It is good to be at City Week again. Also, congratulations on the welcome approach to the geography of City Week – bringing it to the Oval means that for those of us who live south of the river, we don’t feel that the City always involves crossing into that other land north of the river. Whether the culture is different south of the river is for everyone to judge.
Culture In Financial Services â A Regulatorâs Perspective - Speech By Andrew Bailey, Deputy Governor, Prudential Regulation And Chief Executive Officer, Prudential Regulation Authority, City Week 2016 Conference, 9 May 2016
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Zombies-To-Be and the Walking Dead of Debt
Using the dynamics of creditâwhich most other economists ignoreâI explain why Japan, the USA and UK are among the âWalking Dead of Debtâ and why China, Canada, Australia and South Korea are on their way to joining the Debt Zombies. This presentation is based on work Iâm doing for a new 25000 word book for Polity Press entitled âCan we avoid another financial crisis?â, which should be published later this year.
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Solactive And Bluestar Launch The Israel Economic Exposure Indexes - Unique Pair Of Indexes Track Israelâs Domestic-Focused And Globally-Oriented Companies
By launching the Solactive-BlueStar Israel Economic Exposure Index (IEEI) family, Solactive AG and BlueStar Indexes introduce an innovative pair of indexes designed to reflect the segmentation of the Israeli economy between globally-oriented firms and companies primarily focused on serving the domestic economy.
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The Great Recession in the Shadow of the Great Depression: A Review Essay on "Hall of Mirrors: The Great Depression, The Great Recession and the Uses and Misuses Of History" -- by Lee E. Ohanian
This essay reviews Barry Eichengreen's recent book that compares the Great Depression and the Great Recession. Eichengreen focuses on deficient aggregate demand as the key reason for why both downturns were so deep and why they lasted so long. I assess the book's arguments regarding the causes and consequences of these episodes from a neoclassical perspective. I provide an alternative framework for analyzing these episodes, and argue that a key difference between the 1930s and today reflects the factors that continued to depress both economies after their respective troughs. The post-Depression economy featured rapid productivity growth, whereas today's economy is plagued by low productivity growth. I discuss how the post-Great Depression economy recovered to trend quickly once policies that depressed competition were removed. I also argue that returning today's economy to trend may be considerably more challenging.
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Digital Currencies, Decentralized Ledgers, and the Future of Central Banking -- by Max Raskin, David Yermack
Central banking in an age of digital currencies is a fast-developing topic in monetary economics. Algorithmic digital currencies such as bitcoin appear to be viable competitors to central bank fiat currency, and their presence in the marketplace may pressure central banks to pursue tighter monetary policy. More interestingly, the blockchain technology behind digital currencies has the potential to improve central banks' payment and clearing operations, and possibly to serve as a platform from which central banks might launch their own digital currencies. A sovereign digital currency could have profound implications for the banking system, narrowing the relationship between citizens and central banks and removing the need for the public to keep deposits in fractional reserve commercial banks. Debates over the wisdom of these policies have led to a revival of interest in classical monetary economics.
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Technology and Education: Computers, Software, and the Internet -- by George Bulman, Robert W. Fairlie
A substantial amount of money is spent on technology by schools, families and policymakers with the hope of improving educational outcomes. This paper explores the theoretical and empirical literature on the impacts of technology on educational outcomes. The literature focuses on two primary contexts in which technology may be used for educational purposes: i) classroom use in schools, and ii) home use by students. Theoretically, ICT investment and CAI use by schools and the use of computers at home have ambiguous implications for educational achievement: expenditures devoted to technology necessarily offset inputs that may be more or less efficient, and time allocated to using technology may displace traditional classroom instruction and educational activities at home. However, much of the evidence in the schooling literature is based on interventions that provide supplemental funding for technology or additional class time, and thus favor finding positive effects. Nonetheless, studies of ICT and CAI in schools produce mixed evidence with a pattern of null results. Notable exceptions to this pattern occur in studies of developing countries and CAI interventions that target math rather than language. In the context of home use, early studies based on multivariate and instrumental variables approaches tend to find large positive (and in a few cases negative) effects while recent studies based on randomized control experiments tend to find small or null effects. Early research focused on developed countries while more recently several experiments have been conducted in developing countries.
