanding causes of and solutions to non-compliance is important for a tax authority. In this paper we study how and why audits affect reported tax in the years after audit – the dynamic effect – for individual income taxpayers. We exploit data from a random audit program covering more than 53,000 income tax self assessment returns in the UK, combined with data on the population of tax filers between 1999 and 2012. We first document that there is substantial non-compliance in this population. One in three filers underreports the tax owed. Third party information on an income source does not predict whether a taxpayer is non-compliant on that income source, though it does predict the extent of underreporting. Using the random nature of the audits, we provide evidence of dynamic effects. Audits raise reported tax liabilities for at least five years after audit, implying an additional yield 1.5 times the direct revenue raised from the audit. The magnitude of the impact falls over time, and this decline is faster for less autocorrelated income sources. Taking an event study approach, we further show that the change in reporting behaviour comes only from those found to have made errors in their tax report. Finally, using an extension of the Allingham-Sandmo (1972) model, we show that these results are best explained by audits providing the tax authority with information, which then constrains taxpayers’ ability to misreport.

Date
Wednesday, 05 June 2019
Tags
2019, Active

1197 - Trade Blocs and Trade Wars during the Interwar Period

David S. Jacks and Dennis Novy

What precisely were the causes and consequences of the trade wars in the 1930s? Were there perhaps deeper forces at work in reorienting global trade prior to the outbreak of World War II? And what lessons may this particular historical episode provide for the present day? To answer these questions, we distinguish between long-run secular trends in the period from 1920 to 1939 related to the formation of trade blocs (in particular, the British Commonwealth) and short-run disruptions associated with the trade wars of the 1930s (in particular, large and widespread declines in bilateral trade, the narrowing of trade imbalances, and sharp drops in average traded distances). We argue that the trade wars mainly served to intensify pre-existing efforts towards the formation of trade blocs which dated from at least 1920. More speculatively, we argue that the trade wars of the present day may serve a similar purpose as those in the 1930s, that is, the intensification of China- and US-centric trade blocs.

Date
Saturday, 01 June 2019
Tags
2019, Active

1196 - Testing for collusion in bus contracting in London

Michael Waterson and Jian Xie

We investigate the London bus market, a large market with regular procurement of bus services, for possible collusion using a wide variety of techniques, making use of the data at our disposal. There is little evidence of collusion in bidding for contracts apparent from our data, despite some features of the market that might lead to collusive behaviour.

Date
Friday, 10 May 2019
Tags
2019, Active

1195 - Search Frictions and Evolving Labour Market Dynamics

Michael Ellington, Chris Martin & Bingsong Wang

This paper puts search frictions models under novel empirical scrutiny and tests their ability to match empirical observations. To capture changing dynamics we fit an extended Bayesian time-varying parameter VAR to US labour market data from 1962–2016. We find strong evidence against key predictions of the search frictions model, namely a large surge in vacancy creation in response to productivity shocks and a negative relationship between the volatilities of unemployment and wages. Our results question the amplification mechanism embedded in search frictions models and cast doubt on wage rigidity as a source of unemployment volatility.

Date
Wednesday, 08 May 2019
Tags
2019, Active

1194 - How to Improve Tax Compliance? Evidence from Population wide Experiments in Belgium

Jan-Emmanuel De Neve, Clement Imbert, Johannes Spinnewijn, Teodora Tsankova & Maarten Luts

We study the impact of deterrence, tax morale, and simplifying information on tax compliance. We ran five experiments spanning the tax process which varied the communication of the tax administration with all income taxpayers in Belgium. A consistent picture emerges across experiments: (i) simplifying communication increases compliance, (ii) deterrence messages have an additional positive effect, (iii) invoking tax morale is not effective. Even tax morale messages that improve knowledge and appreciation of public services do not raise compliance. In fact, heterogeneity analysis with causal forests shows that tax morale treatments backfire for most taxpayers. In contrast, simplification has large positive effects on compliance, which diminish over time due to follow-up enforcement. A discontinuity in enforcement intensity, combined with the experimental variation, allows us to compare simplification with standard enforcement measures. Simplification is far more cost-effective, allowing for substantial savings on enforcement costs, and also improves compliance in the next tax cycle.

Date
Sunday, 05 May 2019
Tags
2019, Active

1193 - Discrimination in Hiring Based on Potential and Realized Fertility: Evidence from a Large-Scale Field Experiment

Sascha O. Becker, Ana Fernandes and Doris Weichselbaumer

Due to conventional gender norms, women are more likely to be in charge of childcare than men. From an employer’s perspective, in their fertile age they are also at “risk” of pregnancy. Both factors potentially affect hiring practices of firms. We conduct a largescale correspondence test in Germany, Switzerland, and Austria, sending out approx. 9,000 job applications, varying job candidate’s personal characteristics such as marital status and age of children. We find evidence that, for part-time jobs, married women with older kids, who likely finished their childbearing cycle and have more projectable childcare chores than women with very young kids, are at a significant advantage vis-àvis other groups of women. At the same time, married, but childless applicants, who have a higher likelihood to become pregnant, are at a disadvantage compared to single, but childless applicants to part-time jobs. Such effects are not present for full-time jobs, presumably, because by applying to these in contrast to part-time jobs, women signal that they have arranged for external childcare.

Date
Saturday, 20 April 2019
Tags
2019, Active

1192 - Mostly Harmless Simulations? Using Monte Carlo Studies for Estimator Selection

Arun Advani, Toru Kitagawa and Tymon Słoczyński

We consider two recent suggestions for how to perform an empirically motivated Monte Carlo study to help select a treatment effect estimator under unconfoundedness. We show theoretically that neither is likely to be informative except under restrictive conditions that are unlikely to be satisfied in many contexts. To test empirical relevance, we also apply the approaches to a real-world setting where estimator performance is known. Both approaches are worse than random at selecting estimators which minimise absolute bias. They are better when selecting estimators that minimise mean squared error. However, using a simple bootstrap is at least as good and often better. For now researchers would be best advised to use a range of estimators and compare estimates for robustness.

Date
Monday, 15 April 2019
Tags
2019, Active

1191 - Small Talk and Theory of Mind in Strategic Decision-Making

Neha Bose and Daniel Sgroi

Small talk is a ubiquitous feature of social interaction but almost by definition seems to have little strategic importance and has hardly been studied within the social sciences. In a laboratory setting with 338 subjects, we show that short seemingly unimportant communication between players who know nothing about the games that are to follow (and so cannot engage in cheap talk) nevertheless has a dramatic and important effect. Through small talk players were able to better predict the personalities of their partners (especially their level of extraverion) building a sensible “theory of mind” which in turn boosted their payoffs in subsequent public goods and level-k reasoning games. Important psychological factors such as perceived similarity and self-projection also proved important. Additional insight is provided by text analysis on the language used during communication which indicates how theory of mind can be developed through trivial and seemingly irrelevant small talk.

