tag:blogger.com,1999:blog-76995623928134772292024-03-18T04:03:22.550+01:00Economics, my dear WatsonDerrill Watsonhttp://www.blogger.com/profile/08996812965100062495noreply@blogger.comBlogger1024115tag:blogger.com,1999:blog-7699562392813477229.post-29596160530513435792019-07-10T16:28:00.000+01:002019-07-10T16:28:39.390+01:00Lit in Review: 3 for Intermediate Macro<div dir="ltr" style="text-align: left;" trbidi="on">
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The July 2015 American Economic Journal: Macroeconomics had several papers that have something to say to my intermediate macroeconomics students.<br />
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How good is the Cobb-Douglas production function at describing the real world?<br />
Berthold Herrendorf, Christopher Herrington, and Akos Valentinyi, "Sectoral Technology and Structural Transformation" (<a href="http://econ.core.hu/file/download/mtdp/MTDP1232.pdf">working paper</a>)<br />
They use three different functions, one each for ag, manufacturing, and services and they add imported intermediate inputs to the model we use. If they allow each one to have different technology growth, they can "capture the main technological forces behind the postwar US structural transformation" from ag/manufacturing to a services-oriented economy. They tested letting each sector have a different alpha, but it turns out that doesn't make much of a difference.<br />
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Permanent and transitory income shocks<br />
Christian Bayer and Falko Juessen, "Happiness and the Persistence of Income Shocks" (<a href="http://wiwi.uni-bonn.de/hump/docs/happiness_income_shocks.pdf">2013 draft</a>)<br />
Persistent income changes "have a significant impact on happiness while transitory shocks do not."<br />
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The Trilemma<br />
Michael Klein and Jay Shambaugh, "Rounding the Corners of the Policy Trilemma: Sources of Monetary Policy Autonomy" <a href="https://www.nber.org/papers/w19461">ungated</a><br />
<a href="https://www.economist.com/sites/default/files/20160827_EBC992.png" imageanchor="1" style="clear: right; float: right; margin-bottom: 1em; margin-left: 1em;"><img alt="Image result for impossible trilemma monetary" border="0" height="181" src="https://www.economist.com/sites/default/files/20160827_EBC992.png" width="200" /></a>My time in Nigeria gave me some interesting insights on some of our macro models. While I can easily wave my hands a bit and put the US, Germany/Greece/any EU country, and China on the three edges of the impossible trilemma, Nigeria tried to have it all. They don't have free capital mobility, and their controls have been getting tighter over the last ten years; they try to have a fixed exchange rate, but they are classified as free because sometimes they have to let it fluctuate wildly before reeling it back in; and they want a central bank that can still impact the economy, but it's pretty weak.<br />
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This paper asks if Nigeria's strategy could be effective: "whether partial capital controls and limited exchange rate flexibility allow for full monetary policy autonomy. We find partial capital controls do not generally allow for greater monetary control than with open capital accounts, unless they are quite extensive, but a moderate amount of exchange rate flexibility does allow for some degree of monetary autonomy, especially in emerging and developing economies."</div>
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Derrill Watsonhttp://www.blogger.com/profile/08996812965100062495noreply@blogger.com3tag:blogger.com,1999:blog-7699562392813477229.post-48676126831758248862018-06-12T16:01:00.000+01:002018-06-12T16:01:37.151+01:00Another example of the importance of starting dates<div dir="ltr" style="text-align: left;" trbidi="on">
Back in October, <a href="https://www.vox.com/policy-and-politics/2017/10/27/16547478/trump-rally">Yglesias reported</a> on how the Trump stock market rally wasn't all that impressive. Other countries' stock market indices had risen by more than ours had. To illustrate this, he included this graph comparing the US S&P 500 with Japan's Nikkei, Germany's DAX, and France's CAC indices:<br />
<img height="214" src="https://cdn.vox-cdn.com/thumbor/eu68pvea3RBOjP6xKV4sJwVbpN0=/0x0:1505x506/1200x0/filters:focal(0x0:1505x506)/cdn.vox-cdn.com/uploads/chorus_asset/file/9537663/Screen_Shot_2017_10_25_at_2.48.29_PM.png" width="640" /><br />
It clearly shows that, while the S&P500 has risen considerably since Aug 2016, the rise is not as large as the gains experienced by other countries. He concluded:<br />
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<span style="background-color: white; color: #4c4e4d; font-family: Balto, Helvetica, sans-serif; font-size: 18px;">That said, the fact that stock market enthusiasm over the past year has been worldwide with the United States </span><em style="background-color: white; box-sizing: border-box; color: #4c4e4d; font-family: Balto, Helvetica, sans-serif; font-size: 18px; line-height: inherit; margin: 0px; padding: 0px; text-decoration-line: inherit; vertical-align: inherit;">lagging</em><span style="background-color: white; color: #4c4e4d; font-family: Balto, Helvetica, sans-serif; font-size: 18px;"> other key countries seems like a strong indication that Trump hasn’t done anything that’s particularly successful or exciting. ... </span><span style="background-color: white; color: #4c4e4d; font-family: Balto, Helvetica, sans-serif; font-size: 18px;">For whatever reason, markets are up just about everywhere, not only in the United States. And markets generally seem to be up by more in countries with boring, competent-seeming leadership than they are in the United States.</span></blockquote>
