Showing papers by "CEMFI published in 2021"
TL;DR: In this article, a new perspective on the Synthetic Control (SC) method as a weighted least squares regression estimator with time fixed effects and unit weights is presented, which can be interpreted as a unit and time weighted version of the standard Difference In PsychiatricDifferences (DID) estimator.
Abstract: We present a new perspective on the Synthetic Control (SC) method as a weighted least squares
regression estimator with time fixed effects and unit weights. This perspective suggests a
generalization with two way (both unit and time) fixed effects, and both unit and time weights,
which can be interpreted as a unit and time weighted version of the standard Difference In
Differences (DID) estimator. We find that this new Synthetic Difference In Differences (SDID)
estimator has attractive properties compared to the SC and DID estimators. Formally we show that
our approach has double robustness properties: the SDID estimator is consistent under a wide
variety of weighting schemes given a well-specified fixed effects model, and SDID is consistent
with appropriately penalized SC weights when the basic fixed effects model is misspecified and
instead the true data generating process involves a more general low-rank structure (e.g., a latent
factor model). We also present results that justify standard inference based on weighted DID
regression. Further generalizations include unit and time weighted factor models.
83 citations
TL;DR: In this article, the authors study a real small open economy with two key ingredients: (i) partial segmentation of home and foreign bond markets and (ii) a pecuniary externality that makes the real exchange rate excessively volatile in response to capital flows.
Abstract: We study a real small open economy with two key ingredients: (i) partial segmentation of home and foreign bond markets and (ii) a pecuniary externality that makes the real exchange rate excessively volatile in response to capital flows. Partial segmentation implies that, by intervening in the bond markets, the central bank can affect the exchange rate and the spread between home- and foreign-bond yields. Such interventions allow the central bank to address the pecuniary externality, but they are also costly, as foreigners make carry-trade profits. We analytically characterize the optimal intervention policy that solves this trade-off: (a) the optimal policy leans against the wind, stabilizing the exchange rate; (b) it involves smooth spreads but allows exchange rates to jump; (c) it partly relies on “forward guidance”, with non-zero interventions even after the shock has subsided; (d) it requires credibility, in that central banks do not intervene without commitment. Finally, we shed light on the global consequences of widespread interventions, using a multi-country extension of our model. We find that, left to themselves, countries over-accumulate reserves, reducing welfare and leading to inefficiently low world interest rates.
55 citations
TL;DR: In this article, the authors develop likelihood-based estimators for autoregressive panel data models that are consistent in the presence of time series heteroskedasticity, and investigate identification under unit roots, and show that random effects estimation in levels may achieve substantial efficiency gains relative to estimation from data in differences.
43 citations
TL;DR: In this paper, the authors evaluate the effects of these events on immunization by implementing a Difference-in-Differences strategy across cohorts and regions, and find that vaccination rates declined 9 to 13% per standard deviation in Islamist parties' support.
Abstract: In July 2011, the Pakistani public unexpectedly learnt that the CIA had used a vaccination campaign as cover during the operations to locate and capture Osama Bin Laden. This episode lent credibility to conspiracy theories against vaccines that had been spread by the Taliban. We evaluate the effects of these events on immunization by implementing a Difference-in-Differences strategy across cohorts and regions. We find that vaccination rates declined 9 to 13% per standard deviation in Islamist parties' support. These results suggest that the disclosure of information discrediting vaccination campaigns can negatively affect trust in health services and demand for immunization.
19 citations
TL;DR: In this paper, the authors build a life-cycle economy with uninsurable labor productivity risk and endogenous labor supply and find that the revenue from labor income taxes is maximized at an effective marginal tax rate of 51.6% (38.9%) for the richest 1% (5%) of individuals, versus 46.3% (34.7%) in the benchmark economy.