Date
Monday, 01 April 2019
Tags
2019, Active

1190 - Interview of Peter J Hammond

Philippe Mongin, GREGHEC, Paris

Following an initiative of Social Choice and Welfare, this is the result of an interview conducted by email exchange during the period from July 2017 to February 2018, with minor adjustments later in 2018. Apart from some personal history, topics discussed include: (i) social choice, especially with interpersonal comparisons of utility; (ii) utilitarianism, including Harsanyi’s contributions; (iii) consequentialism in decision theory and in ethics; (iv) the independence axiom for decisions under risk; (v) welfare economics under uncertainty; (vi) incentive compatibility and strategy-proof mechanisms, especially in large economies; (vii) Pareto gains from trade, and from migration; (viii) cost–benefit analysis and welfare measurement; (ix) the possible future of normative economics.

Date
Wednesday, 20 March 2019
Tags
2019, Active

1189 - Community Origins of Industrial Entrepreneurship in Pre-Independence India

Bishnupriya Gupta, Dilip Mookherjee, Kaivan Munshi, & Mario Sanclemente

We argue that community networks played an important role in the emergence of Indian entrepreneurship in the early stages of the cotton textile and jute textile industries in the late 19th and early 20th century respectively, overcoming the lack of market institutions and government support. From business registers, we construct a yearly panel dataset of entrepreneurs in these two industries. We find no evidence that entry is affected by prior trading experience or price shocks in the corresponding upstream sector. Firm directors exhibited a high degree of clustering of entrepreneurs by community. The dynamics of entry is consistent with a model of network-based dynamics.

Date
Friday, 15 March 2019
Tags
2019, Active

1188 - Organizing Competition for the Market

Elisabetta Iossa, Patrick Rey & Michael Waterson

The paper studies competition for the market in a setting where incumbents (and, to a lesser extent, neighbouring incumbents) benefit from a cost advantage. The paper first compares the outcome of staggered and synchronous tenders, before drawing the implications for market design. We find that the timing of tenders should depend on the likelihood of monopolization. When monopolization is expected, synchronous tendering is preferable, as it strengthens the pressure that entrants exercise on the monopolist. When instead other firms remain active, staggered tendering is preferable, as it maximizes the competitive pressure that comes from the other firms

Date
Tuesday, 12 March 2019
Tags
2019, Active

1187 - Rigidities and adjustments of daily prices to costs: Evidence from supermarket data

Monica Giulietti, Jesus Otero, & Michael Waterson

We assess the extent of inertia in grocery retail prices using data on prices and costs from a large supermarket chain in Colombia. Relative to previous work our analysis benefits from the daily frequency of the data and the availability of reliable replacement cost data. We uncover evidence supporting the existence of significant nominal rigidities in reference prices (three months) and even more so in reference costs (about five months). There is evidence that the price and cost rigidities differ depending on the type of product, being on average smaller in the case of perishable goods. Using an Error Correction Model framework, we examine the path of prices relative to costs, to determine the speed of adjustment of prices to shocks.

Date
Tuesday, 05 March 2019
Tags
2019, Active

1186 - Historical Analysis of National Subjective Wellbeing using millions of Digitized Books

Thomas Hills, Eugenio Proto & Daniel Sgroi

In addition to improving quality of life, higher subjective wellbeing leads to fewer health problems, higher productivity, and better incomes. For these reasons subjective wellbeing has become a key focal issue among scientific researchers and governments. Yet no scientific investigator knows how happy humans were in previous centuries. Here we show that a new method based on quantitative analysis of digitized text from millions of books published over the past 200 years captures reliable trends in historical subjective wellbeing across four nations. This method uses psychological valence norms for thousands of words to compute the relative proportion of positive and negative language, indicating relative happiness during national and international wars, financial crises, and in comparison to historical trends in longevity and GDP. We validate our method using Eurobarometer survey data from the 1970s onwards and in comparison with economic, medical, and political events since 1820 and also use a set of words with stable historical meanings to support our findings. Finally we show that our results are robust to the use of diverse corpora (including text derived from newspapers) and different word norms.

Date
Friday, 01 March 2019
Tags
2019, Active

1185 - Migrants and Firms: Evidence from China

Clement Imbert, Marlon Seror, Yifan Zhang, & Yanos Zylberberg

This paper estimates the causal effect of rural-urban migration on urban production in China. We use longitudinal data on manufacturing firms between 2001 and 2006 and exploit exogenous variation in rural-urban migration due to agricultural price shocks. Following a migrant inflow, labor costs decline and employment expands. Labor productivity decreases sharply and remains low in the medium run. A quantitative framework suggests that destinations become too labor-abundant and migration mostly benefits low productivity firms within locations. As migrants select into high-productivity destinations, migration however strongly contributes to the equalization of factor productivity across locations.

Date
Friday, 28 December 2018
Tags
2018, Active

1183 - The Financial Alchemy that Failed

Marcus Miller

With his conception of successive ‘Ages of Capitalism’, Anatole Kaletsky provides a canvas broad enough to encompass the banking crisis of 2008 and much more. After briefly outlining the Four Ages he identifies, we focus on the period of the Great Moderation when Inflation Targeting seemed to have solved the problem macroeconomic management – until it ended in spectacular failure. The rapid growth of cross-border banking – with securitized assets funded by wholesale money – evidently posed threats to financial stability that had been ignored by a regime targeting consumer prices. We look at three: the pecuniary externalities exerted by asset price changes on investment banking; information failures leading to an exaggerated banking boom; and the risk of insolvency in the subsequent ‘bank run’. The financial system pre-crash was, it seems, flawed by two Fallacies of Composition: by regulation that reckoned making individual banks safe guaranteed systemic stability; and a business model that reckoned securitization ensured liquidity whenever necessary. Finally, we discuss how, in different countries, the law has variously been invoked to handle reckless banking.

Date
Wednesday, 26 December 2018
Tags
2018, Active

1182 - Wars, Local Political Institutions, and Fiscal Capacity: Evidence from Six Centuries of German History

Sascha O. Becker, Andreas Ferrara, Eric Melander & Luigi Pascali

We study the effect of warfare on the development of state capacity and representative institutions using novel data on cities and territories in the German lands between 1200 and 1750. More specifically, we show that cities with a higher conflict exposure establish more sophisticated tax systems, but also develop larger councils, councils that are more likely to be elected by citizens, and more likely to be independent of other local institutions. These results are consistent with the idea of a trade-off between more efficient taxation and power sharing proposed in earlier work. We make headway on establishing a causal role of wars by using changes to German nobles’ positions within the European nobility network to instrument for conflict.