I liked the graph and it is a good idea to think in terms of such counterfactuals, but I also had my doubts. Why normalize all the indices at the end of July, half a year before he became president and months before he won the election? In the middle of the semester I felt it was interesting enough to mention to my honors students while bringing up a concern or two, but I eventually forgot my desire to investigate further.<br />
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Well, time to investigate! Compare if you will the following graphs with three different normalizations: Yglesias' end-of-July 2016, the election in 2016, and the inauguration in 2017. I'm extending the data out to today, using weekly closing numbers.<br />
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<a href="https://2.bp.blogspot.com/-jV9XgPbtbrY/Wx_XmUJ6O6I/AAAAAAAAHhs/rGXTIB9tQRsAodXJunzaExoJDJgiZcVHgCLcBGAs/s1600/Stocks%2BYglesias.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="435" data-original-width="563" height="247" src="https://2.bp.blogspot.com/-jV9XgPbtbrY/Wx_XmUJ6O6I/AAAAAAAAHhs/rGXTIB9tQRsAodXJunzaExoJDJgiZcVHgCLcBGAs/s320/Stocks%2BYglesias.png" width="320" /></a></div>
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The S&P's relative performance has improved since Yglesias wrote, so that even using his normalization the US is now modestly outperforming Europe and has been for the most part since the Tax Cut and Jobs Act. The Nikkei is still outperforming the S&P by a wide margin, but his conclusion would now have to be that the President's antics haven't harmed the US.</div>
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<a href="https://1.bp.blogspot.com/-fugu4Y61Els/Wx_XmXE4p0I/AAAAAAAAHho/FYhq6926WVA-Pc4L8ep4GQMTixLnGzAtwCLcBGAs/s1600/Stocks%2BElection.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="435" data-original-width="570" height="244" src="https://1.bp.blogspot.com/-fugu4Y61Els/Wx_XmXE4p0I/AAAAAAAAHho/FYhq6926WVA-Pc4L8ep4GQMTixLnGzAtwCLcBGAs/s320/Stocks%2BElection.png" width="320" /></a></div>
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If we normalize just before the election, however, we see that the US is right on par with Japan and outperforming Europe by a wide margin.<br />
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<a href="https://3.bp.blogspot.com/-W3WUjVLL7aI/Wx_XmcyopII/AAAAAAAAHhk/6pgkqYMw2zkxTuBYSjIX15inhUV2Rl7tQCLcBGAs/s1600/Stocks%2BInauguration.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="437" data-original-width="570" height="245" src="https://3.bp.blogspot.com/-W3WUjVLL7aI/Wx_XmcyopII/AAAAAAAAHhk/6pgkqYMw2zkxTuBYSjIX15inhUV2Rl7tQCLcBGAs/s320/Stocks%2BInauguration.png" width="320" /></a></div>
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And normalizing from the inauguration shows the US ahead of every other country with the most boring and competent seeming Germany performing worst.<br />
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So what's the takeaway? We need more crazy antics? I doubt it. My three lessons for today are about how little we know:<br />
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1) If you're going to do this kind of analysis, be forthright about why you are choosing your starting dates. Starting dates are everything. That's part of why statistics gets its reputation for lies: you can make the same numbers tell almost any story you want. If you want US stock returns to look as bad as possible, start at July 3, 2016 (really close to Yglesias' starting point) so that Japan is 20 points ahead of the US. If you want the US stock returns to look as strong as possible, go back nearly 3 years ago to June 28, 2015 and give Trump credit for growth that happened during Obama's term, putting the US 20 points ahead of Japan. Or maybe just pick a credible day from which we can justly and reasonably judge the President's performance.<br />
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2) Let's please remember on all sides that the stock market is not a great indicator of how the economy as a whole is doing. The correlation may even be negative in the very long run (http://www.businessinsider.com/equity-returns-and-gdp-per-capita-2014-2)<br />
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3) Let's not draw too many life lessons about how to run an economy and a presidency until all the data points are in. </div>
Derrill Watsonhttp://www.blogger.com/profile/08996812965100062495noreply@blogger.com0tag:blogger.com,1999:blog-7699562392813477229.post-10499406531190965622017-02-10T16:25:00.000+01:002017-02-10T16:25:43.491+01:00Is a strong exchange rate good or bad?<div dir="ltr" style="text-align: left;" trbidi="on">
So <a href="http://nymag.com/daily/intelligencer/2017/02/trump-asked-national-security-adviser-for-econ-tips-report.html?mid=facebook_nymag">apparently</a> Pres. Trump has asked his national security adviser if it was a strong dollar or a weak dollar was good or bad.<br />
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I ask this on my tests regularly ... almost every class I teach has it in one form or another, actually. And since the article doesn't answer it for you, here are the correct answers depending on the class:<br />
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Correct answer a) in every class - There is no such thing as "strong" or "weak". It's all relative.
