Wednesday, September 25, 2019

Links (9/25/19)

  • The Cost of America’s Oligopoly Problem - ProMarket An innovative new study finds substantial, increasing deadweight losses resulting from oligopolistic behavior and points to the important role that startup acquisitions—particularly by large tech firms—played in driving this trend.
  • Helicopter money as a policy option - VoxEU With persistently weak economic conditions becoming the norm in Europe, economists are considering increasingly unconventional policy options. One tool that has yet to be taken out of storage is ‘helicopter money’, i.e. the overt monetary financing of government deficits. This column recounts a policy debate on helicopter money that was held at LBS in April 2013 among three of the world’s leading monetary economists.
  • Once Upon a Time in the Banking Sector: Historical Insights into Banking Competition - Liberty Street Economics How does competition among banks affect credit growth and real economic growth? In addition, how does it affect financial stability? In this blog post, we derive insights into this important set of questions from novel data on the U.S. banking system during the nineteenth century.
  • Inequality, Populism, and Redistribution - IGM Forum Question A: Rising inequality is straining the health of liberal democracy.
  • Jerome Powell’s Dilemma - Carmen M. Reinhart & Vincent Reinhart There is a reason that the US Federal Reserve chair often has a haunted look. Probably to his deep and never-to-be-expressed frustration, the Fed is setting monetary policy in a way that increases the likelihood that President Donald Trump will be reelected next year.
  • Why Global Trade Imbalances Could Get Worse Before They Get Better… - Brad Setser Transatlantic imbalances reflect Europe's demand deficit, which should be easy to solve (but isn't). Transpacific imbalances haven't disappeared. And are likely harder to solve, as they stem from an underlying savings surplus.
  • Paying for Data – Digitopoly In the New York Times, there is a video opinion piece from Jaron Lanier which makes the case for finding a way for consumers to be paid for their data. I really enjoyed the accessibility of this piece as I think it helped make a clearer case. But I found myself with some big questions and so wanted to put those out there.
  • Zero Lower Bound Risk according to Option Prices - FRBSF Interest rate derivatives—financial investments whose value depends on interest rates—provide useful information about the risk of short-term rates falling again to the zero lower bound. According to new market-based estimates, the probability of a return to the lower bound by the end of 2021 is about 24%. This is roughly in line with other survey-based and model-based estimates of zero lower bound risk. In recent months, the market-based measure of lower bound risk has increased markedly.
  • Liberalism, Neutrality and the Gendered Division of Labor - Crooked Timber Women and men do unequal amounts of domestic and caring labor, and this inequality contributes to unequal outcomes between men and women in their careers. This is the ‘gendered division of labor’. But are the inequalities, or the processes generating them, unjust? And, if so, should the government act to change anything?
  • The Costs of Inefficient Regulation: The Volcker Rule - Money, Banking and Financial Markets By creating a new regime to limit threats to the U.S. financial system—including heightened scrutiny for systemic intermediaries and a new resolution framework—the Dodd-Frank Act (DFA, passed in July 2010) has made the U.S. financial system notably safer. However, DFA also included burdensome regulations that, in our view, reduce efficiency while doing little to improve resilience. The leading example of such a provision is DFA section 619, known as the Volcker Rule. As Duffie noted well before regulators began to implement the Rule (see the citation above), it is not “cost effective.”
  • Interview with Robert Litterman - Federal Reserve Bank of Minneapolis “We don’t have 10 years to spare. We don’t have three years. This should have been done long ago. Carbon pricing is the only brake we have, and we’ve got to slam on it immediately.”