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Global Production with Export Platforms -- by Felix Tintelnot
Most international commerce is carried out by multinational firms, which use their foreign affiliates both to serve the market of the host country and to export to other markets outside the host country. In this paper, I examine the determinants of multinational firms' location and production decisions and the welfare implications of multinational production. The few existing quantitative general equilibrium models that incorporate multinational firms achieve tractability by assuming away export platforms - i.e. they do not allow foreign affiliates of multinationals to export - or by ignoring fixed costs associated with foreign investment. I develop a quantifiable multi-country general equilibrium model, which tractably handles multinational firms that engage in export platform sales and that face fixed costs of foreign investment. I first estimate the model using German firm-level data to uncover the size and nature of costs of multinational enterprise and show that the fixed costs of foreign investment are large. Second, I calibrate the model to data on trade and multinational production for twelve European and North American countries. Counterfactual analysis reveals that multinationals play an important role in transmitting technological improvements to foreign countries and that the pending Canada-EU trade and investment agreement could divert a sizable fraction of the production of EU multinationals from the US to Canada.
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Impacts and Determinants of Health Levels in Low-Income Countries -- by Pascaline Dupas, Edward Miguel
Improved health in low-income countries could considerably improve wellbeing and possibly promote economic growth. The last decade has seen a surge in field experiments designed to understand the barriers that households and governments face in investing in health and how these barriers can be overcome, and to assess the impacts of subsequent health gains. This chapter first discusses the methodological pitfalls that field experiments in the health sector are particularly susceptible to, then reviews the evidence that rigorous field experiments have generated so far. While the link from in utero and child health to later outcomes has increasingly been established, few experiments have estimated the impacts of health on contemporaneous productivity among adults, and few experiments have explored the potential for infrastructural programs to impact health outcomes. Many more studies have examined the determinants of individual health behavior, on the side of consumers as well as among providers of health products and services.
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Moral Costs and Rational Choice: Theory and Experimental Evidence -- by James C. Cox, John A. List, Michael Price, Vjollca Sadiraj, Anya Samek
The literature exploring other regarding behavior sheds important light on interesting social phenomena, yet less attention has been given to how the received results speak to foundational assumptions within economics. Our study synthesizes the empirical evidence, showing that recent work challenges convex preference theory but is largely consistent with rational choice theory. Guided by this understanding, we design a new, more demanding test of a central tenet of economics--the contraction axiom--within a sharing framework. Making use of more than 325 dictators participating in a series of allocation games, we show that sharing choices violate the contraction axiom. We advance a new theory that augments standard models with moral reference points to explain our experimental data. Our theory also organizes the broader sharing patterns in the received literature.
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Parental Responses to Child Support Obligations: Evidence from Administrative Data -- by Maya Rossin-Slater, Miriam Wuest
We leverage non-linearities in Danish child support guidelines and rich administrative data to provide causal estimates of parental behavioral responses to child support obligations. We estimate that a 1,000 DKK ($149) increase in a father's obligation is associated with a 506 DKK ($75) increase in his payment. A higher obligation also reduces father-child co-residence, pointing to substitution between financial and non-pecuniary investments. Further, obligations increase parental post-separation fertility, and reduce labor supply among high-income fathers. Our findings suggest that government efforts to increase child investments through mandates on parents can be complicated by their behavioral responses to them.