Abstract: Can the Spanish government generate more tax revenue by making personal income taxes more progressive? To answer this question, we build a life-cycle economy with uninsurable labor productivity risk and endogenous labor supply. Individuals face progressive taxes on labor and capital incomes and proportional taxes that capture social security, corporate income, and consumption taxes. Our answer is yes, but not much. A reform that increases labor income taxes for individuals who earn more than the mean labor income and reduces taxes for those who earn less than the mean labor income generates a small additional revenue. The revenue from labor income taxes is maximized at an effective marginal tax rate of 51.6% (38.9%) for the richest 1% (5%) of individuals, versus 46.3% (34.7%) in the benchmark economy. The increase in revenue from labor income taxes is only 0.82%, while the total tax revenue declines by 1.55%. The higher progressivity is associated with lower aggregate labor supply and capital. As a result, the government collects higher taxes from a smaller economy. The total tax revenue is higher if marginal taxes are raised only for the top earners.The increase, however, must be substantial and cover a large segment of top earners. The rise in tax collection from a 3 percentage points increase on the top 1% is just 0.09%. A 10 percentage points increase on the top 10% of earners (those who earn more than €41,699) raises total tax revenue by 2.81%.
13 citations
TL;DR: In this article, the consequences of the COVID-19 pandemic on Spanish households were studied using two online surveys collected in May and November 2020, and the authors found that the pandemic deepened the gender-income gap: women experienced a three percentage point larger income loss than men.
Abstract: Using two novel online surveys collected in May and November 2020, we study the consequences of the COVID-19 pandemic on Spanish households. We document a large and negative effect on household income. By May 2020, the average individual lived in a household that had lost 16% of their pre-pandemic monthly income. Furthermore, this drop was highly unequal: while households in the richest quintile lost 6.8% of their income, those in the poorest quintile lost 27%. We also document that the pandemic deepened the gender-income gap: on average, women experienced a three-percentage point larger income loss than men. While this is consistent with previous findings in the literature, in this paper we document that this effect is driven by women from middle-income households with kids. Finally, we provide evidence that Spanish individuals experienced moderate declines in their levels of psychological well-being. This effect is not different for individuals living in rich or poor households, but the reasons behind well-being losses do differ: richer individuals are more concerned about loss of contact with dear ones, while low-income individuals are more likely to mention loss of income and employment as a key source of emotional distress.
11 citations
TL;DR: This paper analyzed a multi-year, multicountry entrepreneurship survey with more than one million observations to identify startups with low and high growth potential and confirmed the validity of these ex ante measures with ex post firm-level information on employment growth.
Abstract: We analyze a multiyear, multicountry entrepreneurship survey with more than one million observations to identify startups with low and high growth potential. We confirm the validity of these ex ante measures with ex post firm-level information on employment growth. We find that negative aggregate financial shocks reduce all startup types, but their effect is significantly stronger for startups with high growth potential, especially when GDP growth is low. Our results uncover a new composition of entry channel that significantly reduces employment growth and is potentially important for explaining slow recoveries after financial crises.
9 citations
TL;DR: This article found that the value added share of manufacturing within investment goods is larger than within consumption goods, and the standard hump-shaped profile of manufacturing with development is much more apparent for the whole economy than for the investment and consumption goods separately.
Abstract: The sectoral composition of growing economies is largely affected by the evolution of the investment rate outside the balanced growth path. We present three novel facts consistent with this idea: (a) the value added share of manufacturing within investment goods is larger than within consumption goods, (b) the standard hump-shaped profile of manufacturing with development is much more apparent for the whole economy than for the investment and consumption goods separately, and (c) the investment rate displays a hump with development similar to the one of the value added share of manufacturing. Using a standard multi-sector growth model estimated with a large panel of countries, we find that this mechanism is especially important for the industrialization of several countries since the 1950's and for the deindustrialization of many Western economies since the 1970's. In addition, it explains a substantial part of the standard hump-shaped relationship between manufacturing and development, which has been a challenge for theories of structural transformation under balanced growth. Finally, the different composition of investment and consumption goods can also explain up to half of the decline in the relative price of investment since 1980.
8 citations
TL;DR: In this paper, a panel Markov switching model was proposed to identify patterns of health heterogeneity where individuals can move across health groups as they age, and showed that health groups outperform other measures of health commonly used in the literature at explaining the variance in the use of nursing homes, home health care, out of pocket medical expenses and predicted mortality.