Date
Thursday, 20 December 2018
Tags
2018, Active

1181 - Politics in the Facebook Era Evidence from the 2016 US Presidential Elections

Federica Liberini, Michela Redoano, Antonio Russo, Angel Cuevas and Ruben Cuevas

Social media enable politicians to personalize their campaigns and target voters who may be decisive for the outcome of elections. We assess the effects of such political “micro-targeting” by exploiting variation in daily advertising prices on Facebook, collected during the course of the 2016 U.S. presidential campaign. We analyze the variation of prices across political ideologies and propose a measure for the intensity of online political campaigns. Combining this measure with information from the ANES electoral survey, we address two fundamental questions: (i) To what extent did political campaigns use social media to micro-target voters? (ii) How large was the effect, if any, on voters who were heavily exposed to campaigning on social media? We find that online political campaigns targeted on users’ gender, geographic location, and political ideology had a significant effect in persuading undecided voters to support Mr Trump, and in persuading Republican supporters to turn out on polling day. Moreover the effect of micro-targeting on Facebook was strongest among users without university or college-level education.

Date
Saturday, 20 October 2018
Tags
2018, Active

1180 - The Race to the Base

Dan Bernhardt, Peter Buisseret & Sinem Hidir

We study multi-district legislative elections between two office-seeking parties when the election pits a relatively strong party against a weaker party; when each party faces uncertainty about how voter preferences will evolve during the campaign; and, when each party cares not only about winning a majority, but also about its share of seats in the event that it holds majority or minority status. When the initial imbalance favoring one party is small, each party targets the median voter in the median district, in pursuit of a majority. When the imbalance is moderate, the advantaged party continues to hold the centre-ground, but the disadvantaged party retreats to target its core supporters; it does so to fortify its minority share of seats in the likely event that it fails to secure a majority. Finally, when the imbalance is large, the advantaged party advances toward its opponent, raiding its moderate supporters in pursuit of an outsized majority

Date
Wednesday, 10 October 2018
Tags
2018, Active

1179 - Unemployment Volatility in a Behavioural Search Model

Chris Martin & Bingsong Wang

Recent evidence that the opportunity cost of employment is pro cyclical implies that existing models based around search frictions in the labour market cannot match the large volatilities of unemployment and vacancies observed in the data. In this paper, we incorporate insights from behavioural economics into the search frictions framework. The resultant model can match observed volatilities even if the opportunity cost is strongly pro cyclical. The key mechanism in the model is that the pro-cyclicality of the opportunity cost has a limited impact on the reference wage of workers; this feeds through into a limited volatility of the wage and so to a large unemployment volatility

Date
Friday, 05 October 2018
Tags
2018, Active

1178 - Sustainable Debt

Gaetano Bloise, Herakles Polemarchakis & Yiannis Vailakis

Debt is sustainable at a competitive equilibrium due solely to the reputation of debtors for repayment; that is, even absent collateral or legal sanctions available to creditors. Under incomplete markets, when the rate of interest (net of growth) is recurrently negative, self-insurance is more costly than borrowing, and repayments on loans are enforced by the implicit threat of loss of risk-sharing advantages of debt contracts. Private debt credibly circulates as a form of inside money and, in general, is not valued as a speculative bubble; it is distinct from outside money. Competitive equilibria with self-enforcing debt exist under a suitable hypothesis of gains from trade.

Date
Monday, 01 October 2018
Tags
2018, Active

1177 - Ticketing as if consumers mattered

Michael Waterson

There are continued complaints on matters of event ticketing, particularly in music, despite recent changes in legislation and in practice. This report, a development of ideas following from Waterson (2016), sets out a personal view on the market, focusing on the UK and in particular the music sector, as it now exists. In it, I ask and respond to a self-imposed question- what might an improved ticketing system set out to achieve? In my view, a desirable ticketing system would be one that puts consumers first, both in terms of ease, fairness and choice. Hence the title. Currently, many of the participants in the market do not have consumers foremost in mind, and the lesson from various other markets where technology has shown significant potential is that ultimately, a framework that provides what (most) consumers want wins out.

Date
Saturday, 01 September 2018
Tags
2018, Active

1175 - The Green Revolution and Infant Mortality in India

Prashant Bharadwaj, James Fenske, Rinchan Ali Mirza & Namrata Kala

We use a difference in differences approach to show that the adoption of High Yielding Varieties (HYV) reduced infant mortality in India. This holds even comparing children of the same mother. Children of mothers whose characteristics predict higher child mortality, rural children, boys, and low-caste children benefit more from HYV adoption. We find no obvious evidence that parental investments respond to HYV adoption. We find little evidence of selection into child bearing in response to HYV adoption.

Date
Wednesday, 15 August 2018
Tags
2018, Active

1174 - Should We Discount the Welfare of Future Generations? Ramsey and Suppes versus Koopmans and Arrow

Graciela Chichilnisky, Peter J. Hammond & Nicholas Stern

Ramsey famously pronounced that discounting “future enjoyments” would be ethically indefensible. Suppes enunciated an equity criterion implying that all individuals’ welfare should be treated equally. By contrast, Arrow (1999a, b) accepted, perhaps rather reluctantly, the logical force of Koopmans’ argument that no satisfactory preference ordering on a sufficiently unrestricted domain of infinite utility streams satisfies equal treatment. In this paper, we first derive an equitable utilitarian objective based on a version of the Vickrey–Harsanyi original position, extended to allow a variable and uncertain population with no finite bound. Following the work of Chichilnisky and others on sustainability, slightly weakening the conditions of Koopmans and co-authors allows intergenerational equity to be satisfied. In fact, assuming that the expected total number of individuals who ever live is finite, and that each individual’s utility is bounded both above and below, there is a coherent equitable objective based on expected total utility. Moreover, it implies the “extinction discounting rule” advocated by, inter alia, the Stern Review on climate change.

Date
Friday, 10 August 2018
Tags
2018, Active

1173 - Bargaining and Hold-up: The Role of Arbitration

Yannick Gabuthy and Abhinay Muthoo

This paper analyses arbitration as a surrogate for complete contracts. We embed this idea in a simple model of a long-term relationship between a firm and its workforce, in which they can make productive-enhancing, relationshipspecific investments, and then negotiate over the division of the resultant surplus. It is shown that the mere presence of the arbitrator (in the background of negotiations) may enhance investment incentives ex-ante by minimising each party’s ability to engage in hold-up behaviours ex-post. Furthermore, we highlight notably that the partners should optimally commit to call an arbitrator ensuring a compromise by awarding a reasonable share of the surplus to the worker. Indeed, this type of arbitrator would harmonise the parties’ bargaining powers and then weight their investment incentives optimally.