So then I ask whether "stronger" or "weaker" is better. [PS - This is the kind of pedantic right answer that is useful for students and should <i>not</i> be given to the President of the United States, just in case you are in that position.]<br />
<span class="text_exposed_show" style="display: inline;"><br />Correct answer for intro students - It depends on who you are. Exporters, the tourist industry, and firms competing with imports prefer weaker while importers, consumers, and tourists prefer stronger. So if you produce shirts, you like a weaker dollar at the office and a stronger dollar at home.
<br /><br />Correct answer for intermediate macro students: It depends on WHY the dollar changed. NEVER REASON FROM A PRICE CHANGE. I can tell you an example where a stronger dollar is good for just about everyone in the US and I can tell you an example where a stronger dollar is worse for just about everyone. The relative strength or weakness of the dollar by itself doesn't matter. WHY did it change?
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Correct answer for international (trade) students: What matters for investors is what direction it might move in the future. If you are planning to invest abroad, you want the dollar to get weaker over time. If you want to attract foreign investment, you want them to believe the dollar will get stronger. Unless of course the WHY is something bad for your firm (Why still matters)
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Correct answer for development economics students: One theory claims you can boost economic growth by weakening your currency so you export more. The problem with that theory is that the way you weaken your currency is via inflation or taxing your people so you can buy up a lot of foreign currency, either of which will have negative effects on your economy too.
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Given that very long answer, I'm not surprised Trump didn't ask an economist.</span></div>
Derrill Watsonhttp://www.blogger.com/profile/08996812965100062495noreply@blogger.com0tag:blogger.com,1999:blog-7699562392813477229.post-25319713321876311582017-01-26T04:02:00.000+01:002017-01-26T04:02:53.411+01:00Lit in Review: Social insurance programs<div dir="ltr" style="text-align: left;" trbidi="on">
From the AER meeting in 2015:<br />
"Despite the consensus that higher unemployment benefits lead to longer durations of unemployment, the precise magnitude of the effect is uncertain."<br />
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Card et al. "The effect of unemployment benefits on the duration of unemployment insurance receipt: new evidence from a regression kink design in Missouri, 2003-2013"<br />
They find an elasticity of 0.35 pre-recession and between 0.65-0.9 during and after. [Translation: increase unemployment benefits by 1% and people stay unemployment 0.35% longer before the recession.] Why the difference? Could be jobs are harder to come by, so you're less likely to turn one down if your benefits aren't that generous. Could be that unemployment benefits lasted so much longer during the recession.<br />
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Coile, Duggan, and Guo. "Veterans' Labor Force Participation: What role does the VA's disability compensation program play?"<br />
They find that increases over time in the generosity of disability compensation closely coincides with the decrease in veterans' labor force participation and that veterans have become increasingly sensitive to economic shocks. Back of the envelope calculations suggest no more than 55% of DC recipients who would not have been eligible before it became easier to get disability would be working without it.<br />
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Nekoei and Weber. "Recall expectations and Duration Dependence" in Austria<br />
They survey a bunch of unemployed people and break them into two groups: those who expect to be hired back to their old job (temporary unemployment) and those who don't (permanent). Interestingly, 42% of separations are planned to be temporary, but only 58% of temporary layoffs actually are, while 19% of permanent layoffs are recalled. "On average, jobs ending in temporary layoffs lasted a shorter period but paid higher wages." They find that temporarily laid-off workers are less likely to look for a job (51% don't even try) and, even if they do, don't look as hard for one (use fewer search methods).</div>
Derrill Watsonhttp://www.blogger.com/profile/08996812965100062495noreply@blogger.com0tag:blogger.com,1999:blog-7699562392813477229.post-71193630336798585302015-07-13T21:23:00.003+01:002015-07-13T21:23:54.799+01:00Poor, Unfortunate Students<div dir="ltr" style="text-align: left;" trbidi="on">
<iframe frameborder="0" height="480" src="https://tarleton.hosted.panopto.com/Panopto/Pages/Embed.aspx?id=ce09c6af-cb19-4cfe-bc56-0af5d48c2e6e&v=1" width="720"></iframe><br />
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Just a little something I find a way to squeeze in to the first day of class.</div>
Derrill Watsonhttp://www.blogger.com/profile/08996812965100062495noreply@blogger.com1tag:blogger.com,1999:blog-7699562392813477229.post-15488760867386579292014-07-28T16:42:00.000+01:002014-07-28T16:42:11.498+01:00Big bag of blogs<div dir="ltr" style="text-align: left;" trbidi="on">
