Showing papers in "Research Papers in Economics in 2016"

The Equity Premium: It's Still a Puzzle

Abstract: the average real return to stocks in the United States has been about six percent per year higher than that on Treasury bills. At the same time, the average real return on Treasury bills has been about one percent per year. In this paper, I discuss and assess various theoretical attempts to explain these two different empirical phenomena: the large "equity premium" and the low "risk free rate." I show that while there are several plausible explanations for the low level of Treasury returns, the large equity premium is still largely a mystery to economists. In order to understand why the sample means of the equity premium and the risk free rate represent "puzzles," it is useful to review the basics of modern asset pricing theory. It is well known that the real returns paid by different financial securities may differ considerably, even when averaged over long periods of time. Financial economists typically explain these differences in average returns by attributing them to differences in the degree to which a security's return covaries with the typical investor's consumption. If this covariance is high, selling off the security would greatly reduce the variance of the typical investor's consumption stream; in equilibrium, the investor must be deterred from reducing his risk in this fashion by the security's paying a high average return. There is a crucial problem in making this qualitative explanation of cross-sectional differences in asset returns operational: what exactly is "the typical investor's consumption"? The famous Capital Asset Pricing Model represents one answer to this question: it assumes that the typical investor's consumption stream is perfectly correlated with the return to the stock market. This allows financial analysts to measure the risk of a financial security by its covariance with the return to the stock market (that is, a scaled version of its "beta"). More recently, Douglas Breeden (1979) and Robert Lucas (1978) described so-called "representative" agent models of asset returns in which per capita consumption is perfectly correlated with the consumption stream of the typical investor. (See also

Understanding and Misunderstanding Randomized Controlled Trials

Abstract: RCTs are valuable tools whose use is spreading in economics and in other social sciences. They are seen as desirable aids in scientific discovery and for generating evidence for policy. Yet some of the enthusiasm for RCTs appears to be based on misunderstandings: that randomization provides a fair test by equalizing everything but the treatment and so allows a precise estimate of the treatment alone; that randomization is required to solve selection problems; that lack of blinding does little to compromise inference; and that statistical inference in RCTs is straightforward, because it requires only the comparison of two means. None of these statements is true. RCTs do indeed require minimal assumptions and can operate with little prior knowledge, an advantage when persuading distrustful audiences, but a crucial disadvantage for cumulative scientific progress, where randomization adds noise and undermines precision. The lack of connection between RCTs and other scientific knowledge makes it hard to use them outside of the exact context in which they are conducted. Yet, once they are seen as part of a cumulative program, they can play a role in building general knowledge and useful predictions, provided they are combined with other methods, including conceptual and theoretical development, to discover not "what works," but why things work. Unless we are prepared to make assumptions, and to stand on what we know, making statements that will be incredible to some, all the credibility of RCTs is for naught.

Income Risk, Borrowing Constraints, and Portfolio Choice

Abstract: Economic theory suggests that uninsurable income risk and the expectation of future borrowing constraints can reduce the share of risky assets in a household's portfolio. If the utility function exhibits decreasing absolute risk aversion and decreasing prudence, an individual will reduce his exposure to rate of return risks when confronted with other independent risks. If there are transaction costs, the expectation offuture borrowing constraints should induce individuals to keep a lower proportion of their wealth in the form of illiquid and risky assets. We find support for these propositions in a cross-section of Italian households (JEL D81, GIl). The theory of portfolio choice relates asset shares to the expected value and riskiness of asset returns, transaction costs, and indivisibilities. However, portfolio decisions may also be affected by types of uncertainty other than interest-rate uncertainty. In particular, uninsurable, nondiversifiable risks-such as earnings risk-may induce prudent investors to reduce holdings of risky assets in order to cut their overall exposure to risk (Miles S. Kimball, 1993). The anticipation of future

The Impacts of Neighborhoods on Intergenerational Mobility I: Childhood Exposure Effects