Date
Sunday, 05 August 2018
Tags
2018, Active

1172 - Who Voted for Brexit? Individual and Regional Data Combined

Eleonora Alabrese, Sascha O. Becker, Thiemo Fetzer and Dennis Novy

Previous analyses of the 2016 Brexit referendum used region-level data or small samples based on polling data. The former might be subject to ecological fallacy and the latter might suffer from small-sample bias. We use individual-level data on thousands of respondents in Understanding Society, the UK’s largest household survey, which includes the EU referendum question. We find that voting Leave is associated with older age, white ethnicity, low educational attainment, infrequent use of smartphones and the internet, receiving benefits, adverse health and low life satisfaction. These results coincide with corresponding patterns at the aggregate level of voting areas. We therefore do not find evidence of ecological fallacy. In addition, we show that prediction accuracy is geographically heterogeneous across UK regions, with strongly pro-Leave and strongly pro-Remain areas easier to predict. We also show that among individuals with similar socioeconomic characteristics, Labour supporters are more likely to support Remain while Conservative supporters are more likely to support Leave.

Date
Wednesday, 01 August 2018
Tags
2018, Active

1171 - Security Transitions

Thiemo Fetzer, Oliver Vanden Eynde & Austin L. Wright

How do foreign powers disengage from a conflict? We study the recent largescale security transition from international troops to local forces in the context of the ongoing civil conflict in Afghanistan. We construct a new dataset that combines information on this transition process with declassified conflict outcomes and previously unreleased quarterly survey data. Our empirical design leverages the staggered roll-out of the transition onset, together with a novel instrumental variables approach to estimate the impact of the two-phase security transition. We find that the initial security transfer to Afghan forces is marked by a significant, sharp and timely decline in insurgent violence. This effect reverses with the actual physical withdrawal of foreign troops. We argue that this pattern is consistent with a signaling model, in which the insurgents reduce violence strategically to facilitate the foreign military withdrawal. Our findings clarify the destabilizing consequences of withdrawal in one of the costliest conflicts in modern history and yield potentially actionable insights for designing future security transitions.

Date
Sunday, 01 July 2018
Tags
2018, Active

1170 - Did Austerity Cause Brexit?

Thiemo Fetzer

This paper documents a significant association between the exposure of an individual or area to the UK government’s austerity-induced welfare reforms begun in 2010, and the following: the subsequent rise in support for the UK Independence Party, an important correlate of Leave support in the 2016 UK referendum on European Union membership; broader individual-level measures of political dissatisfaction; and direct measures of support for Leave. Leveraging data from all UK electoral contests since 2000, along with detailed, individual-level panel data, the findings suggest that the EU referendum could have resulted in a Remain victory had it not been for austerity.

Date
Saturday, 30 June 2018
Tags
2018, Active

1169 - Tax Progressivity and Self-Employment Dynamics

Wiji Arulampalam & Andrea Papini

Analysis of the relationship between taxes and self-employment should account for the interplay between responses in self-employment and wage employment. To this end, we estimate a two-state multi-spell duration model which accounts for both observed and unobserved heterogeneity using a large longitudinal administrative dataset for Norway for 1993-2011. Our findings confirm theoretical predictions, and are robust to various changes to definitions and sample selections. A policy experiment simulating a flatter tax schedule in the year 2000, is found to encourage both entry into and exit from self-employment, with an increase of about 11.5 percent in net inflow into self-employment.

Date
Sunday, 24 June 2018
Tags
2018, Active

1168 - Taxes and the Location of Targets

Wiji Arulampalam, Michael P. Devereux, Federica Liberini

We use firm-level data to investigate the impact of taxes on the international location of targets in M&A, allowing for heterogeneous responses by companies. The statutory tax rate in the target country is found to have a negative impact on the probability of an acquisition in that country. In addition, the estimated size of the effect is found to depend on whether (i) acquirer is a domestic or a multinational enterprise; (ii) the acquisition is domestic or cross-border; and (iii) the acquirer’s country has a worldwide or territorial tax system.

Date
Wednesday, 20 June 2018
Tags
2018, Active

1167 - Financial and Fiscal Interaction in the Euro Area Crisis : This Time was Different

Alberto Caruso, Lucrezia Reichlin & Giovanni Ricco

This paper highlights the anomalous characteristics of the Euro Area `twin crises' by contrasting the aggregate macroeconomic dynamics in the period 2009-2013 with the business cycle fluctuations of the previous decades. We report three stylised facts. First, the contraction in output was marked by an anomalous downfall in investment, while consumption, savings and unemployment followed their historical relation with GDP. Second, households' and financial corporations' debts, and house prices deviated from their pre-crisis trends. Third, the jump in the public deficit GDP ratio in 2008-2009 was unprecedented and so was the fiscal consolidation that followed. Our analysis points to the financial nature of the crisis as a likely explanation for these facts. Importantly, the `anomaly' in public deficit is in large part explained by extraordinary measures in support of the financial sector, which show up in the stock-flow adjustments and reveal a key interaction between the fiscal and the financial sectors.

Date
Monday, 18 June 2018
Tags
2018, Active

1166 - Cohesive Institutions and Political Violence

Thiemo Fetzer and Stephan Kyburz

Can institutionalized transfers of resource rents be a source of civil conflict? Are cohesive institutions better in managing distributive conflicts? We study these questions exploiting exogenous variation in revenue disbursements to local governments together with new data on local democratic institutions in Nigeria. We make three contributions. First, we document the existence of a strong link between rents and conflict far away from the location of the actual resource. Second, we show that distributive conflict is highly organized involving political militias and concentrated in the extent to which local governments are non-cohesive. Third, we show that democratic practice in form having elected local governments significantly weakens the causal link between rents and political violence. We document that elections (vis-a-vis appointments), by producing more cohesive institutions, vastly limit the extent to which distributional conflict between groups breaks out following shocks to the available rents. Throughout, we confirm these findings using individual level survey data.

Date
Sunday, 10 June 2018
Tags
2018, Active

1165 - Has Eastern European Migration Impacted UK-born Workers?

Sascha O. Becker and Thiemo Fetzer

The 2004 accession of 8 Eastern European countries to the European Union (EU) was accompanied by fears of mass migration. The United Kingdom - unlike many other EU countries - did not opt for temporary restrictions on the EU’s free movement of labour. We document that following EU accession more than 1 million people (ca. 3% of the UK working age population) migrated from Eastern Europe to the UK. We show that they mostly settled in places that had limited prior exposure to immigration. We provide evidence that these areas subsequently saw smaller wage growth at the lower end of the wage distribution and increased pressure on the welfare state, housing and public services. Using novel geographically disaggregated data by country-of-origin, we measure the effects of Eastern European migration on these outcomes for the UK-born and different groups of immigrants. Our results are important in the context of the UK’s Brexit referendum and the ongoing EU withdrawal negotiations in which migration features as a key issue.