Adam Smith put forward the basic idea of the stationary bandit vs. roaming bandit applied to India. Basically the Britishers overseeing India who expected to leave again were there primarily to <a href="http://econlog.econlib.org/archives/2014/07/adam_smith_on_s.html">take as much they could get their hands on</a>, while those who had a more permanent interest wanted to invest in the country and make it more prosperous. Trying to get the incentives of the temporaries to align was difficult, in part because of the more permanent leaders didn't understand their own interest perfectly either.<br />
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People who lived in East Germany were <a href="http://marginalrevolution.com/marginalrevolution/2014/07/moral-effects-of-socialism.html">more likely to cheat</a> than people who lived in West Germany.<br />
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Cass Sunstein's (and Sumner's) <a href="http://econlog.econlib.org/archives/2014/07/the_wisdom_of_c_3.html">defense of utilitarianism</a>. The most interesting line for me is this argument:<br />
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<span style="background-color: #f2f2e3; color: #333333; font-family: verdana; font-size: 13px; line-height: 16.639999389648438px;">the enterprise of doing philosophy by reference to such dilemmas is inadvertently replicating the early work of Kahneman and Tversky, by uncovering unfamiliar situations in which our intuitions, normally quite sensible, turn out to misfire. </span><strong style="background-color: #f2f2e3; color: #333333; font-family: verdana; font-size: 13px; line-height: 16.639999389648438px;">The irony is that where Kahneman and Tversky meant to devise problems that would demonstrate the misfiring, some philosophers have developed their cases with the conviction that the intuitions are entitled to a great deal of weight, and should inform our judgments about what morality requires.</strong><span style="background-color: #f2f2e3; color: #333333; font-family: verdana; font-size: 13px; line-height: 16.639999389648438px;"> A legitimate question is whether an appreciation of the work of Kahneman, Tversky, and their successors might lead people to reconsider their intuitions, even in the moral domain.</span></blockquote>
Large retail chains give <a href="http://marginalrevolution.com/marginalrevolution/2014/07/overall-large-retailers-are-raising-wages.html">higher wages</a>, mostly because there are a lot more middle-management and support positions.<br />
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A description of <a href="http://www.cato.org/blog/life-britain-eve-first-world-war">how people lived in Britain 100 years ago</a>. It makes for a fascinating comparison to show how much living standards have improved.<br />
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Why you should probably <a href="http://authorearnings.com/the-report/">self-publish</a>.</div>
Derrill Watsonhttp://www.blogger.com/profile/08996812965100062495noreply@blogger.com0tag:blogger.com,1999:blog-7699562392813477229.post-67919356142073720382014-07-25T23:01:00.001+01:002014-07-25T23:06:27.052+01:00Why do they matter? Fish and McD's<div dir="ltr" style="text-align: left;" trbidi="on">
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<a href="http://vulnerabilityandpoverty.blogspot.co.uk/2014/07/what-does-fish-have-to-do-with-food-and.html">Pinstrup-Anderson</a>, co-author on my textbook, recently asked what fish have to do with food and nutrition security. He answers that it matters a great deal and recommends a new report by a high-level panel of experts on the subject.<br />
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The current debate and the many papers written recently about how agriculture can be made more nutrition sensitive also miss the point. We should talk about how the food system, including fisheries and aquaculture and the total supply chain, can be made more nutrition sensitive. If we limit the discussion and policy recommendations to agriculture, we are foregoing some very big opportunities for improving food security and nutrition. ... </blockquote>
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The report, which is available at <a href="http://www.fao.org/cfs/cfs-hlpe">www.fao.org/cfs/cfs-hlpe</a> or in hardcopy from cfs-hlpe@fao.org, is a goldmine of policy-related knowledge about the fisheries and aquaculture sectors, their importance, sustainability issues, governance and recommended policies for consideration by governments, the private sector, civil society and international organizations. It provides a comprehensive assessment of the interaction between the fisheries and aquaculture sector and food and nutrition security. The report is a must-read for those of us interested in food policy.</blockquote>
<a href="http://blogs.worldbank.org/africacan/africas-mctipping-point">Handjiski </a>points out that all of Sub-Saharan Africa only has two countries with McDonald's franchises. Even though countries like Seychelles, E. Guinea, Gabon, Botswana, and good old Nigeria have a higher income than Indonesia, Egypt, Pakiston, or Moldova did when they got their first. He suggests that, since having a McDonald's requires a certain level of infrastructure, entrepreneurship, and access to a large number of ingredients, it can be a development indicator:<br />
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In almost 60 percent of cases, developing countries grew [significantly] faster in the five years, compared to the previous five, following the opening of the first McDonald’s. ... What this means is that McDonald’s may be viewed as one of the tipping points for when a country has amassed sufficient urban middle-class, investment security and supply chains for economic take off.</blockquote>