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What Do Test Scores Miss? The Importance of Teacher Effects on Non-Test Score Outcomes -- by C. Kirabo Jackson
This paper extends the traditional test-score value-added model of teacher quality to allow for the possibility that teachers affect a variety of student outcomes through their effects on both students' cognitive and noncognitive skill. Results show that teachers have effects on skills not measured by test-scores, but reflected in absences, suspensions, course grades, and on-time grade progression. Teacher effects on these non-test-score outcomes in 9th grade predict effects on high-school completion and predictors of college-going--above and beyond their effects on test scores. Relative to using only test-score measures of teacher quality, including both test-score and non-test-score measures more than doubles the predictable variability of teacher effects on these longer-run outcomes.
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Identifying Ambiguity Shocks in Business Cycle Models Using Survey Data -- by Anmol Bhandari, Jaroslav Borovicka, Paul Ho
We develop a framework to analyze economies with agents facing time-varying concerns for model misspecification. These concerns lead agents to interpret economic outcomes and make decisions through the lens of a pessimistically biased 'worst-case' model. We combine survey data and implied theoretical restrictions on the relative magnitudes and comovement of forecast biases across macroeconomic variables to identify ambiguity shocks as exogenous fluctuations in the worst-case model. Our solution method delivers tractable linear approximations that preserve the effects of time-varying ambiguity concerns and permit estimation using standard Bayesian techniques. Applying our framework to an estimated New-Keynesian business cycle model with frictional labor markets, we find that ambiguity shocks explain a substantial portion of the variation in labor market quantities.
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Optimal Capital Controls and Real Exchange Rate Policies: A Pecuniary Externality Perspective -- by Gianluca Benigno, Huigang Chen, Christopher Otrok, Alessandro Rebucci, Eric R. Young
A new theoretical literature studies the use of capital controls to prevent financial crises in models in which pecuniary externalities justify government intervention. Within the same theoretical framework, we show that when ex-post policies such as defending the exchange rate can contain or resolve financial crises, there is no need to intervene ex-ante with capital controls. On the other hand, if crises management policies entail some efficiency costs, then crises prevention policies become part of the optimal policy mix. In the standard model economy used in the literature with costly crisis management policies, the optimal policy mix combines capital controls in tranquil times with support for the real exchange rate to limit its depreciation during crises times. The optimal policy mix yields more borrowing and consumption, a lower probability of financial crisis, and twice as large welfare gains than in the socially planned equilibrium with capital controls alone.
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Deposit Insurance: Theories and Facts -- by Charles W. Calomiris, Matthew Jaremski
Economic theories posit that bank liability insurance is designed as serving the public interest by mitigating systemic risk in the banking system through liquidity risk reduction. Political theories see liability insurance as serving the private interests of banks, bank borrowers, and depositors, potentially at the expense of the public interest. Empirical evidence - both historical and contemporary - supports the private-interest approach as liability insurance generally has been associated with increases, rather than decreases, in systemic risk. Exceptions to this rule are rare, and reflect design features that prevent moral hazard and adverse selection. Prudential regulation of insured banks has generally not been a very effective tool in limiting the systemic risk increases associated with liability insurance. This likely reflects purposeful failures in regulation; if liability insurance is motivated by private interests, then there would be little point to removing the subsidies it creates through strict regulation. That same logic explains why more effective policies for addressing systemic risk are not employed in place of liability insurance. The politics of liability insurance also should not be construed narrowly to encompass only the vested interests of bankers. Indeed, in many countries, it has been installed as a pass-through subsidy targeted to particular classes of bank borrowers.
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The Effect of Single-Sex Education on Academic Outcomes and Crime: Fresh Evidence from Low-Performing Schools in Trinidad and Tobago -- by C. Kirabo Jackson
In 2010, the Ministry of Education in Trinidad and Tobago converted 20 low-performing pilot secondary schools from coed to single-sex. I exploit these conversions to identify the causal effect of single-sex schooling holding other school inputs (such as teacher quality and leadership quality) constant. After also accounting for student selection, both boys and girls in single-sex cohorts at pilot schools score 0.14ÃÂ higher in the academic subjects on national exams. There is no robust effect on non-academic subjects. Additionally, treated students are more likely to earn the secondary-school leaving credential, and the all-boys cohorts have fewer arrests. Survey evidence reveals that these single-sex effects reflect both direct gender peer effects due to interactions between classmates, and also indirect effects generated through changes in teacher behavior. Importantly, these benefits are achieved at zero financial cost.