Date
Saturday, 02 June 2018
Tags
2018, Active

1164 - Forced Migration and Human Capital : Evidence from Post WWII Population Transfers

Sascha O. Becker, Irena Grosfeld, Pauline Grosjean, Nico Voigtländer and Ekaterina Zhuravskaya

We exploit a unique historical setting to study the long-run effects of forced migration on investment in education. After World War II, the Polish borders were redrawn, resulting in large-scale migration. Poles were forced to move from the Kresy territories in the East (taken over by the USSR) and were resettled mostly to the newly acquired Western Territories, from which Germans were expelled. We combine historical censuses with newly collected survey data to show that, while there were no pre-WWII differences in education, Poles with a family history of forced migration are significantly more educated today. Descendants of forced migrants have on average one extra year of schooling, driven by a higher propensity to finish secondary or higher education. This result holds when we restrict ancestral locations to a sub sample around the former Kresy border and include fixed effects for the destination of migrants. As Kresy migrants were of the same ethnicity and religion as other Poles, we bypass confounding factors of other cases of forced migration. We show that labor market competition with natives and selection of migrants are also unlikely to drive our results. Survey evidence suggests that forced migration led to a shift in preferences, away from material possessions and towards investment in a mobile asset – human capital. The effects persist over three generations.

Date
Tuesday, 01 May 2018
Tags
Active, 2018

1163 - The Political Economy of Ideas

Sharun W. Mukand and Dani Rodrik

We develop a conceptual framework to highlight the role of ideas as a catalyst for policy and institutional change. We make an explicit distinction between ideas and vested interests and show how they feed into each other. In doing so the paper integrates the Keynes-Hayek perspective on the importance of ideas with the currently more fashionable Stigler-Becker (interests only) approach to political economy. We distinguish between two kinds of ideational politics – the battle among different worldviews on the efficacy of policy (worldview politics) versus the politics of victimhood, pride and identity (identity politics). Political entrepreneurs discover identity and policy ‘memes’ (narratives, cues, framing) that shift beliefs about how the world works or a person’s belief of who he is (i.e. identity). Our framework identifies a complementarity between worldview politics and identity politics and illustrates how they may reinforce each other. In particular, an increase in identity polarization may be associated with a shift in views about how the world works. Furthermore, an increase in income inequality is likely to result in a greater incidence of ideational politics. Finally, we show how ideas may not just constrain, but also ‘bite’ the interests that helped propagate them in the first instance.

Date
Monday, 02 April 2018
Tags
2018, Active

1162 - Allocation Mechanisms, Incentives, and Endemic Institutional Externalities

Peter J. Hammond

Whether an economic agent’s decision creates an externality often depends on the institutional context in which the decision was made. Indeed, in orthodox economics, a technological or exogenous externality occurs just in case one agent’s economic welfare or production possibilities are directly affected by the market decisions of other agents. A pecuniary externality occurs just in case one consumer’s economic welfare or producer’s profit is affected indirectly by price changes caused by changes in other agents’ decisions. Similarly, an institutional or endogenous externality may arise whenever allocations are determined by a mechanism that is not strategy proof for some agent. Then even a resource balance constraint creates an institutional externality except in special cases such as when no individual agent’s action can affect market clearing prices — i.e., there are no pecuniary externalities.

Date
Sunday, 01 April 2018
Tags
2018, Active

1161 - Costs and Benefits of Seasonal Migration : Evidence from India

Clément Imbert and John Papp

This paper provides new evidence on rural-to-urban migration decisions in developing countries. Using original survey data from rural India, we show that employment provision on local public works significantly reduces seasonal migration. Workers who choose to participate in the program forgo much higher earnings outside of the village. Structural estimates imply that the utility cost of one day away may be as high as 60% of migration earnings. Up to half of this cost can be explained by higher living costs and income risk. The other half likely reflects high non-monetary costs from living and working in the city.

Date
Friday, 30 March 2018
Tags
2018, Active

1160 - Why an EU Referendum? Why in 2016?

Sascha O. Becker & Thiemo Fetzer

The outcome of the UK’s Brexit Referendum has been blamed on political factors, such as concerns about sovereignty, and economic factors such as migration, and trade integration. Analyses of the cross-sectional referendum voting pattern cannot explain how anti-EU sentiment built up over time. Since UKIP votes in the 2014 EU Parliament elections are the single most important predictor of the Vote Leave share, understanding the rise of UKIP might help to explain the role of political and economic factors in the build-up of Brexit. This paper presents new stylized facts suggesting that UKIP votes in local, national and European elections picked up dramatically in areas with weak socio-economic fundamentals, but only after 2010, at the expense of the Conservatives, and partly also Labour. The timing suggests that the Government’s austerity measures might have been a crucial trigger that helped to convert economic grievances into UKIP votes, putting increasing pressure on the Conservatives to hold the EU Referendum.

Date
Thursday, 29 March 2018
Tags
2018, Active

1159 - Bayesian Vector Autoregressions

Silvia Miranda-Agrippino & Giovanni Ricco

This article reviews Bayesian inference methods for Vector Autoregression models, commonly used priors for economic and financial variables, and applications to structural analysis and forecasting.

Date
Sunday, 25 March 2018
Tags
2018, Active

1158 - Exchange Rate Exposure and Firm Dynamics

Juliana Salomao and Liliana Varela

This paper develops a heterogeneous firm-dynamics model with endogenous currency debt composition to jointly study financing and investment decisions in developing economies. In our model, firms’ foreign currency borrowing arises from a trade-off between exposure to currency risk and growth. We assess econometrically the pattern of foreign currency borrowing using firm-level census data on Hungary, calibrate the model and quantify its aggregate impact. Our counterfactual exercises show that foreign currency borrowing can lead to higher growth and that the efficiency of the banking sector to screen productive and capital-scarce firms is essential to reap up the benefits of this financing.