Speaking of which, there was also a recent article about how Americans' general stupidity with fractions stopped A&W from beating McDonald's Quarter Pounder with a "<a href="http://jamesjchoi.blogspot.com/2014/07/why-third-pounder-hamburger-failed.html">Third Pounder</a>". People said 3 is less than 4 and therefore 1/3 is less than 1/4. Ouch. In related interesting news, New York states has decided that <a href="https://www.blogger.com/"><span id="goog_1779961527"></span>a burrito is a sandwich for tax purposes<span id="goog_1779961528"></span></a>.</div>
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Derrill Watsonhttp://www.blogger.com/profile/08996812965100062495noreply@blogger.com0tag:blogger.com,1999:blog-7699562392813477229.post-29647237435589513442014-07-22T22:42:00.001+01:002014-07-22T22:42:29.547+01:00We need more stats, stat<div dir="ltr" style="text-align: left;" trbidi="on">
<span style="font-family: inherit;"><a href="http://marginalrevolution.com/marginalrevolution/2014/07/average-stock-market-returns-arent-average.html">Tabarrok</a>: Diversified stock portfolios have earned 7% on average, but with a large standard deviation. Even if you follow a buy and hold strategy, almost 70% of the time (more than 2/3) you will get less than 7%. In fact over 30 years, nearly 10% of all portfolios will lose money. The average portfolio return includes a handful of enormously large winners, so that the median return is only 5.1%. As one comment on the post pointed out: "Have you ever heard someone says that when you are young you should invest in stocks because even though they are risky you will have time to cancel out the ups and downs? Sure, you have, even someone as smart as Burton Malkiel has made this argument. Alex’s post shows that this common argument is wrong."</span><br />
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<span style="font-family: inherit;"><a href="http://chrisblattman.com/2014/07/17/science-magazine-raises-statistical-bar-will/">Blattman</a> - Science magazine is now requiring empirical work to pass a statistics editor fluent in your empirical methodology. He notes, and I agree wholeheartedly: "<span style="background-color: white; color: #222222; line-height: 24px;">In particular, I think that a 21st century undergraduate degree in social science ought to require fluency in statistics. It’s such a fundamental part of science, medicine, social science, and even reading the newspaper."</span></span><br />
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<span style="font-family: inherit;"><a href="http://econlog.econlib.org/archives/2014/07/mcardle_on_15-y.html">Henderson</a> comments on <a href="http://www.bloombergview.com/articles/2014-07-18/a-mortgage-that-feeds-your-piggy-bank">McArdle</a>'s post about the choice between a 15-year and 30-year mortgage: </span><br />
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<span style="font-family: inherit;">"<span style="color: #333333; line-height: 16.639999389648438px;">If you expect higher inflation in the future and you expect that inflation to stay at that higher level, that argues for the 30-year mortgage over the 15-year mortgage because the 30-year mortgage leaves more principal for inflation to whittle away. Other than a handful of gold coins, I have few good inflation hedges. My fixed-interest-rate loan is one of them. The more slowly I pay it off, the longer I keep my inflation hedge."</span></span></blockquote>
<span style="font-family: inherit;"><a href="http://blogs.worldbank.org/impactevaluations/checking-survey-quality-benfords-law">Goldstien</a> - Benford's Law tells us that the first digit in a lot of numbers is more likely to be a 1 than a 9. Goldstien tells us how to use that information to double-check the survey information we have gathered. A comment usefully adds: "There is also a Stata package called firstdigit that will run Benford's Law tests for you: http://ideas.repec.org/c/boc/bocode/s456842.html."</span></div>
Derrill Watsonhttp://www.blogger.com/profile/08996812965100062495noreply@blogger.com0tag:blogger.com,1999:blog-7699562392813477229.post-25397738098110318922014-07-21T22:56:00.000+01:002014-07-21T22:56:41.847+01:00Inequality and income support<div dir="ltr" style="text-align: left;" trbidi="on">
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Villarreal, Francisco (2014). "<a href="http://mpra.ub.uni-muenchen.de/57074/1/MPRA_paper_57074.pdf">Monetary Policy and Inequality in Mexico</a>," MPRA Paper 57074.</div>
What happens to household income inequality when there is an unexpected increase in interest rates? "Monetary policy shocks are identified using a structural model, and inequality is measured from household survey data. Then the effect of shocks on inequality is evaluated using a time–series model." Earlier work on the US finds that an unexpected increase in interest rates increases inequality. In Mexico he finds that inequality decreases because median hourly wages drop and workers don't increase labor enough to make up for it, but this effect only lasts for about two years.<br />
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Sumner argues in a lot of places that we should focus much more on consumption inequality than on income or wealth inequality; even though the three should be correlated, it's actual standards of living we should be worried about. <a href="http://econlog.econlib.org/archives/2014/07/economics_is_al.html">Oddly enough</a>, then<br />