Abstract: We show that the neighborhoods in which children grow up shape their earnings, college attendance rates, and fertility and marriage patterns by studying more than seven million families who move across commuting zones and counties in the U.S. Exploiting variation in the age of children when families move, we find that neighborhoods have significant childhood exposure effects: the outcomes of children whose families move to a better neighborhood – as measured by the outcomes of children already living there – improve linearly in proportion to the amount of time they spend growing up in that area, at a rate of approximately 4% per year of exposure. We distinguish the causal effects of neighborhoods from confounding factors by comparing the outcomes of siblings within families, studying moves triggered by displacement shocks, and exploiting sharp variation in predicted place effects across birth cohorts, genders, and quantiles to implement overidentification tests. The findings show that neighborhoods affect intergenerational mobility primarily through childhood exposure, helping reconcile conflicting results in the prior literature.

Inflation and Unemployment

Abstract: When the Bank of Sweden established the prize for Economic Science in memory of Alfred Nobel (1968), there doubtless was as there doubtless still remains widespread skepticism among both scientists and the broader public about the appropriateness of treating economics as parallel to physics, chemistry, and medicine. These are regarded as “exact sciences” in which objective, cumulative, definitive knowledge is possible. Economics, and its fellow social sciences, are regarded more nearly as branches of philosophy than of science properly defined, enmeshed with values at the outset because they deal with human behavior. Do not the social sciences, in which scholars are analyzing the behavior of themselves and their fellow men, who are in turn observing and reacting to what the scholars say, require fundamentally different methods of investigation than the physical and biological sciences? Should they not be judged by different criteria?

Does Bitcoin hedge global uncertainty? Evidence from wavelet-based quantile-in-quantile regressions

Abstract: In this study, we analyse whether Bitcoin can hedge uncertainty using daily data for the period of 17th March, 2011, to 7th October, 2016. Global uncertainty is measured by the first principal component of the VIXs of 14 developed and developing equity markets. We first use wavelets to decompose Bitcoin returns into various frequencies, i.e., investment horizons. Then, we apply standard OLS regressions and observe that uncertainty negatively affects raw Bitcoin return and its longer-term movements. However, given the heavy tails of the variables, we rely on quantile methods and reveal much more nuanced and interesting results. Quantile regressions indicate that Bitcoin does act as a hedge against uncertainty, that is, it reacts positively to uncertainty at both higher quantiles and shorter frequency movements of Bitcoin returns. Finally, when we use quantile-on-quantile regressions, we observe that hedging is observed at shorter investment horizons, and at both lower and upper ends of Bitcoin returns and global uncertainty.

Monetary Policy According to HANK

Abstract: We revisit the transmission mechanism of monetary policy for household consumption in a Heterogeneous Agent New Keynesian (HANK) model. The model yields empirically realistic distributions of household wealth and marginal propensities to consume because of two key features: multiple assets with different degrees of liquidity and an idiosyncratic income process with leptokurtic income changes. In this environment, the indirect effects of an unexpected cut in interest rates, which operate through a general equilibrium increase in labor demand, far outweigh direct effects such as intertemporal substitution. This finding is in stark contrast to small- and medium-scale Representative Agent New Keynesian (RANK) economies, where intertemporal substitution drives virtually all of the transmission from interest rates to consumption.

Summary for policymakers of the assessment report of the Intergovernmental Science-Policy Platform on Biodiversity and Ecosystem Services on pollinators, pollination and food production

Abstract: The objective of the Intergovernmental Science-Policy Platform on Biodiversity and Ecosystem Services is to provide Governments, private sector, and civil society with scientifically credible and independent up-to-date assessments of available knowledge to make informed decisions at the local, national and international level. This assessment on pollinators, pollination and food production has been carried out by experts from all regions of the world, who have analysed a large body of knowledge, including about 3,000 scientific publications. It represents the state of our knowledge on this issue. Its chapters and their executive summaries were accepted, and its summary for policymakers was approved, by the Plenary of IPBES at its fourth session (22-28 February 2016, Kuala Lumpur). This report provides a critical assessment of the full range of issues facing decision-makers, including the value of pollination and pollinators, status, trends and threats to pollinators and pollination, and policy and management response options. It concludes that pollinators, which are economically and socially important, are increasingly under threat from human activities, including climate change, with observed decreases in the abundance and diversity of wild pollinators. However, the report also outlines a wide range of management and response options that are available to halt the further decline of pollinators. The assessment concludes that 75% of our food crops and nearly 90% of wild flowering plants depend at least to some extent on animal pollination and that a high diversity of wild pollinators is critical to pollination even when managed bees are present in high numbers.