  • Investments to address climate change are good for business - EurekAlert An internationally respected group of scientists, including Professor Francois Engelbrecht from the University of the Witwatersrand, Johannesburg, have urgently called on world leaders to accelerate efforts to tackle climate change. Almost every aspect of the planet's environment and ecology is undergoing changes in response to climate change, some of which will be profound, if not catastrophic, in the future.
  • The Uniform Validity of Impulse Response Inference in Autoregressions - Dallasfed.org Abstract: Existing proofs of the asymptotic validity of conventional methods of impulse response inference based on higher-order autoregressions are pointwise only. In this paper, we establish the uniform asymptotic validity of conventional asymptotic and bootstrap inference about individual impulse responses and vectors of impulse responses when the horizon is fixed with respect to the sample size. For inference about vectors of impulse responses based on Wald test statistics to be uniformly valid, lag-augmented autoregressions are required, whereas inference about individual impulse responses is uniformly valid under weak conditions even without lag augmentation. We introduce a new rank condition that ensures the uniform validity of inference on impulse responses and show that this condition holds under weak conditions. Simulations show that the highest finite-sample accuracy is achieved when bootstrapping the lag-augmented autoregression using the bias adjustments of Kilian (1999). The conventional bootstrap percentile interval for impulse responses based on this approach remains accurate even at long horizons. We provide a formal asymptotic justification for this result.
  • Do Monetary Policy Announcements Shift Household Expectations? - Dallasfed.org Abstract: We use daily survey data from Gallup to assess whether households' beliefs about economic conditions are influenced by surprises in monetary policy announcements. We first provide more general evidence that public confidence in the state of the economy reacts to certain types of macroeconomic news very quickly. Next, we show that surprises to the Federal Funds target rate are among the news that have statistically significant and instantaneous effects on economic confidence. In contrast, surprises about forward guidance and asset purchases do not have similar effects on household beliefs, perhaps because they are less well understood. We document heterogeneity in the responsiveness of sentiment across demographics.
  • A Nobel Economist Cites Growth as Innovation - Scientific American Paul Romer, an expert in what’s known as endogenous growth theory and winner of the 2018 Nobel prize in economics, speaks to Scientific American about seeing economic growth as increased value, akin to when ingredients in a recipe are used to create a dish worth more than the original raw materials. His research concludes that investment in people, knowledge and innovation are primary growth factors.
  • The trouble with capitalism - Stumbling and Mumbling Are the faults of capitalism curable, or are they instead symptoms of a chronic disease? This is the question posed by Martin Wolf:
  • Is Mathematics, like Science, Pluralistic? - Scientific American mathematicians are sometimes unwilling to admit that mathematics is not as perfectly objective, certain, and uncontroversial as they would like to believe. On the other hand, I do believe that any claim along the lines of "proof is dead" is over-sensationalized and misleading.
  • Some Observations on Determining Business Cycle Chronologies - Econbrowser Two consecutive quarters of negative GDP growth is a commonplace rule of thumb for defining recessions, but the original conception of recessions is not captured by this simple definition. As some people have disagreed with my description (see [1]), it might be useful to review how recessions are defined in the US (with associated drawbacks), and in other economies.
  • Prospects for economic democracy - Lane KenworthyThe most prominent forms of employee voice are worker participation, labor unions, works councils, board-level employee representation, and worker control. What do we know about them? My take is here. One bit:

    Posted by on Wednesday, September 25, 2019 at 09:18 AM in Economics, Links | Permalink  Comments (1690) 


    Friday, September 13, 2019

    Links (9/13/19)

    • How we make decisions depends on how uncertain we are - EurekAlert!
      A new Dartmouth study on how we use reward information for making choices shows how humans and monkeys adopt their decision-making strategies depending on the uncertainty of information present. The results of this study illustrated that for a simple gamble to obtain a reward, when the magnitude or amount of the reward is known but the probability of the reward is unknown and must be learned, both species will switch their strategy from combining reward information in a multiplicative way (in which functions of reward probability and magnitude are multiplied to obtain the so-called subjective value) to comparing the attributes in an additive way to make a decision. The findings published in Nature Human Behavior, challenge one of the most fundamental assumptions in economics, neuroeconomics and choice theory that decision-makers typically evaluate risky options in a multiplicative way when in fact this only applies in a limited case when information about both the magnitude and probability of the reward are clearly known.
    • Trump Hits the Panic Button - Paul Krugman
      Donald Trump marked the anniversary of 9/11 by repeating several lies about his own actions on that day. But that wasn’t his only concern. He also spent part of the day writing a series of tweets excoriating Federal Reserve officials as “Boneheads” and demanding that they immediately put into effect emergency measures to stimulate the economy — emergency measures that are normally only implemented in the face of a severe crisis.
    • Martin Weitzman’s contributions to environmental economics - VoxEU
      Environmental economist Martin Weitzman passed away in August. This short intellectual biography and personal remembrance, by his long-time co-host of the Harvard Seminar on Environmental Economics and Policy, outlines how his contributions have advanced the thinking of environmental economists and policymakers on many fundamental issues, including policy instrument choice, discounting, species diversity, and environmental catastrophes. Across the board, the example of his rigorous and often ingenious work set high standards for theorising in environmental economics and thereby served to elevate the entire field.
    • What happens if Trump tries to fire Fed chair Jerome Powell? - Brookings
      President Trump has made no secret of his dissatisfaction with the Federal Reserve, its chair, and the Fed’s monetary policy. This dissatisfaction raises an important question: what happens next? Here’s an introduction to the legal and practical governance of the Federal Reserve System, the Fed’s relationship to other parts of government, and why it is so hard to predict the outcome of this conflict.
    • How Democracy Dies, American-Style - Paul Krugman
      Democracies used to collapse suddenly, with tanks rolling noisily toward the presidential palace. In the 21st century, however, the process is usually subtler.
    • What is a fair pension system? – Thomas Piketty
      Even if the timing remains vague and the conditions uncertain, the government does seem to have decided to launch a vast reform of the retirement pensions system, with the key element being the unification of the rules applied at the moment in the various systems operating (civil servants, private sector employees, local authority employees, self-employed, special schemes, etc).
    • Should We Worry About Income Gaps Within or Between Countries? - Dani Rodrik
      The rise of populist nationalism throughout the West has been fueled partly by a clash between the objectives of equity in rich countries and higher living standards in poor countries. Yet advanced-economy policies that emphasize domestic equity need not be harmful to the global poor, even in international trade.
    • Did Dudley Do Right? - Barry Eichengreen
      The New York Federal Reserve's immediate past president recently caused controversy by calling on the Fed to make it “abundantly clear" that President Donald Trump will bear "the consequences" of his fiscal and trade policies. But what does "abundantly clear" entail?
    • Slowdown in household income growth continues in 2018 - Economic Policy Institute
      Today’s report from the Census Bureau shows a marked slowdown in median household income growth relative to previous years. Median household incomes rose only 0.9%, after rising 1.8% in 2017 and following impressive gains in the two years prior: a 5.1% gain in 2015 and a 3.1% gain in 2016. Median nonelderly household income saw a similar rise of 1.0% this year after gaining 2.5%, 4.6%, and 3.6% in the prior three years, respectively.
    • Great Expectations: the economic power of news about the future – Bank Underground
      Can shifts in beliefs about the future alter the macroeconomic present? This post summarizes our recent working paper where we have combined data on patent applications and survey forecasts to isolate news of potential future technological progress, and studied how macroeconomic aggregates respond to them. We have found news-induced changes in beliefs to be powerful enough to enable economic expansions even if different economic agents process these types of news in very different ways. A change in expectations about future improvements in technology can account for about 20% of the variation in current unemployment and aggregate consumption.
    • Trump Calls for Fed’s ‘Boneheads’ to Slash Interest Rates Below Zero - The New York Times
      President Trump continued to criticize his handpicked Federal Reserve chair, Jerome H. Powell, saying, “It is only the naïveté of Jay Powell and the Federal Reserve that doesn’t allow us to do what other countries are already doing.”
    • Brain: How to optimize decision making? - EurekAlert!
      Our brains are constantly faced with different choices: Should I have a chocolate éclair or macaroon? Should I take the bus or go by car? What should I wear: a woollen sweater or one made of cashmere? When the difference in quality between two choices is great, the choice is made very quickly. But when this difference is negligible, we can get stuck for minutes at a time - or even longer - before we're capable of making a decision. Why is it so difficult to make up our mind when faced with two or more choices? Is it because our brains are not optimised for taking decisions? In an attempt to answer these questions, neuroscientists from the University of Geneva (UNIGE), Switzerland, - in partnership with Harvard Medical School - developed a mathematical model of the optimal choice strategy. They demonstrated that optimal decisions must be based not on the true value of the possible choices but on the difference in value between them. The results, which you can read all about in the journal Nature Neuroscience, show that this decision-making strategy maximises the amount of reward received.