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<span style="color: #333333; font-family: verdana; font-size: 13px; line-height: 16.639999389648438px;">The correct response to economic inequality (from utilitarian perspective) is to abolish all taxes on capital income, and institute a progressive consumption tax.</span><div style="color: #333333; font-family: verdana; font-size: 13px; line-height: 16.639999389648438px; margin-bottom: 1em; padding-top: 0.7em;">
Unfortunately, most of the Piketty supporters seem to think it's better to have <em>lower</em> tax rates on a wealthy person who devotes his wealth to riotous living, as compared to a wealthy person who is thrifty, putting the money into capital formation, charity, and/or his children's welfare. I have yet to see a persuasive justification for this bizarre policy preference.</div>
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If what we're really concerned about, then, is increasing incomes for the bottom, how do you do it? Economists are best at telling us how not to do it. One example I am likely to mention in my intro macro class next semester from <a href="http://econlog.econlib.org/archives/2014/07/does_paying_mor.html">Carden</a> tries to remind people of what is not seen when we choose to pay more to buy American. The broken window fallacy as seen in socks. Meanwhile, here are some comments on a <a href="http://www.arnoldkling.com/blog/brink-lindsey-on-a-universal-benefit/">universal basic income</a>, none of which are very satisfying to me but at least it's being discussed.</div>
Derrill Watsonhttp://www.blogger.com/profile/08996812965100062495noreply@blogger.com0tag:blogger.com,1999:blog-7699562392813477229.post-69426331573965530072014-07-21T21:09:00.000+01:002014-07-21T21:09:12.188+01:00Jobs in Africa<div dir="ltr" style="text-align: left;" trbidi="on">
The <a href="http://africanarguments.org/2014/07/08/african-economic-outlook-2014-growth-sloth-and-value-chains-by-magnus-taylor/">African Economic Outlook</a> (<a href="http://www.africaneconomicoutlook.org/en/">here</a>) came out this month. It predicts continued 5% growth overall, with about 7% in the west and only 3-4% in the north and south. For Nigeria, and my former students should pay attention, it points out that most of that growth is NOT in the oil sectors: agriculture, trade, and ICT growing fastest. It also advises countries to invest more in the value added industries. Given that the vast majority of my intro economics students and even the people on the street in Nigeria not only could but <i>did</i> tell me the same thing on multiple occasions, I'm less impressed. It's a right answer, of course, but more needs to be done to identify why it isn't happening when everyone already knows it's the right answer and to take the political economy more seriously.<br />
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Oh, and as an aside, take a look at this graph from the AEO:<br />
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<a href="http://2.bp.blogspot.com/-HHyE7Drh1xI/U81lEMyewrI/AAAAAAAAFU4/KJMcT7GZsNo/s1600/1CD0.tmp+(2).jpg" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" src="http://2.bp.blogspot.com/-HHyE7Drh1xI/U81lEMyewrI/AAAAAAAAFU4/KJMcT7GZsNo/s1600/1CD0.tmp+(2).jpg" /></a></div>
I could be wrong, but I don't think that's how gears work. The bottom two would turn just fine, but the Human Rights gear is pushing the Unequal Access gear counter-clockwise while the Exclusion gear is pushing it clockwise. From a graph standpoint, this undermines the presumed point that each of them exacerbates the others. It suggests maybe that a poor human rights record makes unequal access not as bad, or that unequal access improves human rights...<br />
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<a href="http://blogs.csae.ox.ac.uk/2014/07/how-useful-is-education-in-africa/">Teal </a>argues that the increase in education supply in Africa is a good thing, but only provisionally. The question is: why is more education good? It's good from a human rights/development perspective, clearly. But whether increased education will bring people out of poverty depends in part on whether or not there are jobs available that demand the increased skills.<br />
<blockquote class="tr_bq">
"<span style="background-color: #fefefe; color: #292929; font-family: 'Helvetica Neue', Arial, Helvetica, sans-serif; font-size: 14px; line-height: 18px;">Without the factories the dramatic increase in the primary educated work force will indeed see little economic gain from their education. The recent increases in the demand for education beyond the primary level certainly suggests that both students, and their parents, are aware that low levels of education have little value in the job market place. Focusing on meeting that demand rather than focusing on why that demand has arisen may well be to miss the critical problem facing educational policy in Africa."</span></blockquote>
One of the informal jobs I saw often in Nigeria is that of the porter. People, usually boys, wandered the Jimeta market with wheelbarrows, offering to carry my purchases. The Sudanese government, however, has decided that it is in the public's interest to create a <a href="http://cherokeegothic.com/2014/07/18/non-markets-in-everything-sudanese-edition/">monopoly on wheelbarrows in Khartoum</a>. Porters are not allowed to own their own wheelbarrow, but must rent them at high fees, ruining what little income they were getting from a pretty thankless job.<br />
<br />
El Alaoui, Aicha, Elhadj Ezzahid, and Jallal Eladnani (2013). "<a href="http://mpra.ub.uni-muenchen.de/56815/1/MPRA_paper_56815.pdf">Estimating NAIRU: The Moroccan Case</a>", MPRA Paper No 56815.<br />