Abstract: Health dynamics and its associated medical and care costs have been identified by the macro literature as a major concern of the elderly. Due to its multidimensionality, however, a dicult task faced by researchers is to summarize health parsimoniously into a single state variable. We propose a panel Markov switching model to identify patterns of health heterogeneity where individuals can move across health groups as they age. To estimate the model, we use Markov chain Monte Carlo techniques to exploit information from both the crosssectional and time series dimensions. We identify health groups for individuals in the Health and Retirement Survey for the US. Results show that there exists four clearly diVerentiated groups depending on individualÂs physical and mental disabilities. Furthermore, we show that health groups outperform other measures of health commonly used in the literature at explaining the variance in the use of nursing homes, home health care, out of pocket medical expenses and predicted mortality.
7 citations
TL;DR: In this paper, the authors use a recent household survey that includes rich information for large urban areas in 11 Latin American countries and find that these household inputs are not available for more vulnerable workers.
7 citations
TL;DR: In this article, an ex-post assessment of the effect of the trade agreements signed by Latin American countries on international trade is presented. But, the authors do not consider the impact of trade agreements on the economic integration of Latin America.
Abstract: espanolEste documento analiza el proceso de integracion economica en America Latina. Utilizando un modelo de gravedad estructural, proporciona una evaluacion ex post del efecto de los acuerdos comerciales firmados por los paises latinoamericanos en el comercio internacional. Tenemos en cuenta la ultima ola de proliferacion de acuerdos comerciales y estimamos los efectos de cada uno. De promedio, los acuerdos comerciales tuvieron un efecto positivo en el comercio latinoamericano. Esto es valido tanto para los acuerdos intralatinoamericanos como para los acuerdos entre paises latinoamericanos y el resto del mundo. Sin embargo, descubrimos que estas estimaciones promedio cubren un importante nivel de heterogeneidad entre los acuerdos comerciales. Ademas, cuantificamos los efectos de equilibrio general ex ante sobre los volumenes de comercio y el bienestar de los paises latinoamericanos en diferentes escenarios de integracion mas profunda. EnglishThis study analyses the process of economic integration in Latin America. Making use of a structural gravity model, this paper provides an ex-post assessment of the effect of the trade agreements (TAs) signed by Latin American countries on international trade. We account for the last wave of TAs proliferation and estimate treaty level effects. On average, TAs had a positive effect on Latin American trade. This holds true for both intra-Latin American agreements and agreements between Latin American countries and the rest of the world. However, we unveil that these average estimates cover a substantial degree of heterogeneity across TAs. Additionally, we quantify ex-ante general equilibrium effects on the trade volumes and welfare of Latin American countries under different scenarios of deeper integration.
TL;DR: In this article, the authors propose tests for smooth but persistent serial correlation in risk premia and volatilities that exploit the non-normality of financial returns, and apply their tests to quarterly returns on the five Fama-French factors for international stocks, whose distributions are mostly symmetric and fat-tailed.
TL;DR: This article studied the labor market effects of both documented and undocumented immigration in a search model featuring nonrandom hiring and found that immigrants accept lower wages and are preferred by firms and therefore have higher job finding rates than natives.
Abstract: This paper studies the labor market effects of both documented and undocumented immigration in a search model featuring nonrandom hiring. As immigrants accept lower wages, they are preferably chosen by firms and therefore have higher job finding rates than natives, consistent with evidence found in US data. Immigration leads to the creation of additional jobs but also raises competition for natives. The dominant effect depends on the fall in wage costs, which is larger for undocumented immigration than it is for legal immigration. The model predicts a dominating job creation effect for the former, reducing natives' unemployment rate, but not for the latter.
TL;DR: This paper proposed generalized DWH specification tests which simultaneously compare three or more likelihood-based estimators in multivariate conditionally heteroskedastic dynamic regression models and analyzed the relationship between macroeconomic and financial uncertainty and the business cycle.
Abstract: We propose generalized DWH specification tests which simultaneously compare three or more likelihood‐based estimators in multivariate conditionally heteroskedastic dynamic regression models. Our tests are useful for Garch models and in many empirically relevant macro and finance applications involving Var s and multivariate regressions. We determine the rank of the differences between the estimators' asymptotic covariance matrices under correct specification, and take into account that some parameters remain consistently estimated under distributional misspecification. We provide finite sample results through Monte Carlo simulations. Finally, we analyze a structural Var proposed to capture the relationship between macroeconomic and financial uncertainty and the business cycle.