Date
Saturday, 10 February 2018
Tags
2018, Active

1157 - Exchange Rate Exposure and Firm Dynamics

Juliana Salomao and Liliana Varela

This paper develops a heterogeneous firm-dynamics model with endogenous currency debt composition to jointly study financing and investment decisions in developing economies. In our model, firms’ foreign currency borrowing arises from a trade-off between exposure to currency risk and growth. We assess econometrically the pattern of foreign currency borrowing using firm-level census data on Hungary, calibrate the model and quantify its aggregate impact. Our counterfactual exercises show that foreign currency borrowing can lead to higher growth and that the efficiency of the banking sector to screen productive and capital-scarce firms is essential to reap up the benefits of this financing

Date
Thursday, 08 February 2018
Tags
2018, Active

1156 - Money Aggregates and Determinacy: A Reinterpretation of Monetary Policy During the Great Inflation

Irfan Qureshi

Should a policy rule include money? Including money exerts policy inertia and increases inflation aversion. In a New-Keynesian model with trend inflation, these features guarantee price determinacy even when the Taylor principle is not satisfied. Novel Greenbook data confirm money aggregates as U.S. Federal Open Market Committee policy objectives, enabling monetary policy to insulate the U.S. economy from self-fulfilling fluctuations despite positive trend inflation. A high response to inflation and low trend inflation guarantees determinacy post-1982. Cross-country applications highlight the superiority of the rule with money. Raising the inflation target from 2 percent to 4 percent violates the Taylor principle; including money resolves this issue.

Date
Tuesday, 06 February 2018
Tags
2018, Active

1155 - Efficient Partnership Formation in Networks

Francis Bloch, Bhaskar Dutta,and Mihai Manea

We analyze the formation of partnerships in social networks. Players need favors at random times and ask their neighbors in the network to form exclusive long-term partnerships that guarantee reciprocal favor exchange. Refusing to provide a favor results in the automatic removal of the underlying link. When favors are costly, players agree to provide the first favor in a partnership only if they otherwise face the risk of eventual solitude. In equilibrium, the players essential for realizing every maximum matching can avoid this risk and enjoy higher payoffs than inessential players. Although the search for partners is decentralized and reflects local incentives, the strength of essential players drives efficient partnership formation in every network. When favors are costless, players enter partnerships at any opportunity and every maximal matching can emerge in equilibrium. In this case, efficiency is limited to special linking patterns: complete and complete bipartite networks, locally balanced bipartite networks with positive surplus, and factor-critical networks.

Date
Sunday, 04 February 2018
Tags
2018, Active

1154 - Is Envy Harmful to a Society’s Psychological Health and Wellbeing? A Longitudinal Study of 18,000 Adults

Redzo Mujcic& Andrew J. Oswald

Nearly 100 years ago, the philosopher and mathematician Bertrand Russell warned of the social dangers of widespread envy. One view of modern society is that it is systematically developing a set of institutions -- such as social media and new forms of advertising -- that make people feel inadequate and envious of others. If so, how might that be influencing the psychological health of our citizens? This paper reports the first large-scale longitudinal research into envy and its possible repercussions. The paper studies 18,000 randomly selected individuals over the years 2005, 2009, and 2013. Using measures of SF-36 mental health and psychological well-being, four main conclusions emerge. First, the young are especially susceptible. Levels of envy fall as people grow older. This longitudinal finding is consistent with a cross-sectional pattern noted recently by Nicole E. Henniger and Christine R. Harris, and with the theory of socioemotional regulation suggested by scholars such as Laura L. Carstensen. Second, using fixed-effects equations and prospective analysis, the analysis reveals that envy today is a powerful predictor of worse SF-36 mental health and well-being in the future. A change from the lowest to the highest level of envy, for example, is associated with a worsening of SF-36 mental health by approximately half a standard deviation (p <0.001). Third, no evidence is found for the idea that envy acts as a useful motivator. Greater envy is associated with slower -- not higher -- growth of psychological well-being in the future. Nor is envy a predictor of later economic success. Fourth, the longitudinal decline of envy leaves unaltered a U-shaped age pattern of well-being from age 20 to age 70. These results are consistent with the idea that society should be concerned about institutions that stimulate large-scale envy.

Date
Thursday, 01 February 2018
Tags
2018, Active

1153 - Unhappiness and Pain in Modern America: A Review Essay, and Further Evidence, on Carol Graham’s Happiness for All?

David G. Blanchflower & Andrew J. Oswald

In Happiness for All?, Carol Graham raises disquieting ideas about today’s United States. The challenge she puts forward is an important one. Here we review the intellectual case and offer additional evidence. We conclude broadly on the author’s side. Strikingly, Americans appear to be in greater pain than citizens of other countries, and most subgroups of citizens have downwardly trended happiness levels. There is, however, one bright side to an otherwise dark story. The happiness of black Americans has risen strongly since the 1970s. It is now almost equal to that of white Americans

Date
Monday, 29 January 2018
Tags
2018, Active

1152 - The social value of information in economies with mandatory savings

Pablo F. Beker & Conrado Cuevas

We study the value of public information in a stochastic exchange economy where agents trade assets to reallocate risk and mandatory (retirement) savings imposes a lower bound on the market value of some agents’ holdings of a financial asset. Since equilibrium prices depend on the agents’ beliefs about the states of nature, the arrival of information shifts the agents’ mandatory savings constraints. We show that the arrival of public information can generate an ex-ante Pareto improvement relative to an uninformative equilibrium even when ex-post improvements are not possible.

Date
Tuesday, 23 January 2018
Tags
2018, Active

1151 - The measurement of welfare change

Walter Bossert & Bhaskar Dutta

We propose and characterize a class of measures of welfare change that are based on the generalized Gini social welfare functions. In addition, we analyze these measures in the context of a second-order dominance property that is akin to generalized Lorenz dominance as introduced by Shorrocks (1983) and Kakwani (1984). Because we consider welfare differences rather than welfare levels, the requisite equivalence result involves linear welfare functions (that is, those associated with the generalized Ginis) only, as opposed to the entire class of strictly increasing and S-concave welfare indicators

Date
Monday, 22 January 2018
Tags
2018, Active

1150 - Ignoring Good Advice

David Ronayne and Daniel Sgroi

We ran an experiment where 1,503 subjects (advisees) completed tasks, and then had the choice to submit either their own score or the score of other subjects (advisers). The observed data are difficult to reconcile with rational behavior. First, good advice was ignored: about 25% of the time, advisees chose to submit their own score instead of the higher score of an adviser, reducing their payoff. Second, when the adviser was superior in skill, good advice was ignored more often. Third, when the adviser was relatively highly paid, subjects were less likely to make use of them. We offer an explanation of the data focused on two behavioral forces: envy and the sunk cost fallacy. The role of envy was complex: more envious advisees, as measured using a dispositional envy scale, opted to follow advisers more often in the skill-based task revealing a positive, motivational effect of envy. However, higher adviser remuneration reduced this effect, revealing a negative side of envy as a constraint on rational decision-making. Susceptibility to the sunk cost fallacy, measured using a novel scale we developed, had a negative impact on the uptake of good advice. This is consistent with the idea that subjects feel resistant to changing their answers when they put in effort to formulate them. We also present findings from a new survey of 3,096 UK voters who took part in the national referendum on EU membership, consistent with some of our experimental results.