In intermediate macro we are introduced to the Non-Accelerating Inflation Rate of Unemployment (NAIRU). The idea is that if the level of unemployment is lower than NAIRU, you can expect inflation to increase, and to decrease if unemployment is higher. They estimate that the NAIRU has decreased from around 13% in 1998 to about 9% today. There is no explanation for why this happened and the policy conclusion - Morocco needs looser monetary policy based on the fact that the unemployment rate was consistently higher than NAIRU - does not capitalize on the fact that inflation has been remarkably low and sometimes negative since late 2009 or discuss the bank's mandate, goals, or governance.</div>
Derrill Watsonhttp://www.blogger.com/profile/08996812965100062495noreply@blogger.com0tag:blogger.com,1999:blog-7699562392813477229.post-81046378272266455562014-07-18T19:47:00.002+01:002014-07-18T19:47:30.873+01:00Pez Romana - the value of markets<div dir="ltr" style="text-align: left;" trbidi="on">
Way back in the time of the dinosaurs, my parents had a problem. My brother and I had birthdays fairly close to each other and always wanted to play with the other guy's toys. The solution they came up with was to give me a present on his birthday and him a present on my birthday. This at least reduced the sibling rivalry. We instituted this too, once Econolad was old enough to need it.<br />
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<a 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imageanchor="1" style="clear: left; float: left; margin-bottom: 1em; margin-right: 1em;"><img border="0" class="rg_i" data-sz="f" name="OT7Fk00j9sdGSM:" 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" style="height: 200px; margin-top: 0px; width: 252px;" /></a>This year I was super sneaky. Econolad and I had just started watching Star Wars for the first time and he likes C3P0. I got him a Threepio Pez dispenser, recognizing that he might not like the candy (which he doesn't much).<br />
<br />
I explained to him that this was a useful present. His sister, you see, not only loves all things edible, but the #1 way she shows she loves someone is to share her food or ask you to share your food. I told Econolad he could offer to share one of his Pez candies if she would share a toy with him.<br />
<br />
The best is that it works. She is willing to trade some, but not all, of her toys and has the ability to say no if his deal isn't good enough. They each feel loved from each other and are happier with the transactions than otherwise. Prices have tended to stay at one candy for renting a beloved toy for 2 hours, but she has sometimes held out for better terms of payment (now vs. later) or rental length.<br />
<br />
The other best part is ... markets are great! As an economist I am very geekily happy every time they bargain and see that creating a market has restored peace to our home. </div>
Derrill Watsonhttp://www.blogger.com/profile/08996812965100062495noreply@blogger.com0tag:blogger.com,1999:blog-7699562392813477229.post-68583885176287411902014-07-11T17:06:00.001+01:002014-07-11T17:06:45.474+01:00Lit in Review: Nigerian Agriculture 3<div dir="ltr" style="text-align: left;" trbidi="on">
(This post was started October 2011 and never finished. Let's get it out and done.)<br />
<br />
Eze, Kwonko, Orebiyi, and Kadiri, "<a href="http://ageconsearch.umn.edu/bitstream/108934/2/42eze_Konkwo_orebiyi_kadiri.pdf">Land Tenure System</a>, Farm Size, innocation, and Agricultural Productivity in South-East Nigeria"<br />
<br />
From the abstract: "The laws of inheritance and increase in population led to the subdivision and fragmentation of existing farmland in such a manner that the sizes of farm holdings discouraged agricultural commercialization. ... It was also shown that mechanization of agriculture was impracticable under land fragmentation." They conclude that farmer cooperatives would consolidate fragmented farms, reducing time and energy waste and allowing more modern innovations and mechanization to improve efficiency and production.<br />
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<br /></div>
Derrill Watsonhttp://www.blogger.com/profile/08996812965100062495noreply@blogger.com0tag:blogger.com,1999:blog-7699562392813477229.post-54769163420611029362014-07-11T17:05:00.000+01:002014-07-11T17:05:24.952+01:00What I learned from reading the Marginal Revolution magazine<div dir="ltr" style="text-align: left;" trbidi="on">
(This post was written April 2013 and I'm not sure why it wasn't posted then)<br />
<br />
I've been interested by the occasional posts by people who read a magazine cover to cover, then report on what they learned. These couple next posts are based loosely on that idea. I've been thoroughly busy and stressed this semester without much time for semi-curricular reading, which means the posts have been piling up in my reader.<br />
<br />
While our NUC accreditors were at AUN, though, I needed to be on-call to answer questions. Completely unable to concentrate on research writing, I did a lot of reading. Below are a few of the things I learned reading every post from a few weeks' worth of Marginal Revolution:<br />
<br />
<a name='more'></a>The incentives people face<br />
I learned about how a (tribal) governments creates its own incentives to hold <a href="http://worldcrunch.com/culture-society/the-lucrative-business-driving-congo-039-s-witchcraft-courts/witchcraft-kihango-court-judge-congo-rdc/c3s11334/">witchcraft trials</a>. Both the accuser and the accused are forced to pay $200 (that's a cow in real prices) for the trial which goes into the chief's pocket.<br />
<br />