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Compulsory Voting, Turnout, and Government Spending: Evidence from Austria -- by Mitchell Hoffman, Gianmarco Leon, Maria Lombardi
We study a unique quasi-experiment in Austria, where compulsory voting laws are changed across Austria's nine states at different times. Analyzing state and national elections from 1949-2010, we show that compulsory voting laws with weakly enforced fines increase turnout by roughly 10 percentage points. However, we find no evidence that this change in turnout affected government spending patterns (in levels or composition) or electoral outcomes. Individual-level data on turnout and political preferences suggest these results occur because individuals swayed to vote due to compulsory voting are more likely to be non-partisan, have low interest in politics, and be uninformed.
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Open Access as a Crude Solution to a Hold-up Problem in the Two-Sided Market for Academic Journals -- by Mark J. McCabe, Christopher M. Snyder
The move from traditional to open-access journals--which charge no subscription fees, only submission fees--is gaining support in academia. We analyze a two-sided-market model in which journals cannot commit to subscription fees when authors (who prefer low subscription fees because this boosts readership) make submission decisions. This leads to a hold-up problem, manifested as excessive subscription fees. Open access is a crude attempt to avoid hold up by eliminating subscription fees. We compare the efficiency and profitability of traditional versus open access under various market structures (monopoly, Bertrand competition) and extensions (non-profit journals, bundling, hybrid pricing), using our theoretical findings to understand the evolution of the market for academic journals in the Internet age.
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Communication in Vertical Markets: Experimental Evidence -- by Claudia Moellers, Hans-Theo Normann, Christopher M. Snyder
When an upstream monopolist supplies several competing downstream firms, it may fail to monopolize the market because it is unable to commit not to behave opportunistically. We build on previous experimental studies of this well-known commitment problem by introducing communication. Allowing the upstream firm to chat privately with each downstream firm reduces total offered quantity from near the Cournot level (observed in the absence of communication) halfway toward the monopoly level. Allowing all three firms to chat together openly results in complete monopolization. Downstream firms obtain such a bargaining advantage from open communication that all of the gains from monopolizing the market accrue to them. A simple structural model of Nash bargaining fits the pattern of shifting surpluses well. We conclude with a discussion of the antitrust implications of open communication in vertical markets.
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The Requirements of Jobs: Evidence from a Nationally Representative Survey -- by Maury Gittleman, Kristen Monaco, Nicole Nestoriak
The Occupational Requirements Survey (ORS) is a new survey at the Bureau of Labor Statistics which collects data on the educational, cognitive, and physical requirements of jobs, as well as the environmental conditions in which the work is performed. Using pre-production data, we provide estimates of a subset of elements by broad industry and occupation and examine the relationship between the cognitive elements and measures of education and training. We exploit the overlap between ORS and the National Compensation Survey to estimate models of the returns to different occupational requirements. Finally, we examine the relationship between occupational requirements and occupational safety measures and outline potential research uses of the Occupational Requirements Survey.
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Multifaceted Aid for Low-Income Students and College Outcomes: Evidence from North Carolina -- by Charles T. Clotfelter, Steven W. Hemelt, Helen F. Ladd
Launched in 2004, the Carolina Covenant combines grant-heavy financial aid with an array of non-financial supports for low-income students at an elite public university. We find that the program increased four-year graduation rates by about 8 percentage points for eligible students in the cohorts who experienced the fully developed program. For these cohorts, we also find suggestive effects on persistence to the fourth year of college, cumulative earned credits, and academic performance. We conclude that aid programs targeting low-income, high-ability students are most successful when they couple grant aid with strong non-financial supports.
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