Handbook of Computational Social Choice

Abstract: The rapidly growing field of computational social choice, at the intersection of computer science and economics, deals with the computational aspects of collective decision making. This handbook, written by thirty-six prominent members of the computational social choice community, covers the field comprehensively. Chapters devoted to each of the field's major themes offer detailed introductions. Topics include voting theory (such as the computational complexity of winner determination and manipulation in elections), fair allocation (such as algorithms for dividing divisible and indivisible goods), coalition formation (such as matching and hedonic games), and many more. Graduate students, researchers, and professionals in computer science, economics, mathematics, political science, and philosophy will benefit from this accessible and self-contained book.

Introducing a New Broad-based Index of Financial Development

Abstract: There is a vast body of literature estimating the impact of financial development on economic growth, inequality, and economic stability. A typical empirical study approximates financial development with either one of two measures of financial depth – the ratio of private credit to GDP or stock market capitalization to GDP. However, these indicators do not take into account the complex multidimensional nature of financial development. The contribution of this paper is to create nine indices that summarize how developed financial institutions and financial markets are in terms of their depth, access, and efficiency. These indices are then aggregated into an overall index of financial development. With the coverage of 183 countries on annual frequency between 1980 and 2013, the database should offer a useful analytical tool for researchers and policy makers.

Supply Chain Disruptions: Evidence from the Great East Japan Earthquake

Abstract: This paper quantifies the spillover effect of exogenous shocks, such as earthquakes, on other firms through the supply chain network. Combining micro data on inter-firm transaction networks and geographic information systems, we examine firms' sales growth and transaction relationships outside the tsunami-hit areas before and after the Great East Japan Earthquake. We find that sales growth shows a negative but insignificant effect for firms with suppliers in the affected areas and a negative and significant effect for firms with customers in the affected areas. When we focus on exiting firms in the affected areas as the firms from where the spillovers originated, the sales growth of linked firms outside the affected areas exhibits negative and significant effects for both upstream and downstream firms. Furthermore, significantly negative effects on downstream firms are shown for not only directly linked firms but also indirectly linked firms, with two and three degrees of separation. Finally, we find that firms tend to establish new transactions when they have transaction partners in the affected areas.

DigComp 2.0: The Digital Competence Framework for Citizens. Update Phase 1: the Conceptual Reference Model.

Abstract: The European Digital Competence Framework for Citizens, also known as DigComp, offers a tool to improve citizens’ digital competence. DigComp was first published in 2013 and has become a reference for many digital competence initiatives at both European and Member State levels. This document introduces DigComp 2.0. It constitutes phase 1 of the update of the framework which focuses on the conceptual reference model, new vocabulary and streamlined descriptors. The current document also gives examples of how DigComp is used at the European, national and regional levels.

Ambiguity and the Bayesian Paradigm

Abstract: This is a survey of some of the recent decision-theoretic literature involving beliefs that cannot be quantified by a Bayesian prior. We discuss historical, philosophical, and axiomatic foundations of the Bayesian model, as well as of several alternative models recently proposed. The definition and comparison of ambiguity aversion and the updating of non-Bayesian beliefs are briefly discussed. Finally, several applications are mentioned to illustrate the way that ambiguity (or “Knightian uncertainty”) can change the way we think about economic problems.