Australia is going to experiment with compensating working people who <a href="http://marginalrevolution.com/marginalrevolution/2013/04/australia-to-compensate-organ-donors.html">donate their kidneys</a>. Donors will receive $3600 - minimum wage for six weeks of recovery - but only if they are working. Cowen hypothesizes, and I agree, this is probably to avoid the stigma of "exploiting" poor people by allowing them to voluntarily exchange their kidney for money.<br />
<br />
I learned that China may be <a href="http://marginalrevolution.com/marginalrevolution/2013/04/good-sentences-about-china.html">deliberately overinvesting in physical capital</a> as an indirect method of producing human capital and economies of scale.<br />
<br />
I learned that <a href="http://www.nytimes.com/aponline/2013/04/05/world/americas/ap-cb-haiti-earthquake-aid.html?hp&_r=1&">only 1%</a> of USAID aid to Haiti went to Haitian individuals or firms and that over half went to DC firms.<br />
<br />
<br />
Erratum - It is possible one or more links did not come from MR, but from someone else I was reading. If so, I apologize to whomever I am not tipping my hat.</div>
Derrill Watsonhttp://www.blogger.com/profile/08996812965100062495noreply@blogger.com0tag:blogger.com,1999:blog-7699562392813477229.post-35169393643086236762014-07-11T17:03:00.002+01:002014-07-11T17:03:20.919+01:00Lit in Review: Money in India, Africa, and helicopters<div dir="ltr" style="text-align: left;" trbidi="on">
Gupta, Abhijit and Rajeswari Sengupta. 2014. "<a href="http://www.igidr.ac.in/pdf/publication/WP-2014-019.pdf">Is India Ready for Flexible Inflation Targeting?</a>" , Indira Gandhi Institute of Development Research Working Paper, June 2014.<br />
<br />
The standard intermediate macro take has been to encourage some form of flexible inflation targeting or Taylor rule approach. In developing countries, however, financial systems are less well-developed which makes the lags between data, policy, and outcomes more troubling and, because food prices form a much larger portion of the price basket, if most central banks had responded to the recent food price spikes by sharply tightening the money supply the results would have been dire. India has followed a "multiple indicator approach" since 1998 that focuses more on stable interest rates and exchange rates, but also uses money, credit, output, trade, capital flows, government debt, and the inflation rate. The lack of a single policy rate reduced the clarity of signals sent to the market and introduced (predictable) variance in other variables, however, so in 2011 the RBI officially focused on the weighted average overnight call money rate.<br />
<br />
Gupta and Sengupta estimate a Taylor rule for India using 90-98, 98-04, and 04-13 data. Inflation matters less and less for policy making, particularly in the last period that includes the food price spike - albeit the Wholesale price index (WPI) matters more than the CPI. They also estimate exchange rate stability, monetary independence, and capital account openness over time (the impossible trinity) and show that exchange rate stability has much less weight today than it did even as recently as 2000 when it was the primary goal. The increased monetary independence this bought indicates it would be more possible than in the past for India to follow some kind of Taylor rule.<br />
<br />
<a href="http://www.motherjones.com/files/images/Blog_Helicopter_Ben.jpg" imageanchor="1" style="clear: right; float: right; margin-bottom: 1em; margin-left: 1em;"><img border="0" src="http://www.motherjones.com/files/images/Blog_Helicopter_Ben.jpg" /></a>Buiter, Willem. 2014. "<a href="http://www.economics-ejournal.org/economics/discussionpapers/2014-24">The Simple Analytics of Helicopter Money: Why it Works - Always</a>" <i>Economics</i>, Discussion Paper 2014-24.<br />
<br />
Milton Friedman called a permanent increase in the money supply a "helicopter drop." It turns out that Quantitative Easing (QE) fits that description so long as people believe the Fed is not likely to sell off its assets. Buiter cites other research that says helicopter drops might successfully increase aggregate demand, but they also might fail. He then demonstrates that there are three conditions for this to always boost aggregate demand: 1) people want cash for reasons other than earning more money (ie - people value cash even when there is modest inflation because we use it as a medium of exchange); 2) the price of money is positive; 3) cash is irredemable (ie - it's not a liability for the government and not backed by gold). He claims it was failure to consider this last condition that led to the erroneous idea that helicopter drops would not increase AD. (PS - that picture is really not fair to our former Chairman, but it's entertaining.)<br />
<br />
Asongu, Simplice. 2013. ''<a href="http://mpra.ub.uni-muenchen.de/56796/1/MPRA_paper_56796.pdf">A note on the long-run neutrality of monetary policy: new empirics</a>", MPRA Paper 56796 and AGDI Working Paper WP/13/032, posted 23 June 2014.<br />
<br />
Money is neutral in the long-run in Africa too.<br />
<br />
As it should be.</div>
Derrill Watsonhttp://www.blogger.com/profile/08996812965100062495noreply@blogger.com0tag:blogger.com,1999:blog-7699562392813477229.post-81784274952716086712013-08-29T13:00:00.004+01:002013-08-29T13:00:17.820+01:00Why markets don't work in Africa - ILRI<div dir="ltr" style="text-align: left;" trbidi="on">
<iframe allowfullscreen="" frameborder="0" height="315" src="//www.youtube.com/embed/WFsMJi9tRok" width="560"></iframe><br />
<br />
I am hoping this gives me an easier time showing it in class.</div>
Derrill Watsonhttp://www.blogger.com/profile/08996812965100062495noreply@blogger.com0