Durbin–Wu–Hausman tests partial adaptivity semiparametric estimators singular covariance matrices uncertainty and the business cycle C12 C14 C22 C32 C52
TL;DR: In this paper, a longitudinal approach is adopted to show that employment and earnings losses suffered by young workers during recessions are not made up in the subsequent expansions, and they also estimate the size of the scarring effects of entering the job market in a recession for college-educated workers during their first decade in the labor market.
Abstract: Young workers in Spain face the unprecedented impact of the Great Recession and the COVID-19 crisis in short sequence. Moreover, they have also experienced a deterioration in their employment and earnings over the last three decades. In this paper, we document this evolution and adopt a longitudinal approach to show that employment and earnings losses suffered by young workers during recessions are not made up in the subsequent expansions. We also estimate the size of the scarring effects of entering the job market in a recession for college-educated workers during their first decade in the labor market. Our empirical estimates indicate that while there is some evidence of scarring effects, the driving force is a trend worsening of youth labor market outcomes.
TL;DR: The authors used harmonized household panel data from Europe and the US and a three-state survival model to provide comparable measurements of education and gender inequalities in total, healthy, and unhealthy life expectancies at age 50.
Abstract: We use harmonized household panel data from Europe and the US and a three-state survival model to provide comparable measurements of education and gender inequalities in total, healthy, and unhealthy life expectancies at age 50. Common across countries, the education advantage in total life expectancy is larger for males but the education advantage in (fewer) unhealthy years is larger for females. Counterfactual decompositions show that these results arise because the education advantage in conditional survival rates is relatively more important for males, while the education advantage in better health transitions is relatively more important for females. Across countries, the US stands out with the largest education gradient in healthy life expectancy.
TL;DR: In this article, the authors analyze a model for N different measurements of a persistent latent time series when measurement errors are mean-reverting and find potentially large biases in maximum likelihood estimators of the dynamics parameters and reductions in the precision of smoothed estimates of the latent variable.
Abstract: We analyze a model for N different measurements of a persistent latent time series when measurement errors are mean-reverting, which implies a common trend among measurements. We study the consequences of overdifferencing, finding potentially large biases in maximum likelihood estimators of the dynamics parameters and reductions in the precision of smoothed estimates of the latent variable, especially for multiperiod objects such as quinquennial growth rates. We also develop an R2 measure of common trend observability that determines the severity of misspecification. Finally, we apply our framework to US quarterly data on GDP and GDI, obtaining an improved aggregate output measure.
TL;DR: In this paper, the authors examine linear correlation and tail dependence between market neutral hedge funds and the market portfolio conditional on the financial cycle and study their implications for market timing and risk management.
Abstract: We examine linear correlation and tail dependence between market neutral hedge funds and the market portfolio conditional on the financial cycle. We document that the low correlation between these funds and the S&P 500 consists of a negative correlation during bear periods and a positive one during bull periods. In contrast, the remaining styles present a positive correlation across cycles. We also find that these funds present tail dependence only during bull periods. We study their implications for market timing and risk management.
TL;DR: The 20th century witnessed a dramatic transformation of the family in the United States as discussed by the authors, where fertility declined, educational attainment waxed, housework fell, leisure increased, jobs shifted from blue to white collar, and marriage waned.
Abstract: The 20th century beheld a dramatic transformation of the family. Some Kuznets style facts regarding structural change in the family are presented. Over the course of the 20th century in the United States fertility declined, educational attainment waxed, housework fell, leisure increased, jobs shifted from blue to white collar, and marriage waned. These trends are also observed in the cross-country data. A model is developed, and then calibrated, to address the trends in the US data. The calibration procedure is closely connected to the underlying economic logic. Three drivers of the great transition are considered: neutral technological progress, skilled-biased technological change, and drops in the price of labor-saving household durables.
Institutional subscribers to the NBER working paper series, and residents of developing countries may download this paper without additional charge at www.nber.org.
TL;DR: In this article, the authors study how institutions and technological factors that shape default and debt restructuring decisions affect the amplification of aggregate shocks and show that for sufficiently large shocks, agents renegotiate.