The Risk of Automation for Jobs in OECD Countries

Abstract: In recent years, there has been a revival of concerns that automation and digitalisation might after all result in a jobless future. The debate has been fuelled by studies for the US and Europe arguing that a substantial share of jobs is at “risk of computerisation”. These studies follow an occupation-based approach proposed by Frey and Osborne (2013), i.e. they assume that whole occupations rather than single job-tasks are automated by technology. As we argue, this might lead to an overestimation of job automatibility, as occupations labelled as high-risk occupations often still contain a substantial share of tasks that are hard to automate. Our paper serves two purposes. Firstly, we estimate the job automatibility of jobs for 21 OECD countries based on a task-based approach. In contrast to other studies, we take into account the heterogeneity of workers’ tasks within occupations. Overall, we find that, on average across the 21 OECD countries, 9 % of jobs are automatable. The threat from technological advances thus seems much less pronounced compared to the occupation-based approach. We further find heterogeneities across OECD countries. For instance, while the share of automatable jobs is 6 % in Korea, the corresponding share is 12 % in Austria. Differences between countries may reflect general differences in workplace organisation, differences in previous investments into automation technologies as well as differences in the education of workers across countries.

Bank Leverage and Monetary Policy's Risk-Taking Channel; Evidence from the United States

Abstract: We present evidence of a risk-taking channel of monetary policy for the U.S. banking system. We use confidential data on banks' internal ratings on loans to businesses over the period 1997 to 2011 from the Federal Reserve's survey of terms of business lending. We find that ex-ante risk taking by banks (measured by the risk rating of new loans) is negatively associated with increases in short-term interest rates. This relationship is more pronounced in regions that are less in sync with the nationwide business cycle, and less pronounced for banks with relatively low capital or during periods of financial distress.

Multiple Hypothesis Testing in Experimental Economics

Abstract: Empiricism in the sciences allows us to test theories, formulate optimal policies, and learn how the world works. In this manner, it is critical that our empirical work provides accurate conclusions about underlying data patterns. False positives represent an especially important problem, as vast public and private resources can be misguided if we base decisions on false discovery. This study explores one especially pernicious influence on false positives—multiple hypothesis testing (MHT). While MHT potentially affects all types of empirical work, we consider three common scenarios where MHT influences inference within experimental economics: jointly identifying treatment effects for a set of outcomes, estimating heterogeneous treatment effects through subgroup analysis, and conducting hypothesis testing for multiple treatment conditions. Building upon the work of Romano and Wolf (2010), we present a correction procedure that incorporates the three scenarios, and illustrate the improvement in power by comparing our results with those obtained by the classic studies due to Bonferroni (1935) and Holm (1979). Importantly, under weak assumptions, our testing procedure asymptotically controls the familywise error rate – the probability of one false rejection – and is asymptotically balanced. We showcase our approach by revisiting the data reported in Karlan and List (2007), to deepen our understanding of why people give to charitable causes.

Smart Mobility in Smart City

Abstract: Smart City is a recent topic, but it is spreading very fast, as it is perceived like a winning strategy to cope with some severe urban problems such as traffic, pollution, energy consumption, waste treatment. Smart City ideas are the merge of some other more ancient urban policies such as digital city, green city, knowledge city. A Smart City is therefore a complex, long-term vision of a better urban area, aiming at reducing its environmental footprint and at creating better quality of life for citizens. Mobility is one of the most difficult topic to face in metropolitan large areas. It involves both environmental and economic aspects, and needs both high technologies and virtuous people behaviours. Smart Mobility is largely permeated by ICT, used in both backward and forward applications, to support the optimization of traffic fluxes, but also to collect citizens’ opinions about liveability in cities or quality of local public transport services. The aim of this paper is to analyse the Smart Mobility initiatives like part of a larger Smart City initiative portfolio, and to investigate about the role of ICT in supporting smart mobility actions, influencing their impact on the citizens’ quality of life and on the public value created for the city as a whole.