Date
Sunday, 21 January 2018
Tags
2018, Active

1149 - The Effects of Entry in Oligopolistic Trade with Bargained Input Prices

Robin Naylor & Christian Soegaard

Firms which face the threat of import competition from foreign rivals are conventionally seen as favouring import protection. We show that this is not necessarily the case when domestic firms’ input prices are determined endogenously. In a framework where the input price is determined through bargaining with an (upstream) input supplier, the relationship between a domestic (downstream) firm’s profits and the number of foreign competitors depends on trade costs. If trade costs are sufficiently high, then an increase in the number of foreign entrants can raise the profits of a downstream firm in a home market characterised by Cournot competition. The intuition for this result is that increased product market competition through the entry of foreign firms is mirrored by profit-enhancing moderation of the bargained input price. We examine a number of tariff and non-tariff barriers to international trade and identify conditions under which import-competing firms will favour the removal of barriers to foreign competition

Date
Monday, 15 January 2018
Tags
2018, Active

1148 - The Effects of Entry in Oligopolistic Trade with Bargained Input Prices

Robin Naylor & Christian Soegaard

Firms which face the threat of import competition from foreign rivals are conventionally seen as favouring import protection. We show that this is not necessarily the case when domestic firms’ input prices are determined endogenously. In a framework where the input price is determined through bargaining with an (upstream) input supplier, the relationship between a domestic (downstream) firm’s profits and the number of foreign competitors depends on trade costs. If trade costs are sufficiently high, then an increase in the number of foreign entrants can raise the profits of a downstream firm in a home market characterised by Cournot competition. The intuition for this result is that increased product market competition through the entry of foreign firms is mirrored by profit-enhancing moderation of the bargained input price. We examine a number of tariff and non-tariff barriers to international trade and identify conditions under which import-competing firms will favour the removal of barriers to foreign competition

Date
Wednesday, 10 January 2018
Tags
2018, Active

1147 - Falling Behind and Catching up : India’s Transition from a Colonial Economy

Bishnupriya Gupta

India fell behind during colonial rule. The absolute and relative decline of Indian GDP per capita with respect to Britain began before colonization and coincided with the rising textile trade with Europe in the 18th century. The decline of traditional industries was not the main driver Indian decline and stagnation. Inadequate investment in agriculture and consequent decline in yield per acre stalled economic growth. Modern industries emerged and grew relatively fast. The falling behind was reversed after independence. Policies of industrialization and a green revolution in agriculture increased productivity growth in agriculture and industry, but Indian growth has been led by services. A strong focus on higher education under colonial policy had created an advantage for the service sector, which today has a high concentration of human capital. However, the slow expansion in primary education was a disadvantage in comparison with the high growth East Asian economies

Date
Wednesday, 03 January 2018
Tags
2018, Active

1146 - The Impact of Public Employment : Evidence from Bonn

Sascha O. Becker, Stephan Heblich and Daniel M. Sturm

This paper evaluates the impact of public employment on private sector activity using the relocation of the German federal government from Berlin to Bonn in the wake of the Second World War as a source of exogenous variation. To guide our empirical analysis, we develop a simple economic geography model in which public sector employment in a city can crowd out private employment through higher wages and house prices, but also generates potential productivity and amenity spillovers. We nd that relative to a control group of cities, Bonn experiences a substantial increase in public employment. However, this results in only modest increases in private sector employment with each additional public sector job destroying around 0.2 jobs in industries and creating just over one additional job in other parts of the private sector. We show how this finding can be explained by our model and provide several pieces of evidence for the mechanisms emphasised by the model.

Date
Monday, 01 January 2018
Tags
2018, Active

1145 - A Model of the Fed’s View on Inflation

Thomas Hasenzagl, Filippo Pellegrino, Lucrezia Reichlin and Giovanni Ricco

A view often expressed by the Fed is that three components matter in inflation dynamics: a trend anchored by long run inflation expectations; a cycle connecting nominal and real variables; and oil prices. This paper proposes an econometric structural model of inflation formalising this view. Our findings point to a stable expectational trend, a sizeable and well identified Phillips curve and an oil cycle which, contrary to the standard rational expectation model, affects inflation via expectations without being reflected in the output gap. The latter often overpowers the Phillips curve. In fact, the joint dynamics of the Phillips curve cycle and the oil cycles explain the inflation puzzles of the last ten years.

Date
Wednesday, 20 December 2017
Tags
2017, Active

1144 - To the Victor Belongs the Spoils? Party Membership and Public Sector Employment in Brazil

Fernanda Brollo, Pedro Forquesato & Juan Carlos Gozzi

We analyze how political discretion affects the selection of government workers, using individual-level data on political party membership and matched employer-employee data on the universe of formal workers in Brazil. Exploiting close mayoral races, we find that winning an election leads to an increase of over 40% in the number of members of the winning party working in the municipal bureaucracy. Employment of members of the ruling party increases relatively more in senior positions, but also expands in lower-ranked jobs, suggesting that discretionary appointments are used both to influence policymaking and to reward supporters. We find that party members hired after their party is elected tend be of similar or even higher quality than members of the runner-up party, contrary to common perceptions that political appointees are less qualified. Moreover, the increased public employment of members of the ruling party is long-lasting, extending beyond the end of the mayoral term.

Date
Tuesday, 28 November 2017
Tags
2017, Active

1143 - Poverty measurement (in India): Defining group-specific poverty lines or taking preferences into account?

Aditi Dimri and François Maniquet

We study absolute income poverty measurement when agents differ in preferences and face different prices. The difficulty arising from price heterogeneity is typically solved using equivalent income, but the choice of the reference price vector remains arbitrary. We provide a way to solve this arbitrariness problem by making the poverty measure consistent with preferences: an agent qualifies as poor if and only if she prefers the poverty line bundle to her current consumption bundle. We then prove that defining group/region specific poverty lines is another way of recovering consistency with preferences, provided one uses the headcount ratio. Comparing the resulting three approaches using Indian data, we find that the different approaches leads to different poverty conclusions. We show that not taking preferences into account leads to severely underestimating urban poverty

Date
Monday, 27 November 2017
Tags
2017, Active

1142 - The Postwar British Productivity Failure

Nicholas Crafts

British productivity growth disappointed during the early postwar period. This reflected inadequate investment in equipment and skills but also entailed inefficient use of inputs. Weak management, dysfunctional industrial relations, and badly-designed economic policy were all implicated. The policy framework was partly the result of seeking low unemployment through wage restraint by appeasement of organized labour. A key aspect was weak competition. This exacerbated corporate governance and industrial-relations problems in the British ‘variety of capitalism’ which sustained low effort bargains and managerial incompetence. Other varieties of capitalism were better placed to achieve fast growth but were infeasible for Britain given its history.