    • Do cash transfers work - Federal Reserve Bank of Minneapolis
      Nations around the world have addressed problems of poverty—malnutrition, poor health care, inadequate education—with “conditional cash transfer” programs (CCTs). These programs provide small cash stipends to participants who engage in specified behaviors—like buying healthy foods, attending maternal health clinics, or sending children to school. They’ve been widely adopted, from Brazil to Indonesia. Even New York City has a CCT.
    • Automation and jobs: When technology boosts employment - VoxEU
      Do industries shed or create jobs when they adopt new labour-saving technologies? This column shows that manufacturing employment grew along with productivity for a century or more, and only later decreased. It argues that the changing nature of demand was behind this pattern, which led to market saturation. This implies that the main impact of automation in the near future may be a major reallocation of jobs, not necessarily massive job losses.
    • What People Say About the Economy Can Set Off a Recession - Robert Shiller
      Forecasting such a shift is extremely difficult. But if we are to have a chance at success, it is critical to insert into the discussion another factor entirely: an examination of the popular narratives that may be infecting individual economic decision-making.
    • Repeated periods of poverty accelerate the ageing process - EurekAlert!
      Genetics, lifestyle and environment are all factors that somehow influence when and how we all age. But the financial situation is also important. Now, researchers from the Center for Healthy Aging and the Department of Public Health have found that four or more years with an income below the relative poverty threshold during adult life make a significant difference as to when the body begins to show signs of ageing.
    • A Requiem for the Fiscal Theory of the Price Level - Roger E. A. Farmer
      Pawel Zabcyck and I have completed an update of our new paper on the Fiscal Theory of the Price Level. Here is the abstract of our paper.
    • Is the US Economy Having an Engels' Pause? - Tim Taylor
      Consider a time period of several decades when there is a high level of technological progress, but typical wage levels remain stagnant while profits soar, driving a sharp rise in inequality. In broad-brush terms, this description fits the US economy for the last few decades. But it also fits the economy of the United Kingdom during the first wave of the Industrial Revolution in the first half of the 19th century.
    • Weekend Reading: Charles Kindleberger: Anatomy of a Typical Financial Crisis - Brad DeLong
      From Charlie Kindleberger, A Financial History of Western Europe:
    • Trumpism Is Bad for Business - Paul Krugman
      With each passing week it becomes ever clearer that Donald Trump’s trade war, far from being “good, and easy to win,” is damaging large parts of the U.S. economy. Farmers are facing financial disaster; manufacturing, which Trump’s policies were supposed to revive, is contracting; consumer confidence is plunging, largely because the public (rightly) fears that tariffs will raise prices.
    • Inflation forecasts and the permanent-transitory confusion - VoxEU
      Individuals are never fully certain whether economic developments are persistent or temporary. This column shows that this permanent-transitory confusion has pervasive implications. It argues that the confusion injects the past into even purely forward-looking New-Keynesian frameworks, and shows empirically that inflationary forecasts indeed rely on past inflation.
    • Trump’s Mercantilist Mess - Robert J. Barro
      When US President Donald Trump boasted that trade wars are "easy to win" in March 2018, it was convenient to dismiss the remark as a rhetorical flourish. Yet it is now clear that Trump meant it, because he genuinely believes the bizarre and anachronistic macroeconomic theories underlying his approach.
    • The True Toll of the Trade War - Raghuram G. Rajan
      Behind the escalating global conflict over trade and technology is a larger breakdown of the postwar rules-based order, which was based on a belief that any country's growth benefits all. Now that China is threatening to compete directly with the United States, support for the system that made that possible has disappeared.
    • Different kinds of fiscal stimulus - mainly macro
      Newspaper day. In the Guardian I have a piece that looks at how we should regard any tax cuts that Boris Johnson may announce as part of the forthcoming election. And make no mistake tax cuts are coming (we already know they intend to cut the tax on petrol), because the spending review signalled that the governments rule will change, as Chris Giles discusses in a good article in today’s FT in which I among other economists are quoted. .
    • Combatting Global Warming and Austerity - Dean Baker
      In the United States, proposals for a Green New Deal have been getting considerable attention in recent months as activists have pressed both members of Congress and Democratic presidential candidates to support aggressive measures to combat global warming. There clearly is much more that we can and must do in the immediate future to prevent enormous damage to the planet.
    • Houses are assets not goods: taking the theory to the UK data – Bank Underground
      In yesterday’s post we argued that housing is an asset, whose value should be determined by the expected future value of rents, rather than a textbook demand and supply for physical dwellings. In this post we develop a simple asset-pricing model, and combine it with data for England and Wales. We find that the rise in real house prices since 2000 can be explained almost entirely by lower interest rates. Increasing scarcity of housing, evidenced by real rental prices and their expected growth, has played a negligible role at the national level.
    • A Nobel-Winning Economist Goes to Burning Man - The New York Times
      Amid the desert orgies, Paul Romer investigates a provocative question: Is this bacchanal a model of urban planning?

      Posted by on Friday, September 13, 2019 at 06:11 PM in Economics, Links | Permalink  Comments (843)