Field Experiments on Discrimination

Abstract: This article reviews the existing field experimentation literature on the prevalence of discrimination, the consequences of such discrimination, and possible approaches to undermine it. We highlight key gaps in the literature and ripe opportunities for future field work. Section 2 reviews the various experimental methods that have been employed to measure the prevalence of discrimination, most notably audit and correspondence studies; it also describes several other measurement tools commonly used in lab-based work that deserve greater consideration in field research. Section 3 provides an overview of the literature on the costs of being stereotyped or discriminated against, with a focus on self-expectancy effects and self-fulfilling prophecies; Section 4 also discusses the thin field-based literature on the consequences of limited diversity in organizations and groups. The final section of the paper, Section 4 , reviews the evidence for policies and interventions aimed at weakening discrimination, covering role model and intergroup contact effects, as well as sociocognitive and technological debiasing strategies.

Multiple-Group Analysis of Similarity in Latent Profile Solutions

Abstract: Despite the increased popularity of person-centered analyses, no comprehensive approach exists to guide the systematic investigation of the similarity (or generalizability) of latent profiles, their pre-dictors, and their outcomes across subgroups of participants or time points. We propose a six-step process to assess configural (number of profiles), structural (within-profile means), dispersion (within-profile variability), distributional (size of the profiles), predictive (relations between predictors and profile membership), and explanatory (relations between profile membership and outcomes) similarity. We then apply this approach to data on organizational commitment mindsets collected in North America (n ¼ 492) and France (n ¼ 476). This approach provides a rigorous method to systematically and quantitatively assess the extent to which a latent profile solution generalizes across diverse samples, such as in the cross-national comparison in our illustrative example, or the extent to which interventions or naturalistic changes may impact the nature of a latent profile solution. This approach also helps to identify the nature of any differences that might be present, thus providing richer interpretations of observed differences and ideas for future research.

Managing electric flexibility from Distributed Energy Resources: A review of incentives for market design

Abstract: In many electric systems worldwide the penetration of Distributed Energy Resources (DER) at the distribution levels is increasing. This penetration brings in different challenges for electricity system management; however if the flexibility of those DER is well managed opportunities arise for coordination. At high voltage levels under responsibility of the system operator, trading mechanisms like contracts for ancillary services and balancing markets provide opportunities for economic efficient supply of system flexibility services. In a situation with smart metering and real-time management of distribution networks, similar arrangements could be enabled for medium- and low-voltage levels. This paper presents a review and classification of existing DER as flexibility providers and a breakdown of trading platforms for DER flexibility in electricity markets.

Deadly Embrace: Sovereign and Financial Balance Sheets Doom Loops

Abstract: The recent unravelling of the Eurozone’s financial integration raised concerns about feedback loops between sovereign and banking insolvency, and provided an impetus for the European banking union. This paper provides a “double-decker bailout” theory of the feedback loop that allows for both domestic bailouts of the banking system by the domestic government and sovereign debt forgiveness by international creditors or solidarity by other countries. Our theory has important implications for the re-nationalization of sovereign debt, macroprudential regulation, and the rationale for banking unions.

Estimation of Panel Vector Autoregression in Stata: a Package of Programs

Abstract: Panel vector autoregression (VAR) models have been increasingly used in applied research. While programs specifically designed to estimate time-series VAR models are often included as standard features in most statistical packages, panel VAR model estimation and inference are often implemented with general-use routines that require some programming dexterity. In this paper, we briefly discuss model selection, estimation and inference of homogeneous panel VAR models in a generalized method of moments (GMM) framework, and present a set of Stata programs to conveniently execute them. We illustrate the pvar package of programs by using standard Stata datasets.

The I Theory of Money

Abstract: This paper provides a theory of money, whose value depends on the functioning of the intermediary sector, and a unied

Migration of Highly Skilled Persons From Developing Countries: Impact and Policy Responses

Abstract: The synthesis report prepared by Professors Lowell and Findlay addresses the issues of the impact of high skilled emigration on developing countries, and the policy mixes and options available to both receiving and sending countries to harness its benefits. The study argues that the feedback or indirect effects of skilled migration can often outweigh any initial negative impacts on developing countries. The challenge is to maximize these benefits through appropriate policies relating to encouraging return migration, retention of manpower, tapping diaspora networks, and productive utilization of remittances. The paper highlights the role that receiving countries can play in the process.