Date
Friday, 03 November 2017
Tags
2017, Active

1141 - The Effect of Positive Mood on Cooperation in Repeated Interaction

Eugenio Proto, Daniel Sgroi and Mahnaz Nazneen

According to existing research across several disciplines (management, psychology, economics and neuroscience), positive mood can have positive effects, engendering more altruistic, open and helpful behaviour, but can also work though a more negative channel by inducing inward-orientation, assertiveness, and reduced use of information. This leaves the impact on cooperation in interactive and strategic situations unclear. We find evidence from 490 participants in a laboratory experiment suggesting that participants in an induced positive mood cooperate less in a repeated Prisoner’s Dilemma than participants in a neutral setting. This is robust to the number of repetitions or the inclusion of pre-play communication. In order to understand why positive mood might damage the propensity to cooperate, we conduct a language analysis of the pre-play communication between players. This analysis indicates that subjects in a more positive mood use more inward-oriented and more negative language which supports the negative channel.

Date
Thursday, 02 November 2017
Tags
2017, Active

1140 - The Regulation of Public Service Broadcasters : Should there be more advertising on television?

Gregory S. Crawford, Lachlan Deer, Jeremy Smith & Paul Sturgeon

Increased competition for viewers’ time is threatening the viability of publicservice broadcasters (PSBs) around the world. Changing regulations regarding advertising minutes might increase revenues, but little is known about the structure of advertising demand. To address this problem, we collect a unique dataset on monthly impacts (quantities) and prices of UK television channels between 2002 and 2009 to estimate the (inverse) demand for advertising on both public and commercial broadcasters. We find that increasing PSB advertising minutes to the level permitted for non-PSBs would increase PSB and industry revenue by 10.5% and 6.7%.

Date
Wednesday, 01 November 2017
Tags
2017, Active

1139 - Monetary Policy Shifts and Central Bank Independence

Irfan Qureshi

Why does low central bank independence generate high macroeconomic instability? A government may periodically appoint a subservient central bank chairman to exploit the inflation-output trade-off, which may generate instability. In a New Keynesian framework, time-varying monetary policy is connected with a “chairman effect.” To identify departures from full independence, I classify chairmen based on tenure (premature exits), and the type of successor (whether the replacement is a government ally). Bayesian estimation using cross-country data confirms the relationship between policy shifts and central bank independence, explaining approximately 25 (15) percent of inflation volatility in developing (advanced) economies. Theoretical analyses reveal a novel propagation mechanism of the policy shock.

Date
Friday, 01 September 2017
Tags
2017, Active

1138 - Government Purchases Reloaded : Informational Insufficiency and Heterogeneity in Fiscal VARs

Atif Ellahie & Giovanni Ricco

Using a large Bayesian VAR, we approximate the flow of information received by economic agents to investigate the effects of changes to government purchases. We document robust evidence that informational insufficiency in conventional models explains inconsistent results across samples and commonly employed identifications in recursive Structural VARs and Expectational VARs. Furthermore, we report heterogeneous effects of components of government purchases. While aggregate government purchases do not appear to produce strong stimulative effects with output multiplier around 0.7, government investment components have multipliers well above unity. State and local consumption, which captures investment in education and health, elicits a strong response.

Date
Tuesday, 01 August 2017
Tags
2017, Active

1137 - The Soviet Economy, 1917-1991 : Its Life and Afterlife

Mark Harrison

In terms of economic development, Russia before and after the Soviet era was just an average economy. If the Soviet era is distinguished, it was not by economic growth or its contribution to human development, but by the use of the economy to build national power over many decades. In this respect, the Soviet economy was a success. It was also a tough and unequal environment in which to be born, live, and grow old. The Soviet focus on building national capabilities did improve opportunities for many citizens. Most important were the education of women and the increased survival of children. The Soviet economy was designed for the age of mass production and mass armies. That age has gone, but the idea of the Soviet economy lives on, fed by nostalgia and nationalism.

Date
Wednesday, 22 February 2017
Tags
2017, Active

1136 - The Transmission of Monetary Policy Shocks

Silvia Miranda-Agrippino & Giovanni Ricco

Despite years of research, there is still uncertainty around the effects of monetary policy shocks. We reassess the empirical evidence by combining a new identification that accounts for informational rigidities, with a flexible econometric method robust to misspecifications that bridges between VARs and Local Projections. We show that most of the lack of robustness of the results in the extant literature is due to compounding unrealistic assumptions of full information with the use of severely misspecified models. Using our novel methodology, we find that a monetary tightening is unequivocally contractionary, with no evidence of either price or output puzzles.

Date
Tuesday, 21 February 2017
Tags
2017, Active

1135 - Taxes and the Location of Targets

Wiji Arulampalam, Michael P. Devereux & Federica Liberini

We use firm-level data to investigate the impact of taxes on the international location of targets in M&A allowing for heterogeneous responses by companies. The statutory tax rate in the target country is found to have a negative impact on the probability of an acquisition in that country. In addition, the estimated size of the effect is found to depend on whether (i) acquirer is a domestic or a multinational enterprise; (ii) the acquisition is domestic or cross-border; and (iii) the acquirer's country has a worldwide or territorial tax system.

Date
Monday, 20 February 2017
Tags
2017, Active

1134 - Secrecy and State Capacity: A Look Behind the Iron Curtain

Mark Harrison

This paper reviews two decades of research on the political economy of secrecy, based on the records of former Soviet state and party archives. Secrecy was an element of Soviet state capacity, particularly its capacity for decisiveness, free of the pressures and demands for accountability that might have arisen from a better informed citizenry. But secrecy was double-edged. Its uses also incurred substantial costs that weakened the capacity of the Soviet state to direct and decide. The paper details the costs of secrecy associated with “conspirative” government business processes, adverse selection of management personnel, everyday abuses of authority, and an uninformed leadership.

Date
Thursday, 09 February 2017
Tags
2017, Active

1133 - The Role of Money in Federal Reserve Policy

Irfan Qureshi

Is the classic Taylor rule misspecified? I show that the inability of the Taylor rule to explain the federal funds rate using real-time data stems from the omission of a money growth objective. I highlight the significant role played by money in the policy discourse during the Volcker-Greenspan era using new FOMC data, benchmarking a novel characterization of “good” policy. An application of this framework offers a unified policy-based explanation of the Great Moderation and Recession. Welfare analysis based on the New-Keynesian model endorses the rule with money. The evidence raises significant concerns about relying on the simple Taylor rule as a policy benchmark and suggests why money may serve as a useful indicator in guiding future monetary policy decisions.

Date
Monday, 28 November 2016
Tags
2016, Active