The Oxford handbook of the economics of networks

Abstract: This handbook represents the frontier of research into the economics of networks: how and why they form, how they influence behavior, how they help govern outcomes in an interactive world, and how they shape collective decision making, opinion formation, and diffusion dynamics. From a methodological perspective, the authors devote attention to theory, field experiments, laboratory experiments, and econometrics. Theoretical work in network formation, games played on networks, repeated games, and the interaction between linking and behavior are synthesized. A number of chapters are devoted to studying social processes mediated by networks. Topics here include opinion formation, diffusion of information and disease, and learning. There are also chapters devoted to financial contagion and systemic risk. Next, the handbook includes a section that discusses communities more generally, with applications including social trust, favor exchange, and social collateral; the importance of communities for migration patterns, and the role that networks and communities play in the labor market. A prominent role of networks, from an economic perspective, is that they mediate trade. Several chapters cover bilateral trade in networks, strategic intermediation, and the role of networks in international trade. The handbook also discusses the role of networks for organizations. One chapter discusses the role of networks for the performance of organizations, while two other chapters discuss managing networks of consumers and pricing in the presence of network-based spillovers. Finally, the handbook covers the Internet as a network, with attention to the issue of net neutrality.

Developing Computational Thinking in Compulsory Education - Implications for policy and practice

Abstract: In the past decade, Computational Thinking (CT) and related concepts (e.g. coding, programing, algorithmic thinking) have received increasing attention in the educational field. This has given rise to a large amount of academic and grey literature, and also numerous public and private implementation initiatives. Despite this widespread interest, successful CT integration in compulsory education still faces unresolved issues and challenges. This report provides a comprehensive overview of CT skills for schoolchildren, encompassing recent research findings and initiatives at grassroots and policy levels. It also offers a better understanding of the core concepts and attributes of CT and its potential for compulsory education. The study adopts a mostly qualitative approach that comprises extensive desk research, a survey of Ministries of Education and semi-structured interviews, which provide insights from experts, practitioners and policy makers. The report discusses the most significant CT developments for compulsory education in Europe and provides a comprehensive synthesis of evidence, including implications for policy and practice.

The Role of Globalization on the Recent Evolution of Energy Demand in India: Implications for Sustainable Development

Abstract: Using annual data for the period 1971-2012, this study explores the relationship between globalization and energy consumption for India by endogenizing economic growth, financial development and urbanization. The cointegration test proposed by Bayer-Hanck (2013) is applied to estimate the long-run and short-run relationships among the variables. After confirming the existence of cointegration, the overall results from the estimation of an ARDL energy demand function reveal that in the long run, the acceleration of globalization (measured in three dimensions - economic, social and overall globalization) leads to a decline in energy demand in India. Furthermore, while financial development is negatively related to energy consumption, economic growth and urbanization are the key factors leading to increased energy demand in the long run. These results have policy implications for the sustainable development of India. In particular, globalization and financial development provide a win-win situation for India to increase its economic growth in the long run and become more environmentally sustainable.

Racial and Gender Discrimination in Transportation Network Companies

Abstract: Passengers have faced a history of discrimination in transportation systems Peer transportation companies such as Uber and Lyft present the opportunity to rectify long-standing discrimination or worsen it We sent passengers in Seattle, WA and Boston, MA to hail nearly 1,500 rides on controlled routes and recorded key performance metrics Results indicated a pattern of discrimination, which we observed in Seattle through longer waiting times for African American passengers—as much as a 35 percent increase In Boston, we observed discrimination by Uber drivers via more frequent cancellations against passengers when they used African American-sounding names Across all trips, the cancellation rate for African American sounding names was more than twice as frequent compared to white sounding names Male passengers requesting a ride in low-density areas were more than three times as likely to have their trip canceled when they used a African American-sounding name than when they used a white-sounding name We also find evidence that drivers took female passengers for longer, more expensive, rides in Boston We observe that removing names from trip booking may alleviate the immediate problem but could introduce other pathways for unequal treatment of passengers